GBP/JPY Hovers Ahead of BoJ-BoE Interest Decision

GBP/JPY struggled near 195.98 as investors await the monetary policy announcements by the Bank of Japan (BoJ) and the Bank of England (BoE) on Tuesday and Thursday, respectively. The market anticipates the BoJ to keep the interest rate steady amid the broadening inflation in Japan, which should undermine the safe-haven JPY. However, any sharp movement in the persistent trade-related uncertainties and rising geopolitical tensions in the Middle East could act as a tailwind for the yen. Japan's chief trade negotiator, Ryosei Akazawa, remarked on Friday that "generally speaking if we come to an agreement, it should ensure special treatment for Japan and exempt it from the rules that apply to most countries," responding to US President Donald Trump's comments about possibly raising tariffs on imported cars to boost US production. While travelling to Washington for his sixth round of trade talks with US officials, Akazawa stressed, "We are engaged in bilateral negotiations with the US." Japan's industrial production declined by 1.1% month-on-month in April 2025, a more significant decrease than the preliminary estimate of a 0.9% drop, reversing the 0.2% gain in the previous month.

On the sterling front, market anticipation suggests that the Bank of England (BoE) will maintain its borrowing rates at 4.25% on Thursday, as officials have indicated a "gradual and careful" approach to monetary expansion, following a 25 bps interest rate reduction during May's policy meeting. Furthermore, disappointing monthly GDP and manufacturing production figures from the UK, along with weak second-quarter GDP growth and increasing unemployment rates, bolster market expectations for a policy easing from the Bank of England. To mitigate the effects of a rise in their social security contributions, which took effect in April, UK business owners have reduced their hiring pace. In the Autumn Statement, Chancellor of the Exchequer Rachel Reeves revealed that employers' contributions to National Insurance (NI) would increase from 13.8% to 13.8%. Globally, rising geopolitical tensions in the Middle East are expected to reduce investors' interest in risk-sensitive assets like the Pound Sterling. Israeli Defence Minister Israel Katz has warned that attacks on Iran may intensify if it continues to fire missiles at Israel, according to Euronews. Katz stated, "Tehran will burn if it keeps launching attacks on Israel." At the same time, Iran has threatened to block the Strait of Hormuz, the world's critical route for oil transport, as reported.

In the upcoming sessions, UK Consumer Price Index (CPI) data for May and BoJ-BoE monetary policy decisions will influence the GBP/JPY exchange rate.

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NZD/USD Rebounds Following Mixed Chinese Data

NZD/USD traded narrowly near 0.6029 following the release of mixed economic data from China. According to the National Bureau of Statistics (NBS), China's May Retail Sales rose by 6.4% year-over-year (YoY), compared to the 5.0% expected and 5.1% recorded in April, as per the latest data released on Monday. Chinese Industrial Production increased by 5.8% YoY during the same period, against the 5.9% forecast and 6.1% observed previously. Meanwhile, Fixed Asset Investment stood at 3.7% year-to-date (YTD) YoY in May, falling short of the expected 3.9% figure. The reading for April was 4.0%. At the press conference, the National Bureau of Statistics (NBS) emphasised that the domestic economy is expected to have remained generally stable during the first half (H1) of 2025. However, China may face challenges in sustaining stable growth from the second quarter onwards due to factors such as increased uncertainty in trade policies. On the domestic front, Manufacturing PMI in New Zealand decreased to 47.50 points in May from 53.30 points in April 2025. The Business NZ Performance of Services Index (PSI) fell to 44.0 in May from 48.1 in April. This represents its lowest level since June 2024 and marks the fourth consecutive month of contraction. Moreover, the market anticipates that the Reserve Bank of New Zealand (RBNZ) will reduce interest rates in the July meeting, which is putting pressure on the New Zealand dollar.

On the greenback front, escalating geopolitical tensions in the Middle East following an Israeli attack on Iran have bolstered demand for safe-haven assets, strengthening the US dollar. Israel began attacks on Iran on Friday, targeting nuclear facilities and missile factories and killing military leaders. Late on Sunday, Iran launched a fresh assault on Israel, with an explosion reported in the coastal city of Haifa. The semi-official Iranian media outlet Mehr News stated on Sunday that the fourth phase of Iran's operation against Israel has commenced. Iranian officials emphasised that they would "respond firmly to any adventurism" from Israel. Domestically, the Michigan Consumer Sentiment Index jumped to 60.5 in June from 52.2 in the previous reading, the first improvement in six months, well above the 53.5. The Current Conditions index increased to 63.7, up from 58.9, and the Expectations gauge advanced to 58.4, rising from 47.9, indicating a shift in perspectives about the upcoming months. In contrast, inflation expectations diminished slightly. The one-year outlook dropped to 5.1% from 6.6%, while the five-year forecast decreased to 4.1% from 4.2%.

In the absence of major economic data, the broader market sentiment around the Middle East crisis will influence the NZD/USD exchange rate.

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EUR/GBP Gains on Easing Israel-Hamas Tensions

EUR/GBP gained ground near 0.8527, as the euro gained ground on the improved risk sentiment, driven by Israel's submission of a revised proposal in hostage negotiations with Hamas, which could lead to a temporary ceasefire. Rising market sentiment surrounding the European Central Bank (ECB) of pausing its easing cycle to assess the impact of new US tariffs also lent support to the shared currency. On Monday in Frankfurt, Germany, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel delivered a speech titled "Goal achieved – no reason to give up." He remarked, "It is not sensible to signal either pause or rate cut for the time being, given the exceptional amount of uncertainty. The ECB is well advised to remain flexible. Current data and forecasts suggest that the ECB has achieved its mission. However, we must retain full optionality on interest rates." Additionally, ECB Vice President Luis de Guindos stated that the EUR/USD exchange rate at 1.15 poses no significant challenge to the inflation target, highlighting that the euro's appreciation is gradual and the volatility is not extreme. He mentioned that "the risk of undershooting the inflation target is minimal and that the risks to inflation are balanced. Markets clearly understood the message following the decision. The ECB is now very close to the target. In the medium term, tariffs will likely dampen both growth and inflation."

