Forex Today: Risk sentiment improves; focus turns to inflation data

The release of Australian inflation data will highlight the Asian session. The annual inflation rate is expected to slow from 6.8% to around 6%. Later in the day, attention will turn to the ECB forum. Later in the day, the Fed will release its stress test results.

Here is what you need to know on Wednesday,  June 27:

US stocks rose on Tuesday following upbeat US economic data. The Dow Jones gained 0.62%, and the Nasdaq rose 1.65%. US Treasury yields rebounded from near weekly lows, with the 10-year settling at 3.75%, boosted by hawkish bets for the next Federal Reserve meeting. Gold dropped to test monthly lows near $1,900.

Data from the US released on Tuesday showed that Durable Goods Orders in May jumped 1.7%, against an expected decline of 1%. Another report showed that New Home Sales surged 12.2% in May to an annual rate of 763K, surpassing the market consensus of 675K. The Richmond Fed Manufacturing Index also recovered from -15 to -7 in June. CB’s Consumer Confidence reached the highest in 17 months. These numbers sent US Treasury yields higher. On Wednesday, the Federal Reserve will release the results of the bank stress tests.

The European Central Bank (ECB) Sintra Forum will end on Wednesday with a panel that includes ECB's Lagarde, Bank of England's Bailey, Fed's Powell, and Bank of Japan's Ueda.

EUR/USD peaked at 1.0976 and then pulled back moderately, ending the day with important gains above 1.0950. The Euro outperformed, boosted by hawkish expectations regarding the ECB. EUR/GBP climbed back to the 0.8600 area.

On Wednesday, the German GfK Consumer Climate Survey is due. Italy will report the preliminary June inflation figures that will be watched closely ahead of the CPI from Germany (Thursday) and the Eurozone (Friday).

GBP/USD had its best day over a week; however, the recovery found resistance at 1.2760.

Analysts at Commerzbank:

Inflation proved more stubborn than expected in May; after that, the BoE surprisingly raised its key interest rate by 50 bp. However, this does not help the pound as the impression remains of a central bank that is merely reacting to the inflation development. The scepticism about whether the BoE will manage to fight the high inflation sustainably is likely to weigh on the pound.

USD/CHF dropped again but remained above the important support area of 0.8900. The Swiss National Bank (SNB) will release its Quarterly Bulletin on Wednesday.

USD/JPY continued to move higher and climbed to fresh monthly highs above 144.00, supported by higher US yields, despite warnings from Japan's Finance Minister Shunichi Suzuki about a response to the currency's depreciation.

The annual Consumer Price Index (CPI) in Canada slowed down as expected in May to 3.4%, the smallest rate since June 2021. The Canadian Dollar weakened after the release and was the worst performer during the American session. USD/CAD rebounded from multi-month lows near 1.3100 towards 1.3200.

AUD/USD found resistance at the 20-day Simple Moving Average (SMA) at 0.6720 and retreated below 0.6700. On Wednesday, Australia will report the Monthly CPI for May, with a decline in the annual rate from 6.8% towards 6% expected. The Aussie benefited (briefly) from the People's Bank of China fixing the yuan at a stronger level than market expectations.

The Russian Ruble dropped to one-year lows versus the US Dollar, with USD/RUB rising above 85.00. The Turkish Lira remains near record low levels; USD/TRY erases losses, rebounding back to 26.00.