FOREX: Asia FX Wrap - BBDXY Consolidates Above 1200, Focus Turns To US CPI
The BBDXY has had a range of 1201.78 - 1203.10 in the Asia-Pac session, it is currently trading around 1202, -0.02%. The BBDXY is consolidating its gains above the 1200 area as it awaits US CPI tonight. On the way down the BBDXY has been heavily sold every time it has challenged the 30 EMA on the Daily(See Chart Below), will the sellers again use this area to reload shorts or can the USD finally initiate some sort of a correction. CHINA GDP in Line with Targets: China's second quarter GDP YoY printed slightly above estimates at +5.2%, but down from first quarter result of +5.4%. The second quarter result keeps GDP on track with the recently announced growth target of "around 5 percent" for 2025, the same as their 2024 target.
- EUR/USD - Asian range 1.1661 - 1.1678, Asia is currently trading 1.1675. The pair continues to see some demand towards the 1.1650 area. The price is still starting to look a little stretched in the short term and is vulnerable to any correction in the USD, first support is back towards 1.1600 then more importantly the 1.1450 area.
- GBP/USD - Asian range 1.3422 - 1.3441, Asia is currently dealing around 1.3430. Price has rejected the move higher and Bailey’s hint that bigger rate cuts are on their way if the job market deteriorates further has added further headwinds. Support seen around the 1.3350/1.3450 area, a close back below here could signal an even deeper correction.
- USD/CNH - Asian range 7.1689 - 7.1785, the USD/CNY fix printed 7.1491, Asia is currently dealing around 7.1780. Sellers should be around on bounces while price holds below the 7.2500 area and the PBOC manages the fix lower.
- Cross asset : SPX -0.25%, Gold $3355, US 10-Year 4.33%, BBDXY 1195, Crude oil $65.67
- Data/Events : Germany ZEW Survey, EZ Zew Survey & Industrial Production, Spain CPI
Fig 1: BBDXY Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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US FISCAL: Available Extraordinary Measures Pick Up Ahead Of Tax Date
Treasury had $144B in "extraordinary measures" available to keep the government financed as of June 11 per a release Friday. That is up from $84B a week earlier and the highest since April 28.
- However, TGA cash continues to fall, to $309B latest (lowest since early April) Combined with a pullback in Treasury cash ($376B), keeping the total resources available to avert an "x-date" in the summer at around $450B .
- There will be another uptick in Treasury cash in the coming days, and it's likely Treasury allowed some of the extraordinary measures to be rebuilt (ie not exercised) in anticipation of more cash coming in.
- This is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
FED: Two Cuts Priced This Year Headed Into FOMC Week
As we head into the June Fed meeting week, market pricing is reflective of the FOMC’s messaging (that we describe in our preview):
- The next cut is only fully priced by the October FOMC meeting, with September seeing a roughly 80% implied probability of bringing the next 25bp reduction.
- Exactly 50bp of cuts are priced through end-2025, implying two Q4 cuts.
- That’s a shift from just after the May meeting, after which the next cut was fully priced by September, and there were closer to three cuts priced for the rest of the year.
- Overall cuts are seen backloaded this year (after 15bp in September, 29bp of cuts priced in Q4 - Oct/Dec combined), but falls off in Q1 (just 21bp cuts priced, 9bp of cuts priced for January and 12bp for March)
FED: Summary Of Economic Projections: Higher 2025 Inflation, Weaker Growth
The MNI Markets Team’s expectations for the updated Economic Projections are below.
- As of the May meeting, the Federal Reserve staff – whose outlook tends to be broadly shared by the median Committee member – revised their forecasts for growth weaker in 2025 and 2026, “as announced trade policies implied a larger drag on real activity relative to the policies that the staff had assumed in their previous forecast. Trade policies were also expected to lead to slower productivity growth and therefore to reduce potential GDP growth over the next few years. With the drag on demand expected to start earlier and to be larger than the supply response, the output gap was projected to widen significantly over the forecast period. The labor market was expected to weaken substantially, with the unemployment rate forecast moving above the staff's estimate of its natural rate by the end of this year and remaining above the natural rate through 2027."
- On inflation, "The staff's inflation projection was higher than the one prepared for the March meeting. Tariffs were expected to boost inflation markedly this year and to provide a smaller boost in 2026; after that, inflation was projected to decline to 2 percent by 2027."
- Our expectations for these changes fall somewhere in between those projections and the March SEP – a slightly higher unemployment rate, substantially higher inflation in 2025 but to a lesser extent in 2026, and weaker GDP growth this year. Longer-run variables should be unchanged.
MNI Markets Team Expectations For June 2025 Summary Of Economic Projections Medians
