Forex News
BNY’s Bob Savage argues U.S. equities are being propelled by an unusually strong, AI-led earnings boom that is outpacing the broader economy and sustaining index gains despite macro headwinds. He notes that rising rates, higher Oil prices and weakening consumer dynamics could make the rally more selective, with valuations and market breadth becoming increasingly important.
AI boom drives but narrows equity gains
"U.S. equities are being driven by an unusually strong, AI-led earnings surge that is outpacing the broader economy and supporting index gains despite macro headwinds."
"AI-driven earnings surge is strong but narrow, with growth far outpacing broader economic activity."
"Rising real rates and energy shocks increase risk of tighter financial conditions and valuation pressure."
"Consumer weakness and margin pressures suggest potential demand slowdown despite resilient headline earnings growth."
"However, rising rates, energy shocks, and weakening consumer dynamics suggest the rally may become more selective, with greater sensitivity to valuations and market breadth."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Gold attracts some follow-through sellers for the fourth straight day amid sustained USD buying.
- Inflationary concerns continue to fuel hawkish Fed bets and lift the USD to over a one-month top.
- Persistent geopolitical uncertainties turn out to be another factor underpinning the Greenback.
Gold (XAU/USD) prolongs this week's retracement slide from the monthly peak and drifts lower for the fourth straight day on Friday. The commodity extends the downward trajectory through the first half of the European session and drops closer to the $4,550 level, hitting an over one-week low amid sustained US Dollar (USD) buying interest. The USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to its highest level since April 8 as US-Iran peace talks remain in limbo amid major disagreements over Tehran's nuclear program and the Strait of Hormuz. Adding to this, rising bets for interest rate hikes by the US Federal Reserve (Fed) lend additional support to the USD and undermine demand for the non-yielding bullion.
US President Donald Trump said in an interview aired on Thursday night on Fox News that he would not be much more patient with Iran and urged Tehran to reach a deal. Meanwhile, a commercial vessel was reportedly seized by Iranian personnel off the United Arab Emirates (UAE), stoking concerns over the flow of energy supplies through the critical Strait of Hormuz. The latest developments remain supportive of elevated Crude Oil prices. Adding to this, hotter-than-expected US inflation figures released this week and Thursday's US Retail Sales data lifted market expectations for a more hawkish US central bank and continue to act as a tailwind for the USD.
The headline US Consumer Price Index (CPI) rose to 3.8% YoY rate in April, and the core gauge climbed to 2.8%. Adding to this, the US Producer Price Index (PPI) surged 1.4% last month, pushing the annual rate to 6.0%. Moreover, US Retail Sales expanded for the third consecutive month in April, reflecting a still resilient consumer spending despite rising inflationary pressures and reaffirming hawkish Fed bets. According to the CME Group's FedWatch Tool, traders are now pricing in a nearly 40% chance that the US central bank will raise borrowing costs by the year-end. This, in turn, favors the USD bulls and backs the case for further depreciation of the Gold price.
Furthermore, record-high Indian discounts of up to $207 per ounce emerged after the government hiked import duties on Gold to 15% (up from 6%). The sudden tariff hike forced dealers to offer heavy discounts over official domestic prices. In contrast, strong investment demand for physical bullion keeps Chinese premiums firm at $14 to $20 an ounce over global benchmark prices. This, however, does little to act as a floor for international Gold prices amid ongoing geopolitical tensions and inflation concerns.
Meanwhile, US-China relations seem to have stabilized following a high-level summit between Trump and Chinese President Xi Jinping. Xi, however, warned that mishandling the Taiwan issue could trigger “clashes and even conflicts” between the US and China. Trump and Xi are set for a second day of talks in Beijing, and the incoming headlines might continue to infuse some volatility in the financial markets. Apart from this, developments surrounding the Middle East crisis would be looked upon for short-term trading opportunities. Nevertheless, the XAU/USD pair remains on track to register weekly losses, and the broader fundamental backdrop seems tilted in favor of bears.
