28th May, 2025

Further overnight gains in the DOLLAR during the Asian session have been reversed in European trade. The boost the US unit received from the better than expected Conference Board's Consumer Confidence data has faded, as the focus turns to today's release of the FOMC minutes from the May 7th on hold verdict. The general consensus is that we will see a board that is very much in wait-and-see mode, over how tariffs will impact both growth and inflation.

Overnight the Fed's Williams called for a strong response if inflation deviates from the central bank's target and admitted that there is a lot of uncertainty around estimates for the neutral rate.

Elsewhere, Japan’s auction of 40-year government notes drew a higher yield than than expected at 3.135% vs 2.71% in March. The bid-to-cover ratio though fell to 2.214 from 2.92 last and a lowest ratio since July.

Bbg also reported that the USD's extended slide has prompted the PBOC to change tack in managing the RMB as it pivots from support to guarding against the risk of a rapid appreciation. Bbg explains the Bank has set the CNY's daily fixing at a slightly weaker level than market forecasts and state-owned banks have been buying USD rather than selling in the onshore market to slow gains.

The RBNZ delivered its six straight rate cut, with a 25bps reduction to 3.25%. Overall it was seen as erring on the hawkish side as the RBNZ's new forecasts indicate one more 25bps move and the chance of another, with the average OCR falling to 2.92% by year-end and 2.85% in early 2026.Orr and Co also cited US tariffs and increased policy uncertainty abroad as factors to work to moderate NZs economic recovery and reduce medium-term inflation pressures.

Elsewhere, German unemployment rose by 34k in May, its largest increase since July 2022, while ECB inflation expectations showed the three year outlook remaining at 2.5% in April, while the one year outlook ticked up to 3.1% from 2.9% and above the 2.8% consensus forecast.

A quiet slate data wise awaits, with a distinct lack of central bank speakers, but we do hear from the Bank of England's Chief Economist Pill.

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