Forex News
MUFG’s Teppei Ino reviews recent USD/JPY performance, noting that the pair opened at 156.86 and rose toward 158.50 as the Dollar strengthened on difficult US-Iran negotiations, higher crude oil prices and renewed inflation concerns.
Dollar strength drives Yen weakness
"The USD/JPY opened the week at 156.86."
"The pair moved into the 157 range and then continued to rise in stages as the dollar strengthened following weekend reports that negotiations between the US and Iran were proving difficult."
"US Treasury Secretary Scott Bessent held talks with Prime Minister Sanae Takaichi, Finance Minister Satsuki Katayama, and other officials on 12 May during his visit to Japan, but his comments were measured and did not prompt a major market reaction."
"Rates in Japan and the US rose after US President Donald Trump and Chinese President Xi Jinping concluded their summit in Beijing on 15 May, amid higher crude oil prices and renewed inflation concerns."
"The USD/JPY had risen to around 158.50, its highest level since 30 April, at the time of writing on 15 May."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
According to the Iranian Student News Agency (ISNA), a senior Iranian diplomat said that the nuclear issue and highly enriched uranium reserves will be discussed with the United States (US) in 60-day negotiations in exchange for the lifting of sanctions and unfreezing of assets.
“Management of the Strait of Hormuz is an Iranian-Omani issue which Tehran is negotiating with Oman,” a senior Iranian diplomat said.
Separately, a spokesperson from the Iranian Foreign Ministry said that Tehran is "negotiating an end to the war and is not currently discussing nuclear issues." He added, "Management of the strait belongs to the coastal countries."
The statement from Tehran indicates that US President Donald Trump's demands of Iran handing over its uranium enrichment and surrendering its nuclear ambitions were not part of the "largely negotiated" terms of the agreement, which he stated in his post on Truth Social over the weekend.
Market reaction
A strong recovery move is seen in the WTI Oil price and the US Dollar (USD) after comments from Iran. As of writing, the WTI Oil price bounces back to near $91.60 from its intraday low of $89.52. The US Dollar Index (DXY) recovers to near 99.10 after stabilizing around 99.0.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
- The US Dollar Index is hovering at the base of last week's trading range, around 99.00.
- Hopes of a peace deal with Iran are undermining demand for the Safe-haven US Dollar.
- USD downside attempts remain limited amid rising bets of Fed tightening.
The US Dollar (USD) gapped lower at the start of Monday’s session, retreating from the 99.30 area, the lower limit of last week’s trading range, to 99.00. The pair remains supported above previous highs, but investors’ optimism about a peace deal between the US and Iran and the reopening of the Strait of Hormuz are undermining speculative demand for the safe-haven Greenback
Comments by US President Donald Trump suggesting that a deal with Tehran is close have boosted investors’ confidence and are fuelling a moderate risk appetite on Monday. Trump, however, maintains a mixed tone, as he also affirmed that he told negotiators “not to rush into a deal,” and warned that the US will keep the blockade on the Strait of Hormuz until a deal is signed.
Earlier on Monday, the US Secretary of State, Marco Rubio, said that there is a “fairly strong proposal at the table” to reopen Hormuz, and that the US will give diplomacy every chance before alternatives are considered.
The calendar is void on Monday, with the US markets closed on the Memorial Day bank holiday and investors awaiting the release of key US macroeconomic releases, namely the Personal Consumption Expenditures (PCE) Price Index data, which is due on Thursday.
Recent US data has boosted confidence in the resilience of the US economy, which, in the context of fast-rising prices, is adding pressure on the Federal Reserve (Fed) to raise interest rates. Markets have gone from anticipating further monetary tightening, ahead of the attack on Iran on February 28, to pricing a more than 50% chance of a rate hike this year, according to data by the CME Group’s Fed Watch Tool. This is likely to keep the US Dollar's downside attempts limited.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
HSBC analysts discuss why the Canadian Dollar (CAD) has not strengthened significantly despite higher Oil prices, highlighting structural constraints in Canada’s non-US export capacity. They note that limited LNG and crude infrastructure towards Europe and Asia keeps Canadian energy exports largely US-focused and discounted. As a result, HSBC argues USD/CAD remains more sensitive to broad Dollar moves than to Oil dynamics in current conditions.
