FX daily: FOMC minutes can reinforce Dollar floor

Markets aren’t taking the re-escalation in US-Iran tensions too seriously for now, and there is a good chance focus will stay primarily on macro today, as the Fed releases its June meeting’s minutes. We expect them to reinforce the hawkish message and keep USD broadly supported. Elsewhere, the RBNZ hiked rates and signalled that more tightening is coming.

USD: FOMC minutes to strengthen hawkish message

Equity jitters offered the dollar some support yesterday – a reminder of the greenback’s very strong safe-haven appeal despite the concentration of AI-sensitive stocks in US indices. Oil prices are also trading on the strong side after some overnight military action in Iran and the Treasury revoking the waiver that allowed Teheran to sell crude. Markets will keep monitoring the situation but have tended to fade Middle East re-escalation risk, so there’s a good chance it will be mostly macro news driving FX today, as the June FOMC minutes are released.

The importance of the Fed's hawkish shift in June for the dollar cannot be overstated. Markets’ conviction around tightening is what prevented the dollar from following oil prices lower, and that conviction relies heavily on the median Dot Plot signalling a hike and Kevin Warsh reaffirming a strong commitment to the inflation mandate.

Today’s minutes will clarify how serious members are about the possibility of rate hikes. Based on post-meeting communication, we see limited risk of a dovish surprise in the minutes. We expect a cementing of the hawkish message to firm up dollar momentum, although we don’t expect it to lead to a break higher as markets may be reluctant to reprice rate expectations aggressively higher (now 35bp by December) after the soft jobs report.

We expect mostly rangebound DXY in the very near term, with some upside risks to 101.50-102.0 unless large JPY interventions cause a mechanical correction.

On a separate note, we’ve published a preview of the summer edition of the US Treasury FX report. We expect no currency manipulator designations, as in our calculations no country breached all three quantitative criteria – despite the dollar’s decline in 2025.

EUR: Still quite relaxed about France

Marine Le Pen announced she will run in the 2027 presidential election after a court decision yesterday. We discuss the outlook for French politics, rates and FX in this note. This court decision doesn’t change much for the euro considering markets are likely to be already pricing in an RN win in April.

Surely, there are risks that during the campaign OATs will experience pockets of stress around fiscal concerns, spilling over into the euro. But our baseline assumption is that RN will be careful not to unnerve the bond market before the vote, so we aren’t embedding any political premium in our EUR forecasts for the moment.

The eurozone data calendar is empty today. There are a few ECB speakers to follow, but with likely limited market impact. Risks remain tilted a bit to the downside for EUR/USD in the near term, with a move below 1.140 still quite possible this week.

In Sweden, June inflation came in close to consensus. Headline CPIF was 1.3% and CPIF excluding energy was 0.4%. The dampening effect of food VAT cuts remains very visible, but price pressures continue to be quite muted. We see no reason for markets to price a hike back into the SEK curve at this stage, in line with our longstanding call for a prolonged hold.

EUR/SEK may linger above 11.00 for longer before starting a gradual decline in late summer and into year-end, primarily due to our call for dovish repricing in the Fed curve.

NZD: RBNZ hikes and prepares to do more

The Reserve Bank of New Zealand hiked rates by 25bp to 2.50% today, in line with our call. The accompanying message had a more hawkish tone overall than we had anticipated, though. The statement reads that further hikes “appear likely at upcoming meetings”, even if their timing is “highly uncertain”. There is still plenty of uncertainty around the inflation outlook, but the Bank stressed how non-tradable inflation had been persistent even before the war.

We had suspected a close vote split (4-2) could send dovish vibes, but the minutes said the Committee “reached consensus” to increase rates. This can definitely mean one or two members (we suspect Conway and Sik) preferred a hold, but not casting a dissenting vote means – in our view – there is interest in preserving the market’s hawkish pricing.

OIS-embedded expectations are for 38bp of tightening by year-end. This meeting has reinforced our previously narrow call for another hike in September/October. Still, risks remain on the dovish side, as a delay in tightening looks more likely than two more interest rate increases, as the next round of projections should show inflation falling back to target by mid-2027.

NZD’s post-hike rally looks more sustainable in the near term than we had anticipated. The dovish risks highlighted above may only emerge later in the year, when we expect AUD to outpace NZD again. We still target 0.59 in NZD/USD by year-end.

PLN: NBP dovishness keeps pressure on zloty

The National Bank of Poland will likely leave rates unchanged at 3.75% today, which is our baseline until the end of the year. More interesting today will be the new NBP forecast and statement and tomorrow's press conference. The easing cycle in Poland was interrupted by turmoil in the Persian Gulf, but policymakers will require greater confidence in a favourable inflation outlook before resuming monetary easing. So far, the decline in inflation has largely been driven by normalising oil prices and unexpectedly sharp falls in food prices. Core inflation remains close to 3%. Moreover, fiscal measures aimed at reducing petrol and diesel prices, including lower excise duties and VAT rates, expired at the end of June, pushing fuel prices higher at the start of July.

The July macroeconomic projection is likely to present a favourable medium-term inflation outlook, but we believe policymakers will need several months to convince themselves that the economy is avoiding lagged inflation effects of energy or supply chain shocks, especially on the core CPI side. While Governor Adam Glapiński may strike a somewhat dovish tone at Thursday’s press conference, the debate over potential rate cuts is only likely to gather momentum after the summer.

The market is pricing in around 10bp of rate cuts after pricing out several rate hikes in recent weeks. The narrowing rate differential and outperformance of front-end rates vs CEE peers, together with a stronger US dollar, have led to pressure on the zloty, which has underperformed CEE peers in recent weeks. We focused a lot on the zloty last week here and mentioned that after reaching 4.290-300 EUR/PLN the central bank will decide on the next direction. That moment is coming now and the question is whether the central bank will indicate a rate cut this year or not, which creates further upside for EUR/PLN in our view.

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