The core focus of the foreign exchange market this week is the policy differences between the European and American central banks. On the US side, despite the double pressure of slowing employment growth and falling consumer confidence, Federal Reserve officials maintained a hawkish stance, stressing that high interest rates will continue for a longer period of time. This position is in stark contrast to the market's expectations that the Federal Reserve will cut interest rates before the end of the year, causing market fluctuations. In contrast, the European market showed a different picture. As corporate earnings improved and expectations for ECB interest rate cuts heated up, European stocks hit a record high, reflecting the market's optimism about the Eurozone economic outlook.

Federal Reserve Officials Speak Out

Federal Reserve Chairman PowellPolicymakers are likely to keep interest rates high for a period of time without seeing “stagflation” in terms of economic growth or inflation.

John Williams (New York Federal Reserve Chairman)The policy is now in a very good position, we have time to collect more money, so it remains stable.

Kashkari (Minneapolis Federal Reserve Chairman)Interest rates may need to stay at current levels for an extended period of time.

Susan Collins (Boston Federal Reserve Chairman)Reducing inflation will take longer than previously thought.

Mary Daly (San Francisco Federal Reserve Chairman)Interest rates are currently holding back the economy, but inflation may take more time to return to target levels.

Austan Goolsbee (Chicago Federal Reserve Chairman)Although recent data showed an increase in price pressure at the beginning of the year, inflation did not stop above target.

The US dollar: the hidden worries behind its strength

The US dollar was boosted by hawkish comments from the Federal Reserve at the beginning of this week and strengthened for a while. However, with the weakening of US economic data, particularly the rise in initial jobless claims, market expectations of the Federal Reserve's interest rate cut are heating up again, and the strong position of the US dollar has been challenged. Analysts pointed out that signs of weakness in the US labor market may indicate a slowdown in economic growth, which poses a challenge to the Federal Reserve's policy outlook. Furthermore, the decline in consumer confidence may also have an impact on the Federal Reserve's decisions.

Analyst Views:

Ryan Brandham (Validus Risk Management)There are growing signs that the US labor market may begin to weaken.

Jeff Roach (LPL Financial)The Federal Reserve is walking a tightrope in its dual mission of balancing price stability and economic growth, and the risk of “stagflation” is rising.

Chris Zaccarelli (Independent Advisor Alliance)The lower than expected consumer confidence data is a warning sign, and rising inflation expectations are a double blow to the Federal Reserve.

Don Rissmiller (Strategas)Any confirmation of fluctuations in the US labor market could lead to interest rate cuts in the short term.

Chris Larkin (Morgan Stanley E*Trade)Investors may have adapted to the idea that the Federal Reserve will not cut interest rates until September, but that doesn't mean they want to wait indefinitely.

Japanese yen: Uncertainty about intervention policies

The yen experienced a process of falling first and then stabilizing this week. Despite warnings from the Japanese authorities to interfere in the foreign exchange market, the yen's decline was not effectively contained. The minutes of the Bank of Japan's April meeting showed that policymakers' positions clearly changed to hawkish, which provided some support for the yen. However, Japan's finance minister's warning and the decline in actual wages have increased market uncertainty about the direction of the Bank of Japan's policy.

Analyst Views:

Ben Bennett (Legal And General Investment Management)The Japanese authorities may intervene in the foreign exchange market to avoid excessive fluctuations, but they will not oppose the steady depreciation of the yen.

Elias Haddad (BBH)The exchange rate of the US dollar against the yen is currently seriously overvalued, but given the difference in real long-term interest rates between the two countries, this is also reasonable.

Canadian dollar: Strong economic data and the double impact of oil prices

On the Canadian side, strong employment data provided support for the Canadian dollar, but the sharp correction in oil prices limited the room for the Canadian dollar to rise. The financial system review issued by the Bank of Canada shows that although Canada's financial system is flexible, the risk of global market fluctuations and rising interest rates still requires attention. Market strategists pointed out that there is a possibility that the Bank of Canada will cut interest rates in June, but considering the upward trend in economic data, the Canadian economy may face more upward risks.

Analyst Views:

KARL SCHAMOTTA (Market Strategist)The Bank of Canada is still likely to cut interest rates in June, but there are more upside risks for the Canadian economy.

Next Week's Outlook: Key Economic Data and Central Bank Dynamics

Looking ahead to next week, the market will pay close attention to key economic data from the US and Europe, including US PPI, CPI, and retail sales data, as well as the ECB's interest rate decisions. These data and events will provide new guidance for the foreign exchange market. Meanwhile, Federal Reserve Chairman Powell's speech will also receive close attention from the market.

This week, the foreign exchange market showed a complex and changing trend against the backdrop of policy differences between European and American central banks. The US dollar, yen, and Canadian dollar are all affected by their respective central bank policy expectations and economic data. Looking ahead to next week, the market will continue to pay attention to central bank dynamics and economic data to find new trends in the foreign exchange market.