Forex News

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that USD/SEK has fallen on broad Dollar weakness while Sweden’s April disinflation surprised to the downside, reducing Riksbank hike expectations. The swaps curve has shifted lower toward the bank’s projected path, with rates seen on hold at 1.75% until late 2026. Haddad stresses that positive real rates remain supportive for the Swedish Krona.

Deep disinflation but supportive real yields

"Sweden disinflation unexpectedly deepened in April, supporting the case for an extended Riksbank hold."

"The swaps curve adjusted lower, converging toward the Riksbank’s policy rate path."

"The March Monetary Policy Report b showed the Riksbank pencils in the policy rate at 1.75% until Q4 2026, followed by a 25bps hike to 2.00% by Q1 2028."

"The Riksbank is widely expected to keep the policy rate at 1.75% for a fifth consecutive meeting tomorrow."

"Positive real rates bode well for SEK."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Alberto Musalem, President of the Federal Reserve (Fed) Bank of St. Louis, spoke at the Mississippi Bankers Association on Wednesday. He said that uncertainty around tariffs and war is a headwind. He also said that along with tariff and Oil shocks, there is underlying inflation the Fed needs to worry about.

Key takeaways:

Tailwinds including accommodative financial conditions currently greater than headwinds for US economy.

Uncertainty around tariffs and war are headwinds.

The labor market seems to have stabilized after gradual cooling last year.

Recent payroll growth has been around the breakeven rate.

Inflation is "meaningfully" above target.

Along with tariff and oil shocks, there is underlying inflation the Fed needs to worry about.

There are risks to both mandates, but risks have been shifting towards inflation.

There are plausible scenarios that would require rates to remain stable for some time.

Current policy is either neutral or slightly accommodative in real terms.

There are also plausible scenarios at this point that would lead to both rate cuts and rate hikes.

FOMC is committed to 2% inflation.

Meeting the 2% target is the best thing the Fed can do for growth and employment.

Consumers and companies both say they are struggling with higher and rising prices.

Monetary policy independence is a valuable asset for any country.

Fed must be held accountable for outcomes and communicate transparently about its decisions.

Hear from all sectors that higher aluminum, helium and other input prices will be disruptive.

Firms are saying that they are not hiring due to uncertainty.”

• EUR/JPY declines around 183.50 on Wednesday, pressured by renewed strength in the Japanese Yen.
• Markets remain alert to the risk of further intervention by Japanese authorities.
• Eurozone inflation data reinforces expectations of monetary tightening by the European Central Bank.

EUR/JPY trades around 183.50 on Wednesday at the time of writing, down 0.61% on the day, as the Japanese Yen (JPY) benefits from stronger demand amid fears of intervention by Japanese authorities in the foreign exchange market.

Traders remain cautious after data released last week by the Bank of Japan (BoJ) showed that the Ministry of Finance (MOF) may have spent around ¥5.48 trillion, or nearly $35 billion, to support the Japanese Yen after USD/JPY broke above the psychological 160.00 threshold. Several analysts also estimate that the recent decline in USD/JPY could be consistent with another implicit intervention by Japanese authorities.

Investor caution is further reinforced by comments from Japanese Finance Minister Satsuki Katayama, who reiterated earlier this week that Tokyo remains ready to take “decisive measures” against speculative moves in the foreign exchange market, in line with the agreement signed with the United States (US) last year. A former Japanese official also warned that further action could take place during the Golden Week holiday period.

However, despite these signals, JPY bulls still refrain from placing overly aggressive bets in the absence of official confirmation of a recent intervention by Japanese authorities.

On the European side, the latest macroeconomic data provides mixed support to the Euro (EUR). Eurostat reported on Wednesday that the Eurozone Producer Price Index (PPI) accelerated to 2.1% YoY in March, compared with a 3% drop previously and above market expectations. On a monthly basis, the indicator jumped 3.4%, marking its strongest increase in nearly four years.

These figures fuel concerns over persistent inflationary pressures and strengthen expectations of an interest rate hike by the European Central Bank (ECB). Bundesbank President Joachim Nagel also stated on Monday that a rate increase as early as June remains possible if the inflation outlook does not improve rapidly.

At the same time, activity indicators continue to point to an economic slowdown in the region. The Eurozone final HCOB Services Purchasing Managers Index (PMI) was revised slightly higher to 47.6 in April from the preliminary estimate of 47.4, but remains well below the 50 threshold separating expansion from contraction. The Composite PMI also indicates a contraction in activity at 48.8.

BNY noted that this combination of weakening economic activity and persistent inflationary pressures increases stagflation risks in the region. The bank believes that if markets start to view that the ECB may need to limit monetary tightening due to slowing growth, the Euro (EUR) could underperform against its major peers.

