NZD underperforms, unable to capitalise on USD softness

Key Movers

Price action across the majors was largely subdued on Wednesday amid a distinct lack of headline news and data. Talks between US President Trump and Russian President Vladimir Putin failed to yield a ceasefire in the Ukraine/Russo war, while rising concerns about US debt and a widening budget deficit sparked an extended risk off move. US treasury yields rose, and equities moved lower. With President Trump's flagship tax bill set to pass through the House of Representatives, there are growing fears for the stability of the US fiscal position, prompting anxiety across bond markets. The uncertainty weighed on the USD, allowing the euro to push back above 1.13 and the yen to force the dollar back below 143.50, while the pound marked a fresh 3-year high. Breaking above 1.3460. Sterling found support in a stronger than anticipated inflation report. Headline inflation climbed to 3.5%, its highest level in 12 months, while core inflation also rose, driven by an uptick in services inflation. The Bank of England (BoE) now expects inflation to peak in September at 3.7% and is closely monitoring for any further shift in price pressures. Markets pared bets for BoE rate cuts, pricing in just 38 basis points of cuts into the year-end, down from 42.

Our attentions now turn to European and US manufacturing and service PMI data and Germany’s IFO survey. We are looking for any signal the US tariff agenda has weighed on activity and inflation.