XAU/USD 1-hour chart
Gold seems vulnerable to retest monthly swing low, around the $4,500 mark
From a technical perspective, the recent repeated failures near the $4,765-$4,770 horizontal resistance constituted the formation of a double-top pattern. A subsequent break below the $4,670 confluence – comprising the 200-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the upswing from the $4,500 neighborhood, or the monthly low – validates the negative outlook.
Adding to this, the Moving Average Convergence Divergence (MACD) indicator sits deep in negative territory with a reading of -5.58. Moreover, the Relative Strength Index (RSI) has slipped to 26.5, hinting at oversold conditions that could slow, but not yet reverse, the prevailing downside pressure.
On the downside, immediate support is aligned at the 61.8% Fibonacci retracement at $4,605.89, ahead of a secondary floor at the 78.6% level at $4,560.62 and the prior swing low region at $4,502.95. On the topside, initial resistance emerges at the 50% retracement at $4,637.69, followed by a thicker congestion zone between the 38.2% retracement at $4,669.49 and the 200-hour SMA at $4,673.40, with further recovery likely to face a stronger cap at the 23.6% retracement near $4,708.83.
(The technical analysis of this story was written with the help of an AI tool.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Here is what you need to know on Friday, May 15:
The US Dollar (USD) Index extends its rally and remains on track to post its largest weekly gain in two months as markets reassess the Federal Reserve's (Fed) policy outlook. In the second half of the day, the US economic calendar will feature Industrial Production data for April and NY Fed's Empire State Manufacturing Index for May.
Following the stronger-than-forecast consumer and producer inflation data earlier in the week, US Treasury bond yields rose sharply and boosted the USD. As of writing, the benchmark 10-year US T-bond yield was sitting at its highest level in nearly a year above 4.5%, while the USD Index was up 1.3% for the week at 99.10. According to the CME FedWatch Tool, markets are currently pricing in about a 50% probability of the Fed raising the policy rate at least once by end-2026. In the meantime, US stock index futures lose between 0.4% and 1% on the day, reflecting a risk-averse market atmosphere.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.98% | 1.46% | 1.16% | 0.51% | 0.82% | 1.40% | 0.97% | |
| EUR | -0.98% | 0.47% | 0.24% | -0.48% | -0.18% | 0.37% | -0.02% | |
| GBP | -1.46% | -0.47% | -0.74% | -0.97% | -0.67% | -0.09% | -0.49% | |
| JPY | -1.16% | -0.24% | 0.74% | -0.70% | -0.35% | 0.23% | -0.16% | |
| CAD | -0.51% | 0.48% | 0.97% | 0.70% | 0.39% | 0.94% | 0.46% | |
| AUD | -0.82% | 0.18% | 0.67% | 0.35% | -0.39% | 0.59% | 0.15% | |
| NZD | -1.40% | -0.37% | 0.09% | -0.23% | -0.94% | -0.59% | -0.43% | |
| CHF | -0.97% | 0.02% | 0.49% | 0.16% | -0.46% | -0.15% | 0.43% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The data from the US showed on Thursday that Retail Sales increased by 0.5% on a monthly basis in April, matching analysts' estimate. Additionally, the US Department of Labor reported that there were 211K Initial Jobless Claims in the week ending May 9, an increase of 12K from the previous week.
US President Donald Trump and Chinese President Xi Jinping reportedly discussed the opening of the Strait of Hormuz and agreed that it's needed to support the free flow of energy. President Trump also said that they had struck "fantastic trade deals" and "settled a lot of different problems other people wouldn't have been able to solve."
EUR/USD remains under bearish pressure and trades at its weakest level since early April below 1.1650.
GBP/USD declines for the fourth consecutive day and loses about 2% for the week. In addition to the broad USD strength, the political drama in the UK further weighs on the pair.
USD/JPY holds its ground and trades near 158.50, its highest level since Japan intervened in the foreign exchange market on April 30.
Gold (XAU/USD) declines sharply amid hawkish Fed repricing and trades well below $4,600, losing already 2% on the day.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
ING's Francesco Pesole highlights a significant technical break in EUR/USD below 1.170, opening scope for a test of 1.160 in coming days. Pesole stresses that widening EUR:USD two-year swap differentials back towards pre-war levels have removed a key source of Euro (EUR) resilience versus the US Dollar (USD), while political risk is adding a premium to EUR/GBP with upside risks for the cross.