Friday's final German CPI data revealed that inflation is still near the ECB's 2% target. French inflation was confirmed at a modest 0.6%, while Spanish price growth was slightly revised upward to 2%. The seasonally adjusted Italian Trade Balance for April 2025 indicated a drop in exports by 2.8% compared to March 2025, with a slight rise in imports of 0.3%. Exports decreased by 7.0% to non-EU countries, while they increased by 1.5% to EU nations. Conversely, imports rose by 1.6% from non-EU nations but fell by 0.7% from EU countries. In April 2025, compared to March 2025, seasonally adjusted industrial production in the euro area decreased by 2.4% and by 1.8% in the EU, according to initial estimates from Eurostat, the European Union's statistical office. In March 2025, industrial production had increased by 2.4% in the euro area and by 1.9% in the EU. Year-on-year, industrial production saw a growth of 0.8% in the euro area and 0.6% in the EU. The initial estimates of the euro area's balance showed a €9.9 billion surplus in trade in goods with the rest of the world in April 2025, down from a surplus of €13.6 billion in April 2024. The euro area's exports of goods to the rest of the world in April 2025 totalled €243.0 billion, representing a 1.4% decrease from April 2024's €246.5 billion, while imports from the rest of the world accounted for €233.1 billion, a slight increase of 0.1% compared to April 2024's €232.9 billion.

On the other hand, market anticipation suggests that the Bank of England (BoE) will maintain borrowing rates at 4.25% on Thursday, following a 25 bps cut in May. Disappointing monthly GDP and manufacturing figures, coupled with weak second-quarter growth and rising unemployment, heightened expectations for a BoE policy easing. To manage increased social security contributions effective in April, UK businesses have slowed down hiring. In the Autumn Statement, Chancellor Rachel Reeves announced that employers' National Insurance contributions will rise from 13.8% to 13.8%. Rising geopolitical tensions in the Middle East are expected to deter investors from risk-sensitive assets, such as the Pound Sterling. Israeli Defence Minister Israel Katz warned that attacks on Iran may escalate if missile strikes continue, stating, "Tehran will burn if it keeps launching attacks on Israel."

In the upcoming sessions, ZEW Economic Sentiment, the Eurozone and UK Consumer Price Index (CPI) data, along with the Bank of England's (BoE) interest rate decision, will influence the EUR/GBP movement.

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USD/CHF Wobbles Amid Renewed US Dollar Demand

The USD/CHF traded near 0.8119 following the release of the mixed Swiss May Producer and Import Prices and SECO Economic Forecasts. Switzerland's producer and import prices fell by 0.7% year-on-year in May 2025, continuing their decline from a 0.5% drop in the previous month. This marks the 25th consecutive period of decline and the steepest since December 2024, as import costs decreased at a faster rate. Meanwhile, producer prices rose by 0.4% after remaining flat in the previous month. On a monthly basis, producer and import prices declined by 0.5% in May, contrary to expectations and reversing the prior period's 0.1% increase. On Monday, the Swiss government reduced its growth forecast for 2025 and 2026 as the export-driven economy prepares for the repercussions of the global trade war. The Swiss economy, long regarded as one of Europe's strongest, is projected to grow by 1.3% in 2025, down from the previous estimate of 1.4% made in March. The State Secretariat for Economic Affairs (SECO) also revised its 2026 growth forecast to 1.2%, a decrease from 1.6%, anticipating a decline in exports. SECO stated, "Uncertainty regarding international trade and economic policy remains high and is shaping the outlook for both the global and Swiss economies," adding that "Performance is expected to weaken significantly for the remainder of the year." On the other hand, stronger-than-expected Friday's US economic data, coupled with rising geopolitical tensions, bolstered the greenback. The consumer sentiment index improved to 60.5 in May, up from 52.2, exceeding economists' forecasts and indicating a more optimistic environment for public confidence. Conversely, the Current Conditions Index declined to 58.9 from 59.8 during the same time frame. Meanwhile, the Consumers Expectations Index rose slightly to 47.9, up from 47.3. Notably, the one-year inflation outlook component of the survey increased to 6.6% from 6.5%. In contrast, the five-year inflation outlook decreased to 4.2%, down from the 4.4% reported in April.

Additionally, the renewed trade truce between the US and China, established in London, left unresolved crucial export restrictions related to national security, which may hinder a more comprehensive agreement. Sources indicate that Beijing has not consented to grant export approval for certain specialised rare-earth magnets sought by US military suppliers for fighter jets and missile systems. The US continues to enforce export controls on China's acquisition of advanced artificial intelligence processors, citing potential military concerns. On Friday, Israel launched attacks on Iranian nuclear facilities and missile factories. Iran retaliated late Sunday with an explosion reported in the coastal city of Haifa. Despite international appeals for diplomacy and de-escalation, Israel persisted in targeting military sites in Iran, according to reports. Furthermore, Iranian media outlet Mehr News has indicated that Iran commenced the fourth phase of operations against Israel on Sunday. Iranian officials emphasised their commitment to "respond firmly to any adventurism" from Israel.

The Swiss May Producer and Import Prices and SECO Economic Forecasts, along with the US Federal Reserve (Fed) policy meeting, will influence the USD/CHF exchange rate in upcoming sessions.

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