TD Securities analysts argue the US Dollar (USD) faces asymmetric downside risk around the April US payrolls release. They note US Dollar Index (DXY) has been rangebound with low volatility, and see limited upside even on strong jobs data, as Federal Reserve (Fed) rate cuts are largely priced out and inflation, not employment, is driving Fed expectations.

Dollar downside risk into payrolls

"Since the first week of April, the USD has traded in a tight band. Using the DXY index as a proxy, the USD has closed on a 98-handle every day since April 8. Compressed USD realized vols have kept a lid on front-end implied vols."

"Based on high-frequency employment data such as weekly ADP and continuing claims, many market participants already expect some improvement to show up in this payrolls report. The Fed's inclination to hike rates also leans more on how much the energy shock from Q1 will pass through to core inflation, rather than on labor market conditions. With Fed rate cuts pricing largely removed now, the CPI data release next week should matter more for the Fed hawks and USD bulls, in our view."

"The USD faces asymmetric downside heading into payrolls. Extent of USD downside in the near-term will depend on Middle East developments. Positive employment data surprise likely won't lead to significantly higher USD, as Fed rate cuts have been priced out and inflation data matters more for Fed rate hike pricing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• Gold jumps over 3% on Wednesday as hopes for a US-Iran peace deal pressure Oil and the US Dollar.
• Falling Oil prices ease inflation concerns and revive Fed interest rate cut bets.
• Technically, XAU/USD gains bullish momentum above key SMAs on the 4-hour chart after rebounding from the $4,500 support zone.

Gold (XAU/USD) rallies on Wednesday as the US Dollar (USD) and Oil prices tumble on hopes that the United States and Iran could reach a deal to end the war in the Middle East. At the time of writing, XAU/USD is trading around $4,714, up over 3% on the day and hitting its highest level in over a week.

According to a report published by Axios, citing two US officials and two other sources familiar with the matter, Washington and Tehran are moving closer to a one-page memorandum of understanding (MOU) to end the war and establish a framework for more detailed nuclear negotiations.

The report said the proposed deal could include Iran pausing nuclear enrichment, while the US would lift sanctions and release billions of US Dollars in frozen Iranian funds. Both sides are also expected to end the blockade around the Strait of Hormuz.

Iran’s Foreign Ministry spokesperson said Tehran is reviewing the latest US proposal and will convey its response to Pakistan, according to Iran’s ISNA News Agency. ISNA also reported that parts of the Axios report were “speculation,” adding that the US proposal contains “ambitious and unrealistic” demands.

This comes after US President Donald Trump said on Truth Social that Washington has paused its military “Project Freedom” operation due to “great progress” toward a “complete and final agreement” with Iran.

In reaction to the latest optimism, Oil prices plunged, with West Texas Intermediate (WTI) crude falling more than 10% at one point before trimming some of its losses. At the time of writing, WTI is trading around $92.40, down nearly 7.5% on the day.

US Treasury yields also pulled back from recent highs as the sharp decline in crude Oil helped ease concerns over energy-driven inflation and tempered hawkish Federal Reserve (Fed) expectations that had been building recently. According to the CME FedWatch Tool, the probability of a rate cut at the September meeting rose to 19.9%, up sharply from 1.4% a week ago.

The shift in interest rate expectations, alongside a weaker US Dollar and falling Treasury yields, is helping Gold rebound after sustained selling pressure since the war began.

Traders now await further developments around the US-Iran negotiations, with any signs of a finalized agreement likely to push Gold higher, while a breakdown in talks could weigh on the precious metal again.

On the data front, the US ADP Employment Change report showed private sector payrolls increased by 109K in April, up from 61K in March and beating market expectations of 99K.

Attention now turns to the upcoming US labor market data, including weekly Initial Jobless Claims on Thursday and the Nonfarm Payrolls (NFP) report on Friday.

Technical Analysis: Bulls take back control as XAU/USD rebounds from $4,500 support

On the 4-hour chart, XAU/USD has turned bullish after bouncing from the $4,500 support zone and climbing above the 21-period and 100-period Simple Moving Averages (SMAs). The Relative Strength Index (RSI-14) near 69 suggests upside momentum remains strong, though Gold is approaching overbought territory.

Meanwhile, the Moving Average Convergence Divergence (MACD) remains firmly in positive territory, reinforcing the constructive near-term outlook. However, the sharp rally and stretched momentum conditions could leave the precious metal vulnerable to short-term consolidation or shallow pullbacks.

On the upside, the first resistance is seen near the horizontal barrier around $4,800, followed by the key psychological level at $5,000.

On the downside, immediate support is located at the 100-period SMA around $4,695, followed by the 21-period SMA near $4,588. Both levels could attract dip-buying interest if Gold corrects lower. A deeper pullback would shift focus back toward the key structural support at $4,500.

• EUR/GBP trades flat as US-Iran peace headlines trigger volatility across the FX market.
• The Euro trims earlier gains as uncertainty surrounding the US-Iran deal keeps traders cautious.
• Sterling struggles ahead of UK municipal elections amid speculation over Prime Minister Starmer’s position.

