FX Navigator (June): Awaiting catalysts

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: HSBC, Bloomberg

• The USD remains highly sensitive to shifts in energy prices. Without a clear resolution to the Middle East stalemate—either escalation or de-escalation—the USD is likely to trade sideways over the coming weeks. However, continued geopolitical inertia may allow other drivers to gain influence, particularly interest-rate differentials, which should help put a floor under the USD.
• 16–17 June FOMC meeting will be a key focal point, with markets watching for updates to Fed guidance, Chair Warsh’s tone, and any implications for perceptions of central bank independence. This will be the first meeting chaired by Kevin Warsh, appointed by a US president who has openly favoured lower policy rates. In addition, the 29–30 April FOMC minutes highlighted a growing appetite to remove the easing bias from the accompanying statement.
• Markets are currently pricing in roughly a 60% chance of a 25bp hike by year-end (Bloomberg, 27 May). Attention is likely to remain on upcoming US data, including non-farm payrolls (5 June), CPI (10 June), University of Michigan consumer sentiment (12 June), retail sales (17 June), and PMIs (1 July).

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• We do not expect EUR–USD to break out decisively in either direction over the coming
  weeks. However, the risk skew remains modestly to the downside for now. With the USD staying broadly steady as the primary driver, there appears to be insufficient momentum
  in EUR-specific factors to generate a meaningful, idiosyncratic move in the EUR.
• The European Central Bank (ECB) is widely expected to deliver a 25bp rate increase on 11 June. That said, with increasing signs of softer regional activity, it may be difficult for the ECB to signal a more hawkish stance than markets already anticipate. In line with our economists’ view, markets are currently pricing close to three ECB hikes this year, including the June move (Bloomberg, 27 May).
• Overall, the balance of risks around rate expectations appears tilted to the downside. Upcoming data releases that could influence market pricing include Germany and France PMIs (23 June), IFO Business Confidence (24 June), and Eurozone CPI (30 June).

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• Relative central-bank dynamics are not supportive for the GBP. The ECB appears set to hike in June, while the the BoE is widely expected to remain on hold over the same period. With the BoE also seen as constrained by gilt-market sensitivity, the GBP may lack the interest-rate differential support it often relies on—particularly against the EUR.
• UK political developments could add event risk. Headlines related to the Makerfield by-election on 18 June, as well as renewed focus on fiscal rules, could increase event risk and contribute to higher GBP volatility.
• The balance of risks would likely skew towards EUR–GBP moving higher in the near term.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• The GBP remains vulnerable if geopolitical tensions persist or escalate. Ongoing Middle East risk—especially any threat of disruption around the Strait of Hormuz—is likely to keep risk premia and energy uncertainty elevated.
• Ahead of the Bank of England (BoE) meeting on 18 June, markets price only a c10% chance of tightening and recent BoE messaging has been cautious. Higher gilt yields have already tightened financial conditions, and further hikes risk bond-market instability. At the same time, UK macro momentum is weakening; upcoming data releases, including labour market report on 18 June and PMIs on (23 June), could reinforce BoE caution, if they signal further deterioration.
• Politics adds event risk. The 18 June Makerfield by-election could intensify leadership speculation around Andy Burnham and prompt policy signalling aimed at Labour’s left-leaning base. Even with commitments to fiscal rules, headline risk could lift the UK risk premium at the margin.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• We expect USD-JPY to remain range-bound over the coming weeks, with upside constrained by the ongoing threat (and potential reality) of FX intervention.
• A sharp, sustained decline in USD-JPY also looks unlikely. While the case for a 25bp hike by the Bank of Japan (BoJ) on 16 June is building, markets already price c75% for June and fully for July, with a second hike expected before year-end (Bloomberg, 27 May). This limits Governor Ueda’s ability to surprise hawkishly. Our economists also expect two additional hikes this year. But renewed fiscal concerns could weaken the JPY.
• JPY strength would likely require a material shift in BoJ messaging or fiscal policy guidance. Absent a resolution to the Middle East conflict, this backdrop should keep USD-JPY range-bound for now.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• The EUR is likely to remain on the defensive in the near term and may struggle to establish a clear direction, given the absence of a decisive catalyst to drive a sustained move.
• The JPY also appears set to remain range-bound. Further depreciation is likely to be constrained by the ongoing risk of FX intervention. But at the same time, there is no clear trigger for sustained yen strength, unless there is a material shift in BoJ messaging or fiscal policy guidance.
• As such, EUR-JPY is expected to trade broadly sideways over the coming weeks, rather than a clear, directional trend.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• Switzerland’s Q1 sports-adjusted GDP surprised to the upside (0.5% q-o-q vs 0.4% consensus), easing pressure for a return to negative rates and providing some support for the CHF. However, Swiss yields remain low in absolute terms relative to the US, which continues to disadvantage the CHF if demand for safe-haven assets increases.
• USD-CHF is likely to move sideways in the weeks ahead. That said, with speculative flows still appearing USD-bullish, the balance of risks remains modestly skewed to the upside for the pair.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• EUR-CHF has traded sideways in recent weeks, and we expect this range-bound pattern to persist near term. FX intervention concerns have faded as Swiss inflation has moved further away from the lower end of the Swiss National Bank’s (SNB) 0-2% target band. The 4 June inflation release and the 18 June SNB meeting are the next key focus, with 1Q intervention data due on 30 June.
• External drivers are likely to keep EUR-CHF contained. Any renewed Middle East tensions could boost safe-haven demand for the CHF, but higher oil prices may offset this and keep the cross range-bound for now.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• We look for USD-CAD to move higher in the coming weeks. The relationship
  between the CAD and oil prices has become inconsistent lately, implying other drivers
  are at work.
• As long as the Middle East geopolitical backdrop remains broadly unchanged, rate
  differentials should become a more dominant driver, creating upside risk for USD-CAD.
  Markets expect the Bank of Canada (BoC) to keep rates steady on 10 June, with only
  one full 25bp rate in the price by end-2026. Expectations around the Fed are shifting
  towards a higher probability of an FOMC hike. Overall, rate momentum favours USD-
  CAD upside.
• Any increased focus on the United States–Mexico–Canada Agreement (USMCA)
  review into June could also leave that CAD premium exposed.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• AUD-USD is likely to trade sideways in the near term, with movements driven more by global risk sentiment than by Australian domestic developments.
• In Australia, recent data has softened, reinforcing expectations that the Reserve Bank of Australia (RBA) is closer to a pause than further near-term tightening. The RBA is widely expected to keep rates unchanged at 4.35% on 16 June. While Australia’s yield level remains attractive in absolute terms, additional support from further repricing of policy rates appears limited if the hiking cycle is seen as largely complete.
• The main near-term downside risk for AUD-USD is a hawkish repricing of the USD leg. A more hawkish Fed could lift US yields and the USD, pressuring AUD-USD even if Australian data stabilises. Near-term catalysts include Australia’s PMIs (23 June), CPI (24 June) and labour market (25 June).