Rate gap widens as support fades
"We saw a pretty significant technical break in EUR/USD at 1.170, which seemed to rapidly pave the way for a test of 1.160 in the coming days."
"While equities are the main driver of the pair, the moves in short-term rate differentials have been big of late. The EUR:USD two-year swap rate gap has widened 20bp from -80bp to -100bp since the start of this week. That is now close to pre-war levels, essentially removing a key driver (hawkish ECB repricing vs the Fed) of EUR/USD resilience during the conflict."
"Elsewhere in Europe, the pound dropped yesterday as markets priced in a greater chance of Andy Burnham entering the PM leadership challenge. The risk premium (EUR/GBP short-term overvaluation) is now 0.8%. It’s starting to look material, but remember that previous instances of intense political/fiscal concerns saw 2%+ risk premium. Risks remain on the upside for EUR/GBP."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- GBP/JPY drifts lower for the second straight day as UK political turmoil continues to weigh on the GBP.
- Economic concerns due to Middle East tensions undermine the JPY and help limit losses for spot prices.
- The technical setup favors bearish traders and backs the case for a further near-term depreciating move.
The GBP/JPY cross attracts some follow-through selling for the second consecutive day and drops to a one-and-a-half-week low during the early European session on Friday. Spot prices, however, rebounded a few pips in the last hour and currently trade near the 211.75 region, down 0.25% for the day.
The British Pound (GBP) continues with its underperformance in the wake of the deepening UK political crisis and turns out to be a key factor weighing on the GBP/JPY cross. The downside, however, remains cushioned amid a broadly weaker Japanese Yen (JPY), led by concerns about economic risks stemming from the Middle East conflict and a firmer US Dollar (USD). This, in turn, holds back bearish traders from placing aggressive bets, though the technical setup suggests that the path of least resistance for spot prices is to the downside.
The GBP/JPY cross holds beneath the 100-period Simple Moving average (SMA) and the nearby 50% Fibonacci retracement level of the February-April upswing. Moreover, clustered overhead resistance aligns at the 38.2% Fibo. at 212.97 and the 23.6% level at 214.32, suggesting rallies are likely to meet supply.
Momentum indicators also reinforce the negative tone, with the Relative Strength Index (RSI) slipping into oversold territory near 30 and the Moving Average Convergence Divergence (MACD) below zero with a negative histogram. This, in turn, hints that downside pressure persists even if short-covering bounces emerge. Meanwhile, recovery attempts need first to reclaim the 50.0% retracement at 211.88 to ease immediate pressure, with further resistance at 212.97 and the 100-period SMA at 213.92, before the 23.6% retracement at 214.32 comes into view as a more distant cap.
On the downside, initial support is seen at the 61.8% Fibo. retracement at 210.79, where buyers could attempt to slow the decline, ahead of a deeper support band at the 78.6% level at 209.23. A break below there would expose the prior swing low anchor at 207.26.
(The technical analysis of this story was written with the help of an AI tool.)
GBP/JPY 4-hour chart
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.93% | 1.41% | 1.14% | 0.50% | 0.75% | 1.30% | 0.92% | |
| EUR | -0.93% | 0.46% | 0.26% | -0.45% | -0.20% | 0.32% | -0.02% | |
| GBP | -1.41% | -0.46% | -0.72% | -0.92% | -0.69% | -0.13% | -0.48% | |
| JPY | -1.14% | -0.26% | 0.72% | -0.68% | -0.40% | 0.16% | -0.18% | |
| CAD | -0.50% | 0.45% | 0.92% | 0.68% | 0.33% | 0.84% | 0.41% | |
| AUD | -0.75% | 0.20% | 0.69% | 0.40% | -0.33% | 0.56% | 0.17% | |
| NZD | -1.30% | -0.32% | 0.13% | -0.16% | -0.84% | -0.56% | -0.38% | |
| CHF | -0.92% | 0.02% | 0.48% | 0.18% | -0.41% | -0.17% | 0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
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