Oil sensitivity structurally constrained for CAD
"Canada should, in theory, benefit from higher oil via improved terms of trade and energy revenues. In practice, Canada’s ability to monetise global price spikes is constrained by limited liquefied natural gas (LNG) and crude export capacity to Europe and Asia."
"As a result, a large share of Canadian energy exports remains US‑centric and often trades at a discount, reflecting pipeline bottlenecks and limited west‑coast egress."
"Moreover, the largest oil spikes are often supply-shock events that coincide with risk aversion and USD strength, which can cap CAD upside."
"In today’s context, even if a prolonged Strait of Hormuz blockade pushes oil prices sharply higher, the CAD may not benefit much."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
European Central Bank (ECB) policy governing council member and Governor of the Bank of Greece, Yannis Stournaras said during the European trading session on Monday that the closure of the Strait of Hormuz, a critical passage to almost 20% of global energy supply, may have secondary effects on wages and prices of goods and services. Stournaras added, “It's necessary to ensure the return of inflation to the medium-term target of 2%.”
Market reaction
No immediate impact from ECB Stournaras's comments on the Euro (EUR), which is majorly driving by market sentiment since its opening. As of writing, EUR/USD trades 0.33% higher to near 1.1640.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- The Oil price faces intense selling pressure on hopes of the Strait of Hormuz reopening.
- US President Trump said that the Iran agreement is “largely negotiated”, but there is no rush for the deal.
- More downside looks likely towards $87 if the oil price fails to hold $90.00.
West Texas Intermediate (WTI), futures on NYMEX, are down 6% to near $90 in the European trading session on Monday, the lowest level seen in over two weeks. The oil price clings to opening losses amid hopes that energy supply disruptions due to the prolonged closure of the Strait of Hormuz, a critical passage to almost 20% of global energy supply, will be fixed soon.
Over the weekend, United States (US) President Donald Trump said in a post that an agreement with Iran towards a permanent resolution has been “largely negotiated”, which includes the opening of the Strait of Hormuz.
However, in a later post, Trump said that there is “no rush for the Iran deal”, as time is on Washington’s side. He added, “The Blockade will remain in full force and effect until an agreement is reached.” Meanwhile, Iran has not confirmed any progress in negotiations with the US.
Oil prices rallied by over 68% in almost two weeks when the Middle East war started on February 28. They started cooling down after both Iran and the US confirmed a temporary truce, aiming to reach a permanent resolution, but they are still almost 35% since the onset of the war.
WTI Technical Analysis
The WTI US Oil trades lower at around $90.00 as of writing. The near-term bias stays bearish as price holds well below the 20-day exponential moving average (EMA), which is at $96.80.
The Relative Strength Index (RSI) has slipped toward the low-40s, hinting at persistent downside pressure but stopping short of oversold extremes, which suggests scope for further weakness if the EMA ceiling is not reclaimed.
On the topside, initial resistance is now defined by the 20-day EMA at $96.80, and a daily close above this barrier would be needed to ease the current bearish tone and open the way toward higher levels. Until then, the absence of nearby mapped supports implies that any renewed selling could expose prior reaction lows on the chart, leaving WTI vulnerable to additional downside extension while below the EMA.
Looking down, the WTI Oil price could slide towards the May 6 low of $86.92 if it fails to hold $90.00. A downside move below $86.92 woudl expose the oil price to further downside towards the April 17 low at $78.88.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
(The technical analysis of this story was written with the help of an AI tool.)
MUFG’s Lloyd Chan notes that higher US 2-year yields and elevated Brent prices are supporting broader USD strength, with markets now fully pricing one Fed rate hike by January 2027. The report highlights rising US inflation expectations, record-low consumer sentiment and the risk that a potential US–Iran deal could trigger a sharp USD reversal if geopolitical tensions ease.
USD strength faces geopolitical risk
"US 2-year yields have continued to grind higher, with markets now fully pricing in one Fed rate hike by January 2027. US average gasoline prices remain elevated, staying above $5 per gallon. The University of Michigan’s May survey showed long-term inflation expectations rising to 3.9% from 3.5% in April, while consumer sentiment fell to a record low."
"Positioning-wise, long USD exposure picked up modestly over the past week, though it is not yet stretched. Focus shifts to communication from the new Fed Chair, Kevin Warsh, as markets assess how he will navigate a backdrop of rising inflation risks, weakening consumer confidence, and elevated US government debt."