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: Bloomberg, HSBC

• AUD-NZD fell a little over 1% following the RBNZ’s hawkish hold on 27 May (Bloomberg, 27 May).
• Australia’s yield level remains attractive in absolute terms and should provide some underlying support for the AUD. That being said, AUD-NZD appears to be trading at a premium relative to its yield differentials, leaving it vulnerable to further NZD outperformance if the rates narrative continues to favour New Zealand.
• Additional support from further repricing of Australian policy rates looks limited at this stage, which may cap near-term AUD-NZD upside and encourage a period of consolidation after the recent move.

Note: *Priced as at 18:23 HKT on 27 May 2026
Source: HSBC, Bloomberg

• On 27 May, the Reserve Bank of New Zealand (RBNZ) kept its policy rate steady at 2.25%, as widely expected, but the decision was finely balanced — an even split between hike and hold, resolved by the Chairperson’s casting vote. The statement was hawkish, with the official rate track revised higher, signalling a 25bp hike in 3Q26, at least one further hike in 4Q26, and a gradual rise towards c3.3% by 4Q28. The NZD strengthened against the USD following the announcement.
• Our economists expect the RBNZ to begin tightening in 3Q26, followed by another hike in 4Q26, and three additional increases thereafter, taking the policy rate to 3.50% by 3Q27. Market pricing is slightly more hawkish, with around three hikes nearly fully priced by end-2026 (Bloomberg, 27 May).
• Beyond the rates outlook, near-term NZD performance is likely to remain highly sensitive to global risk sentiment, which may continue to drive currency moves alongside domestic policy expectations

Dovish 

Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.

Hawkish 

Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.

MoM / YoY 

Month on month / Year on year

PMI 

Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).

IMM data 

International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).

G10  

G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.

Fed / FOMC

Federal Reserve System (US’s Central Bank) / Federal Open Market Committee.

ECB 

European Central Bank (Eurozone’s Central Bank).

BoE 

Bank of England (UK’s Central Bank).

BoJ 

Bank of Japan (Japan’s Central Bank).

BoC 

Bank of Canada (Canada’s Central Bank).

RBA 

Reserve Bank of Australia (Australia’s Central Bank).

RBNZ 

Reserve Bank of New Zealand (New Zealand’s Central Bank).

SNB 

Swiss National Bank (Switzerland’s Central Bank).

Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.

50 dma: 50-day simple moving average number represents the average price of an index or a currency pair over the past 50 days.

Support (S), Resistance (R): Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of an index or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.

HSBC Positioning Indices: The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).
Tactical view where a currency pair is referenced (e.g. USD/JPY): An up (⬆) / down (⬇) / sideways (➔) arrow indicates that the first currency quoted in the pair is expected by HSBC Global Investment Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks.