On June 16th, European Central Bank President Christine Lagarde stated in an interview that high energy prices are spreading to other sectors of the economy, with the indirect effects of inflation becoming clearly visible recently. She noted that risks of "second-round effects," particularly wage increases, are emerging, and the ECB will have to take action. Concurrently, she welcomed the provisional ceasefire agreement between the US and Iran, stating that if it leads to the reopening of the Strait of Hormuz, it would be "good news." During the interview, Lagarde pointed out, "In recent weeks, we have started to see the indirect effects of inflation almost everywhere. When we sense that second-round effects—especially wage inflation risks—begin to surface, we must take measures." She added that the ECB is particularly focused on underlying inflation indicators.
Additionally, data released by the Federal Reserve on Monday showed that US manufacturing output in May remained flat month-over-month, ending a four-month streak of growth and falling short of market expectations. Analysts believe that as the conflict in Iran continues to disrupt global supply chains, raw material costs rise rapidly, and businesses face increased production pressures, US manufacturing activity is showing signs of slowing down. The data indicated that US factory output in May was essentially unchanged from the previous month, while the figure for April was revised upward from the initially reported 0.5% growth to 0.7% growth. Economists surveyed had generally anticipated a 0.3% increase in manufacturing output for May. Meanwhile, total US industrial output, which includes manufacturing, utilities, and mining, increased by only 0.1%.
Key data to watch today includes the Eurozone ZEW Economic Sentiment Index for June, the preliminary annualized total for US Building Permits in May, the US Import Price Index month-over-month for May, and the annualized total for US Housing Starts in May. Furthermore, the interest rate decisions from the Bank of Japan and the Reserve Bank of Australia, scheduled for midday, require close attention.
US Dollar Index
The US Dollar Index experienced a downward trend yesterday, closing slightly lower on the daily chart, with the current exchange rate hovering around 99.60. The ongoing market reaction to the US-Iran agreement, which has cooled safe-haven demand, was the primary factor pressuring the index lower. Moreover, the weaker-than-expected US economic data released during the period also contributed to the downward pressure. However, persistent expectations of interest rate hikes by the Federal Reserve limited the index's decline. Today, focus is on resistance near the 100.00 level, with support located around 99.00.
Euro/US Dollar
The Euro moved higher yesterday, reaching a new six-session high, with the current exchange rate trading around 1.1590. The weakening of the US Dollar Index, driven by reduced safe-haven demand due to eased Middle East tensions and disappointing economic data, was the main reason supporting the Euro's gain. Additionally, hawkish comments from European Central Bank officials provided some support for the currency pair. Today, attention is on resistance near the 1.1700 level, with support around 1.1500.
British Pound/US Dollar
The British Pound traded within a narrow range yesterday, closing slightly higher on the daily chart, with the current exchange rate around 1.3410. Apart from improved market risk sentiment due to the easing of Middle East tensions providing some support, the weaker-than-expected US economic data released during the period also bolstered the Pound. However, diminished expectations for interest rate hikes from the Bank of England capped the currency's upside potential. Today, focus is on resistance near the 1.3500 level, with support located around 1.3300.