During today's Asian session, the most closely watched data was Japan's core CPI annual rate for April, which came in at 1.4%, lower than the previous value of 1.8% and also below the expected 1.7%. The lower-than-expected figure suggests Japan has strong control over energy prices. Consequently, Prime Minister Sanae Takaichi stated that Japan's prices remain the lowest among the G7 nations this week.
On the minute chart, the USDJPY pair rose from a low of 158.98 to 159.03 after the data release, a movement of 5 basis points, forming a distinct long bullish candlestick. In the following hour and a half, USDJPY continued to climb, reaching a peak of 159.11, with a cumulative maximum increase of 13 basis points. Japan's inflation rate being lower than expected implies the Bank of Japan has less urgency to raise interest rates compared to the Federal Reserve, making the yen's depreciation logical.
At 22:00 Beijing Time, the University of Michigan will release two key data points: the Consumer Confidence Index and the one-year inflation expectations. These indicators are closely monitored by the Federal Reserve. If unexpected results similar to Japan's CPI occur, it could lead to significant volatility in EURUSD.
The chart above shows the trend of US consumer confidence over the past three years. Clearly, after reaching a peak in March 2024, it began a prolonged decline spanning over three years. Particularly in the first half of 2025, coinciding with Trump's initial six months in the White House, the consumer confidence index experienced a sharp drop.
The current market expectation is 48.2, matching the previous reading. If the released figure meets expectations, its impact on EURUSD movements is likely to be limited. Considering the elevated domestic energy prices in the US due to the US-Iran conflict, there is potential for the consumer confidence index to decline further. A larger-than-expected drop could negatively impact EURUSD.
Released alongside the University of Michigan Consumer Confidence Index is the US one-year inflation expectation data for May. The chart indicates that May 2025 marked a peak of 6.6% for one-year inflation expectations, followed by a noticeable decline, with signs of a rebound emerging over the last four months.
If the core reason for rising one-year inflation expectations in the US during 2025 was Trump's aggressive trade policies, then the primary driver for 2026 will likely be persistently high energy prices. As long as the conflict between the US and Iran persists and the Strait of Hormuz remains obstructed, US one-year inflation expectations are likely to maintain their upward trajectory.
Market expectations currently suggest that the US one-year inflation expectation will rise from the previous 48.1 to 48.5, indicating continued inflationary pressure. If the actual figure aligns with expectations, the Federal Reserve will face a clearer high inflation risk, potentially necessitating tighter monetary policy.
One hour after the release of the University of Michigan Consumer Confidence Index, at 23:00 Beijing Time, the new Federal Reserve Chair Kevin Warsh will be sworn in. If Kevin Warsh delivers hawkish, tightening remarks, EURUSD could face significant downward pressure. However, given that President Trump is presiding over the ceremony and the public perceives Kevin Warsh as Trump's monetary policy proxy, the likelihood of him making strongly restrictive monetary policy statements is very low.
Given the current high inflation risks facing the US, Warsh is unlikely to deliver accommodative monetary policy remarks aligned with Trump's expectations. Furthermore, based on Kevin Warsh's past professional experience, he personally does not support excessively loose monetary policy. Therefore, tonight's swearing-in ceremony, while highly anticipated, may not produce many market-moving statements.
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