The USD eased slightly, oil prices trade lower, equity markets inched higher, and US yields moved lower. The USD edged lower as investors took profits after recent gains, though expectations for higher-for-longer Federal Reserve interest rates amid persistent inflation pressures continued to support the broader outlook for the greenback. Precious metals traded mixed as gold edged higher on ongoing geopolitical uncertainty and inflation concerns, while silver slipped after recent strong gains despite a supportive long-term industrial demand outlook. Bitcoin traded in the mid-$70K range as hotter-than-expected US inflation data and fading hopes for Federal Reserve rate cuts weighed on risk appetite, though continued institutional demand helped limit losses. This week’s stronger-than-expected US CPI and PPI data reinforced concerns that inflation pressures remain elevated, with consumer inflation reaching its highest level since May 2023 and wholesale inflation recording its fastest annual increase since 2022. Markets have now fully priced out Federal Reserve rate cuts this year and are increasingly pricing in the possibility of another rate hike before year-end, while investors also assessed whether the Fed would maintain its independence.
News Headlines: Chinese President Xi Jinping told President Trump that trade talks were progressing, while warning that tensions over Taiwan could seriously threaten US-China relations and regional stability. President Xi reportedly opposed efforts to impose tolls on the Strait of Hormuz and expressed interest in increasing US oil purchases to reduce China’s dependence on the strategically sensitive waterway. Key OPEC+ members plan to continue gradually increasing oil production quotas through September despite ongoing disruptions from the Iran war, as global energy shortages and soaring fuel prices intensify recession concerns. Iran urged BRICS nations (Brazil, Russia, India, China, Saudi Arabia) to condemn the US and Israel over the ongoing conflict, highlighting growing divisions within the expanded bloc as geopolitical tensions and the global energy crisis intensify. Russia launched its largest aerial assault on Ukraine since the war began, firing hundreds of drones and missiles at Kyiv and other cities over a two-day period amid escalating fighting.
In currency markets. China’s yuan rose to a three-year high against the dollar as investors welcomed signs of stabilizing US-China relations following talks between Presidents Xi Jinping and Donald Trump, while remaining cautious about concrete trade outcomes. Meanwhile, the Japanese yen remained supported after Bank of Japan board member Kazuyuki Masu signaled openness to a potential June rate hike if economic conditions remain stable amid rising inflation pressures driven by higher oil prices.
In commodity markets. Oil prices fell 0.12%. Natural gas eased 0.13%. Gold moved higher 0.13%. Silver lost 0.57%. Copper gave back 0.83%. Coffee remained under pressure down 0.83%. Soybean edged lower 1.6% and Wheat lost 0.28%.
USD/CAD remained supported as softer Canadian labor market conditions increased expectations that the Bank of Canada will stay cautious on additional tightening, while persistent US inflation and resilient economic data reinforced higher-for-longer Federal Reserve rate expectations, favoring the US dollar over the Canadian dollar.
EUR/CAD moved lower as expectations for further ECB tightening were overshadowed by cautious investor sentiment toward the euro amid geopolitical uncertainty, while the Canadian dollar gained modest support from resilient commodity prices and stabilizing risk appetite.
EUR traded relatively steady as investors balanced expectations for further ECB rate hikes against slowing Eurozone economic growth and ongoing geopolitical uncertainty tied to stalled US-Iran negotiations. Persistent inflation pressures, including a sharp rise in German wholesale prices, continued to support the case for tighter ECB policy, while cautious market sentiment limited broader gains for the euro.
GBP/EUR remained rangebound as softer UK economic sentiment and political uncertainty pressured sterling, while resilient Eurozone inflation and improving German wholesale price data continued to support expectations for additional ECB rate hikes.
GBP remained relatively stable as softer UK economic momentum, weak business confidence, and ongoing political uncertainty continued to weigh on sterling, while investors looked ahead to upcoming UK GDP and labor market data for further clues on the Bank of England’s policy outlook.
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