EUR/GBP trades flat on Wednesday after trimming earlier gains as geopolitical headlines surrounding a potential US-Iran peace deal triggered fresh volatility across the FX market. At the time of writing, the cross is trading around 0.8635, little changed on the day after touching an intraday high of 0.8649.

The Euro (EUR) strengthened earlier in the European trading session after Axios reported that Washington and Tehran are moving closer to a potential agreement aimed at ending the war and establishing a framework for detailed nuclear negotiations.

However, the Euro’s gains proved short-lived as uncertainty remained elevated, with US President Donald Trump warning that military action could resume if Iran does not agree to the deal.

Iran’s Foreign Ministry spokesperson said Tehran is reviewing the latest US proposal and will convey its response to Pakistan, according to Iran’s ISNA News Agency. ISNA also reported that parts of the Axios report were “speculation,” adding that the US proposal contains “ambitious and unrealistic” demands.

Meanwhile, the British Pound (GBP) is also struggling to gain traction ahead of Britain’s municipal elections on Thursday, as speculation continues to swirl around Prime Minister Keir Starmer’s position, with polls suggesting the Labour Party could face a significant setback.

This is helping limit the downside in EUR/GBP, with price action remaining largely range-bound near recent lows. Traders also digested the latest Services Purchasing Managers Index (PMI) data from both the Eurozone and the United Kingdom.

In the UK, the S&P Global Services PMI was revised slightly higher to 52.7 in April from the preliminary estimate of 52 and up from March’s 11-month low of 50.5. Meanwhile, the Composite PMI improved to 52.6 from 50.3 in the previous month, beating both the flash estimate of 52 and market expectations of 49.8.

On the Eurozone side, the S&P Global Services PMI was revised up marginally to 47.6 in April from 47.4, though it still fell sharply from 50.2 in March. The Composite PMI also dropped to 48.8 from 50.7 previously, despite a slight upward revision from the preliminary estimate of 48.6.

BNY highlights a broad Eurozone PMI downturn, with the composite back in contraction and services particularly weak, while producer prices and input costs re‑accelerate. The bank notes markets assume ECB policy cannot diverge much from peers, a view it challenges. Softer demand and early ECB tightening could see the Euro underperform on a relative‑value basis versus other currencies.

Soft data, sticky prices pressure Euro

"For now, the ECB is the only Western European central bank clearly on course to tighten, and the market appears to believe that policy gaps between the ECB and peers cannot widen significantly."

"If markets take the view that inhibiting hikes due to softer demand is the right way forward, the EUR may weaken on a relative-value basis against peers and greatly reduce pass-through risk."

"Eurozone composite PMI for April fell to 48.8 points from 50.7 in March, marking a 17-month low and signaling a return to contraction for the first time in almost one-and-a-half years, while the services PMI declined to 47.6, its weakest level in 62 months."

"At the same time, inflation pressures intensified, with input costs rising to a 40-month high and output prices increasing at the fastest rate in three years, reinforcing stagflation risks."

"Eurozone industrial producer prices rose sharply in March (+3.4% m/m), reversing a 0.6% decline in February, while annual growth reached 2.1%, indicating a renewed pickup in pipeline inflation pressures."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Scotiabank strategists Shaun Osborne and Eric Theoret highlights that USD/CAD is little changed as lower Oil offsets improved risk appetite, with the Canadian Dollar (CAD) having seen limited benefit from prior crude gains. Short-term technicals remain bearish for the US Dollar (USD), with resistance at 1.3625/30 and 1.3720 and a target toward firm support in the low 1.35 zone.

CAD holds gains as USD trend weakens

"The CAD is little changed on the session and, like the NOK, is lagging its major currency peers as investors balance strengthening risk appetite with the drop in crude oil prices. The CAD did not benefit significantly from the surge in crude through the duration of the US/Iran conflict so far, so a resolution to the war."

"Lower energy prices may only affect CAD sentiment in as much as a sustained drop in oil prices would counter recent concerns about Bank of Canada policy tightening risks later this year in the event of a sustained rise in inflationary pressures."

"Late this afternoon, BoC Governor Macklem and Senior DG Rogers are back at the parliament building to brief the Senate banking Committee on the economy and outlook. Messaging will broadly reflect the remarks made to the Commons committee on Finance earlier this week. "

"Bearish—The CAD has nudged back away from its best levels against the USD seen earlier in European trade but the short-term downtrend in spot remains intact and trend dynamics remain bearish for the USD. The USD failed to extend a minor rebound above 1.3625/30 resistance yesterday and, at this point, would need to regain 1.3720+ to reflect real technical strength, we think."

"Minor USD rallies remain a technical sell. We continue to target a push to test firm USD support in the low 1.35 zone."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)