Euro: Softer against US Dollar as yields climb – Danske Bank

Danske Research Team reports that EUR/USD declined as higher Oil prices lifted US and European yields. They note that 2-year EUR and USD swap rates rose by up to 6 basis points. Euro area unemployment held at 6.3%, while consumer inflation expectations stabilised, supporting a June ECB hike but allowing more time before any further tightening.

Higher yields and Oil weigh on Euro

"In the euro area, today brings the aggregate HICP inflation for May. We have already received 75% of the index from individual country releases, which came in slightly lower than expected."

"Importantly, the country releases did not indicate that rising prices from the energy shock was broadening beyond energy components. We expect headline inflation at 3.1% y/y and core at 2.4% y/y."

"In the euro area, inflation expectations in the ECB's consumer survey stabilised in April following the large uptick in March. The 3Y median expectation ticked down to 2.9% from 3.0%, while the 1Y median remained unchanged at 4.0%."

"Although the still elevated expectations support the ECB's hike in June, the stabilisation buys the ECB more time to assess the impact of the shock before embarking on a second hike. "

"Also in the euro area, the unemployment rate remained at 6.3% in April similar to March. It was above the expected 6.2%, but the historical data was revised up while the actual number of unemployed persons fell from March to April."

"The rise in the oil price pushed up yields in US and Europe in parallel with 2Y EUR and USD swap rates rising as much as 6bp. EUR/USD fell and USD/JPY rose owing mainly to the rise in oil prices."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)