FX Daily: No doves in Sintra

Articles FX Daily: No doves in Sintra 07:55 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We expect communication by ECB speakers in Sintra to broadly endorse expectations for another hike this year after Lagarde’s measured opening remarks. The dollar has continued to hand back some gains, with focus on data today ahead of Warsh's Sintra speech tomorrow, which is expected to be hawkish. USD/JPY remains in FX intervention territory Frantisek Taborsky , Francesco Pesole and Chris Turner Yesterday marked the opening of the ECB's annual forum on central banking in Sintra, Portugal USD: Momentum keeps fading into key data and Warsh The dollar has continued to hand back recent gains against most G10 currencies, largely thanks to a recovery in equities.

Added support for risk sentiment has come from news that the US and Iran will start a new round of negotiations despite weekend skirmishes. This second factor, however, seems to be weighing on oil currencies (the Australian dollar, Canadian dollar, and Norwegian krone), which are lagging alongside the yen (more below). Still, we discuss here how the oil drop looks overdone, and we still expect gains in AUD and NOK this summer as moderately higher energy prices pair with attractive carry.

Focus today turns to US data. Our macro team looks for a well above-consensus 97.5 print in consumer confidence (vs 94.5), supporting the narrative of resilient spending. By contrast, JOLTS openings should fall in May, with our forecast at 7.25m against a 7.3m consensus.

This should not materially challenge the signal of a healthy labour market, particularly with the vacancies-to-unemployed ratio remaining above 1.0. Overall, we see a neutral to moderately positive impact on the dollar from today’s data. But USD bullish momentum has clearly faded, and improved risk sentiment argues against another sharp leg higher for now, at least until Fed Chair Kevin Warsh’s Sintra speech tomorrow and Thursday’s jobs data provide clearer direction.

Francesco Pesole EUR: Sintra unlikely to rock the euro We argued yesterday that ECB President Christine Lagarde didn’t look likely to use Sintra for a radical change in policy communication. And indeed her opening remarks yesterday were quite measured. She said that the ECB response doesn’t need to be as forceful as it was in 2022-2023, but also that the economy has grown resilient.

There is little here to prompt markets to revise expectations for another hike this year. We expect other ECB speakers this week to broadly validate that pricing, even as yesterday’s eurozone sentiment indicator showed signs of easing inflationary pressures . CPI flash estimates for June are being published this week in the eurozone.

Spain surprised to the upside at 3.2% yesterday, while France is expected to slow from 2.4% to 2.0% this morning. Germany reports at 1:00pm CEST, with consensus for an unchanged 2.6%. Taken together, we do not expect a material impact on the euro.

We acknowledge downside risks for EUR/USD ahead of US data and Warsh's speech in Sintra, but remain more in favour of stabilisation around or just above 1.140 rather than a retesting of last week’s lows in the coming days. Francesco Pesole JPY: Into the intervention zone USD/JPY continues to grind higher, raising fears of another round of FX intervention by Japanese authorities. Recall that the Bank of Japan sold around $70bn of dollars in late April/early May when USD/JPY was starting to trade above 160.

While 162 is widely seen as another ‘line in the sand’ (marking the 2024 high), Tokyo may prefer to hold off intervention until Friday’s US holiday-thinned market conditions. At the same time, the market will have already had a chance to react to both comments from Warsh on Wednesday and Thursday’s US jobs report. There is also a chance Tokyo holds out until shortly before the next Japanese public holiday – if it was to repeat the pattern from 2024.

That would point to the 16-17 July window ahead of the Marine Day holiday on the 20 th . Nonetheless, Japanese authorities will appreciate that intervention can only try to slow, not reverse, the current USD/JPY bull trend. A reversal would require not only some dramatic BoJ rate hikes, but also a turn in the broad dollar trend – the latter something for much later in the year once current Fed hawkishness has run its course.

Chris Turner PLN: Inflation to test dovish pricing and FX resilience Poland will release its June inflation figures today, as always the first inflation indicator in the CEE region. The May print showed lower-than-expected growth of 3.1%. The main surprise was food prices, which fell by 1.0% month-on-month – essentially the biggest June drop in history.

Today, our economists expect a slowdown from 3.1% to 2.9%, slightly above market expectations, this time mainly due to fuel prices. Food price inflation remains benign, and core inflation was likely broadly unchanged compared to May at 3.1%. All in all, the National Bank of Poland is unlikely to signal any deviation from its wait-and-see policy stance in early July, and the new inflation projection should show that inflation might be heading towards the target, potentially as early as the second quarter of 2027, meaning that there is no need to hike rates.

Markets have priced out all rate hikes after surprisingly lower inflation in May and global relief, and we see several-basis-point rate cuts priced in at the moment. This is in line with our forecast, but also has negative implications for FX. The NBP has been quick to dismiss any discussion of rate hikes.

This is narrowing the interest rate differential and the PLN curve is getting close to the narrowest spreads in history versus the euro. In addition, a strong US dollar is supporting weaker CEE currencies in general. Today's figure could cement dovish market expectations and further undermine PLN weakness.

On the other hand, an upside surprise would likely trigger more hawkish repricing given the market sentiment that the Polish economy should generate some inflationary pressures given loose fiscal policy and strong GDP growth. Overall, we believe that EUR/PLN could test levels above 4.290 if a favourable inflation scenario is confirmed. Frantisek Taborsky Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.

The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Frantisek Taborsky EMEA FX & FI Strategist Frantisek is an FX & FI Strategist covering EMEA markets, having joined the bank in 2022. He provides short- and medium-term recommendations for ING's corporate and institutional client… Francesco Pesole FX Strategist Francesco is an FX Strategist and has been with the firm since May 2019.

His main focus is on the G10 space and, in particular, on European and commodity currencies. He began his career at Credit… Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE. Together with his team, he provides short and medium-term FX recommendations for ING's corporate and… In this article USD: Momentum keeps fading into key data and Warsh EUR: Sintra unlikely to rock the euro JPY: Into the intervention zone PLN: Inflation to test dovish pricing and FX resilience