"On the geopolitical front, Trump has announced that a deal with Iran has been largely negotiated. Gulf nations, including the UAE, Saudi Arabia, and Qatar, continue to advocate for a diplomatic resolution and warn against further escalation. For now, momentum remains with USD strength, supported by yields and macro resilience. However, positioning remains vulnerable to a sharp reversal should geopolitical risks ease sharply."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Gold kicks off the new week on a positive note as US-Iran peace deal hopes undermine the USD.
- The US and Iran remain at odds over key issues, helping limit USD losses amid hawkish Fed bets.
- The technical setup warrants caution for bulls before positioning for further appreciation.
Gold (XAU/USD) remains capped below the top boundary of a nearly one-week-old range through the early European session and trims a part of its modest intraday gains to the $4,580 region on Monday amid mixed fundamental cues. Developments over the weekend spurred hopes for a potential US-Iran peace deal, undermining the US Dollar's (USD) reserve currency status and lending support to the commodity. The US and Iran, however, remain at odds over key issues. This, along with hawkish US Federal Reserve (Fed) expectations, helps limit the USD losses and keeps a lid on any further gains for the non-yielding yellow metal.
Axios reported late Saturday, citing a US official, that the US and Iran are close to signing an agreement that involves a 60-day ceasefire extension during which the Strait of Hormuz would be reopened. Adding to this, US President Donald Trump said that the framework for a peace deal with Iran was largely negotiated. This boosts investors' confidence and the resultant slump in Crude Oil prices ease inflationary fears, triggering a steep decline in US Treasury bond yields amid relatively thin liquidity as many global markets are closed for holidays. This, in turn, is seen weighing heavily on the Greenback.
Meanwhile, Trump explicitly instructed his representatives not to rush into a deal with Iran and said that a naval blockade of Iranian ports will remain in effect until a formal, certified agreement is signed. Furthermore, major disagreements over Iran's nuclear program should cap the optimism. Moreover, bets that the US Fed will hike interest rates in 2026 could act as a tailwind for the USD. This, in turn, makes it prudent to wait for some follow-through buying before confirming that the Gold has formed a near-term bottom around the $4,450 area, or its lowest level since late March, touched last week.
XAU/USD 4-hour chart
Gold bulls seem hesitant; ascending channel hurdle and 200-SMA on H4 holds the key
From a technical perspective, the XAU/USD pair holds within a downward parallel channel. The channel ceiling coincides with the 200-period Exponential Moving Average (EMA) on the 4-hour chart, forming a cluster resistance near the $4,650 area, suggesting that rallies remain vulnerable despite the positive undertone in momentum. The Moving Average Convergence Divergence (MACD) is above zero, and the histogram is still positive. Moreover, the Relative Strength Index (RSI) hovers in the mid-50s, hinting at a tentative recovery rather than a clear trend shift.
On the downside, the lower boundary of the parallel channel around $4,360 marks the next key support area. A break beneath this floor would reinforce the broader bearish structure and open the door to a deeper correction within the medium-term downtrend.
(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.
- EUR/GBP declines to near 0.8635 in Monday’s early European session.
- ECB rate hike chance rises as Iran conflict fuels inflation.
- BoE's Taylor sees less risk of inflation persistence than in 2022.
The EUR/GBP cross trades in negative territory around 0.8635 during the early European trading hours on Monday. Traders await the speeches from the European Central Bank (ECB) policymakers later this week, including President Christine Lagarde, for fresh impetus.
The ECB hinted that rising energy prices might push this year's inflation forecasts upward, supporting the case for a potential interest rate hike this year. According to Reuters, the case for the ECB to raise the interest rates in June is nearly sealed, but the central bank is likely to be noncommittal about any further move, looking to temper bets for a quick follow-up step in July.
On the UK’s front, softer UK Retail Sales data and an unexpected rise in the Unemployment Rate to 5.0% have prompted traders to scale back expectations for future Bank of England (BoE) rate hikes by December. This, in turn, might weigh on the GBP and acts as a tailwind for the cross.
BoE Policymaker Alan Taylor said that an "extended hold" is likely sufficient, adding that second-round inflationary impacts are less severe than those seen during the 2022 Russia-Ukraine invasion due to a cooling domestic jobs market. Financial markets are pricing in two quarter-point increases in interest rates by the UK central bank by the end of the year.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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