• Market expectations for a Federal Reserve policy rate change
  in June are uncertain, with a 40% chance seen for an unchanged rate and a 60%
  chance for a rate cut.
• Anticipation
  is that the Fed will guide market expectations more clearly as the June meeting
  approaches.
• The
  upcoming CPI data
  are key to understanding potential rate moves.
• UBS
  expects a rate cut in June, which could limit the current USD strength against
  the euro, pound, and other currencies, although the risk remains for continued
  dollar strength if the Fed does not cut rates.

EUR:

• The
  next ECB meeting is not expected to be decisive, but there’s a growing
  possibility of more concrete signals about a June rate cut.
• Option
  implied volatility is at extreme lows, making it cheaper to hedge against
  potential market moves.
• UBS
  anticipates the EURUSD might first drop within the 1.05–1.10 range before
  eventually rising, with a clearer ECB signal on rate cuts potentially injecting
  more activity into the market.

CHF:

• Despite
  the Swiss franc’s strong momentum indicating further depreciation, fundamental
  factors suggest a potential sideways trend or appreciation against the USD.
• Short
  to medium-term expectations are for EURCHF and USDCHF to rise further, with a
  potential falter as more clarity on Fed and ECB rate cuts emerges.
• The
  current wide yield differential between the EUR and CHF is expected to narrow,
  which could temporarily boost EURCHF towards 1.00 but eventually lead to a
  decline in both EURCHF and USDCHF pairs.

GBP:

• GBPUSD
  saw fluctuations in March, ending back where it started after initially
  rallying due to the UK government’s budget decisions and dovish Bank of England
  signals.
• Current
  level of 1.26 for GBPUSD is seen as fair, with expectations of an upward
  trajectory reaching 1.30 by the end of the year.

JPY:

• With
  minimal major economic data from Japan expected, USDJPY will likely be
  influenced by US inflation data and FOMC meeting minutes.
• Markets
  are alert for a potential FX intervention by Japanese officials if USDJPY
  breaks out significantly.
• Despite
  the potential for higher exchange rates due to elevated US rates, UBS prefers
  selling upside risk, anticipating more balanced Fed rate cut expectations and
  considering crowded short positions in yen and the Bank of Japan’s stance on
  yen weakness.

This article was written by Arno V Venter at www.forexlive.com.