On May 26, outgoing European Central Bank Governing Council member and Governor of the Bank of France, François Villeroy de Galhau, stated in a recent interview that the significant rise in energy costs has not yet triggered second-round effects in other sectors of the eurozone economy. He emphasized, "We have not observed such spillover effects so far, but we remain highly vigilant about the risk of rising inflation expectations. Households and businesses can trust that we will restore inflation to 2% over the medium term—if necessary, we will not hesitate to take action to achieve this goal." Villeroy will step down as Governor of the Bank of France in June, meaning he will no longer serve on the ECB Governing Council during the policy meeting in Frankfurt on June 10-11. Markets widely expect the ECB to raise interest rates by 25 basis points at this meeting.
Additionally, Navin Saigal, Head of Asia Pacific Fixed Income at BlackRock, noted that under the leadership of the new Federal Reserve Chair, the Fed actually has sufficient grounds to consider cutting rates rather than raising them. He pointed out that the accumulation of underlying pressures in the labor market could shift the policy balance. Behind the economic growth driven by large-scale investments in artificial intelligence lies the long-term concern of machines replacing human labor, which may weigh on the job market within the next year, thereby providing grounds for rate cuts or maintaining the status quo. Saigal acknowledged several "tailwinds" in the U.S. economy, with the AI investment boom being the most prominent. Significant corporate capital expenditures in AI are supporting the current strong economic performance. However, he also warned of an inherent contradiction in this logic: one of the ultimate goals of AI investment is to replace human labor with machines or software, meaning the current investment surge could translate into downward pressure on the labor market within the next year.
Today’s data to watch includes the UK CBI Retail Sales Balance for May and the US Conference Board Consumer Confidence Index for May.
Dollar Index The dollar index consolidated with slight fluctuations yesterday, closing marginally lower. It is currently trading around the 99.00 level. Optimism about a peace agreement in the Middle East dampening safe-haven demand was the main factor pressuring the dollar index downward. However, technical buying near the 99.00 level and expectations of Fed rate hikes limited the extent of the decline. Today, resistance is seen around 99.50, with support near 98.50.
EUR/USD The euro edged higher yesterday, closing with modest gains. It is currently trading around 1.1640. Short covering and technical buying near the 1.1600 level provided some support, while the weakening dollar index due to optimism about a Middle East agreement also contributed to the euro's rebound. Additionally, expectations of an ECB rate hike in June offered further support. Today, resistance is observed around 1.1750, with support near 1.1550.
GBP/USD The British pound rose yesterday, reaching a seven-day high. It is currently trading around 1.3490. The dollar index's decline, driven by optimism about a Middle East agreement, was the primary factor supporting the pound's advance. However, rising expectations of Fed rate hikes and concerns about political uncertainty in the UK limited the extent of the rebound. Today, resistance is seen around 1.3600, with support near 1.3400.