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Drivers for the month ahead May 31, 2022 View Online Economic Calendar June 1: Bank of Canada June 1: Mexican Gubernatorial Elections June 2-3: UK Platinum Jubilee (Markets Closed) June 3: Dragon Boat Festival – China (Markets Closed) June 3: US Employment Data June 6: Pentecost (Various European Markets Closed) June 7: Reserve Bank of Australia June 7: US Primaries – IA, CA, NJ June 8: Central Bank of Poland June 9: European Central Bank June 10: US CPI June 12/19: French Legislative Elections June 13: Queen’s Birthday- Australia (Markets Closed) June 15: Federal Reserve June 15: Central Bank of Brazil June 15: China Medium Term Lending Facility Rate June 16: Corpus Christi - Brazil & Poland (Markets Closed) June 16: Bank of England June 17: Bank of Japan June 19: China 1 & 5 YR Loan Prime Rate June 20: Juneteenth US Federal Holiday (Markets Closed) June 22: UK CPI June 23: Central Bank of Norway June 23: Bank of Mexico June 23: Flash PMIs June 26-28: G7 Summit June 28: US Primaries – CO, IL, NY June 30: Central Bank of Sweden June 2022 FX Outlook Sometimes, the foreign exchange market complexities can be reduced to a straightforward narrative. As US inflation and inflation expectations peaked, the interest rate support for the dollar weakened. At the same time, the European Central Bank has confirmed market expectations that after finishing its net bond purchases next month, it will raise rates. The word cues suggest that the ECB will exit its negative rate regime by year-end. The decline in the US 10-year yield eased the pressure on the yen, which had fallen to 20-year lows, and spurred speculation about intervention. The downward revision to the terminal Fed funds rate helped reanimate risk appetites. In late May, China unveiled new fiscal initiatives as restrictions in Shanghai and Beijing gradually lifted. As a result, the world's second-largest economy looks poised to recover starting in June. The dollar-bloc currencies and Latam currencies recovered from the profit-taking in April. While the Brazilian real outperformed the Mexican peso, the peso was trading at new two-year highs at the end of May. The greenback has been broadly trending higher for a year, and the dramatic pullback in the second half of May could mark a significant turn. That is our leaning. However, the dollar's retreat has stretched the short-term technical indicators, and it is likely to bounce. The shape and magnitude of this bounce that we expect will lend credence to or force us to re-think the durability of the dollar top. Click here for the full monthly outlook Bannockburn's World Currency Index, our GDP-weighted basket, edged up in May, reflecting the gains in the major currencies. The increase in the second half of the month more than recouped the losses from the first half. The emerging market currency component was weaker, reflecting the decline in the yuan, rupee, and South Korean won. The currencies from Brazil, Mexico, and Russia appreciated, but they account for only 6% of the index. The May gain pared the year's loss to around 2.2%. From a longer perspective, the BWCI peaked in June 2021 and has been trending lower since. At the May low, it had fallen by about 5.6%. That low may prove durable. Bannockburn Global Forex is a division of First Financial Bank. The trading of derivatives such as swaps and options may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. Swaps are only available to eligible counter parties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by Bannockburn Global Forex and should be construed as market commentary.