Euro backs off four-week high on profit-taking
The euro fell in European trade on Wednesday against a basket of major rivals, extending losses for the second straight session against the US dollar and backing off a four-week high on profit-taking.
Hot inflation data and bullish remarks from ECB officials led to divisions among policymakers on the rate decision in June, with investors awaiting German and Spanish inflation data this week to gather more clues.
Recent US data showed consumer confidence beat estimates in May, indicating that concerns about US recession have diminished.
The Price
The EUR/USD price fell 0.25% today to $1.1300, with a session-high at $1.1345.
The euro fell 0.5% on Tuesday against the dollar, on track for the first loss in three days away from a four-week high at $1.1419.
European Rates
Recent eurozone data showed inflation rose past estimates in April, renewing pressures on ECB policymakers.
ECB President Christine Lagarde said the euro could be a practical alternative to the dollar if governments managed to bolster the financial and security structures in the EU.
Now markets estimate a less than 50% likelihood for a 0.25% ECB rate cut in June.
US Dollar
The dollar index rose 0.3% on Wednesday, extending gains for the second session against a basket of major rivals.
It comes as US-EU trade tensions receded with Trump granting the EU another chance for reaching a trade deal before July 9, backing off his 50% tariff threat for EU goods.
Recent data showed the CB consumer sentiment index rallying to 98 in May, easily beating estimates of 87.1.
Now investors await the Federal Reserve’s meeting minutes later today, expected to provide fresh clues on the future path of US interest rates.
Kiwi under pressure after RBNZ rate cut
The New Zealand dollar fell in Asian trade on Wednesday against a basket of major rivals, extending losses for the second straight session against the US dollar under pressure from the widening interest rate gap between the US and New Zealand.
The Reserve Bank of Australia cut interest rates to three-year lows and warned against the impact of US tariffs, and hinted at a slightly deeper than expected policy easing cycle.
The Price
The NZD/USD price fell 0.4% today to $0.5924, with a session-high at $0.5968.
The New Zealand dollar closed down 0.9% on Tuesday against the dollar on profit-taking away from a six-month peak at 60.32 cents.
The kiwi was also hurt after strong US consumer confidence data for May.
RBNZ
The Reserve Bank of New Zealand cut interest rates by 25 basis points to 3.25% to April 2022 lows, the sixth such rate cut in a row, and matching expectations.
It wasn’t a unanimous vote, with a single member out of five voting in favor of maintaining rates unchanged.
The central bank cut interest rates by 225 basis points since August 2024 as lower inflation gave policymakers leeway to ease monetary policies to face the impact of US tariffs head on.
The RBNZ said inflation remains within target range, and the bank is in a good position to respond to local and international developments and maintain stable prices in the medium term.
The bank warned that increasing uncertainty about global policies will negatively impact business investments and consumption in New Zealand.
The bank expects interest rates to reach 2.92% in the fourth quarter of 2025, and 2.85% in the first quarter of 2026.
New Zealand Rates
Following the central bank’s meeting, the odds of a 0.25% RBNZ rate cut in July fell below 50%.
Interest rate futures estimates final New Zealand rates at 3% by the end of the year, up from 2.75% in previous forecasts.
Rate Gap
The current US-New Zealand interest rate gap stands at 125 basis points, favoring the greenback against its New Zealand counterpart.
Australian inflation beats estimates in April
Australia’s consumer prices rose 2.4% y/y in April, beating estimates of 2.3%, and same as the previous reading.
The data showcases the impact of inflationary pressures on Australian monetary policymakers, and huts the odds of an Australian rate cut in July.