Forex News

• EUR/GBP eases to the 0.8640 area after rejection above 0.8650.
• Eurozone preliminary PMIs hint at a significant downturn in business activity in May.
• UK services activity also dropped in May, but the manufacturing sector has shown resilience.

The Euro’s (EUR) frail recovery attempt against the British Pound (GBP) has been capped below 0.8660, as the pair retreats on Thursday, testing one and a half week lows below 0.8642 at the time of writing. Eurozone preliminary HCOB Purchasing Manager’s Index (PMI) data has disappointed, while the UK’s business activity seems more resilient amid the energy shock stemming from Iran’s war.

Eurozine's preliminary PMIs for May, released earlier on Thursday, revealed that business activity in the service sector dove to a 63-month low of 46.4, from 47.6 in April, against expectations of an uptick to 47.7. Manufacturing activity slowed down to 51.4 in May, from 52.2 in April, also below the 51.9 expected.

Down to member countries, France’s Composite PMI fell to a 66-month low of 43.5, from 47.6 in April, with the Manufacturing PMI slumping to 48.9 from 52.8 in April, and Services PMI dropping to 42,9 from 46.5 in the previous month. German PMI figures were also negative, with both the manufacturing and services sectors contracting. 

In the UK, May’s Preliminary S&P Global PMIs revealed that the services sector fell to contraction levels, at 47.9, from 52.7 in April, against market expectations of a softer slowdown to 51.8. The Manufacturing PMI, on the other hand, remained unchanged from April at expectations 53.7 level, beating expecttons of a moderate slowdown, to 53.0.

BNY’s Geoff Yu notes that U.S. long-term inflation expectations, measured via 5y5y swaps, are catching up with Europe’s as markets price prolonged disruption risks. He expects further convergence, with up to 10bp upside. Yu argues this should not undermine the Dollar, as higher real yields attract onshore and external investors back into U.S. Treasuries.

Higher real yields seen Dollar supportive

"Based on 5y5y inflation swaps, even after the first month of the conflict, U.S. long-term inflation expectations were around 15bp below levels seen at the beginning of the conflict, whereas U.K. and Eurozone equivalents had moved materially in the opposite direction, where they have remained even with the prospect of a permanent ceasefire. However, as U.S. data have begun to shift, the disinflation premia have swiftly eroded, and the 5y5y USD inflation swap is back to its levels at the beginning of the year and continues to rise."

"While there are crucial differences between the U.S. and European economies – being a net energy exporter and lower trade dependency to name a few – the experience of inflation expectations on the other side of the Atlantic justifies strong vigilance. We expect further convergence in inflation expectations through the second half of the year, which means further upside risk of up to 10bp should the change reach Eurozone levels."

"Despite the potential 25bp swing from end-March in the 5y5y, we don’t see such a move undermining the dollar, even if the Fed doesn’t react – nor should it, given its forecast horizon. For onshore investors, the moves in long-dated yields have been far larger than inflation expectations alone, which pushes up real rates across the curve and renders flows far more attractive to onshore bond investors."

"The U.S. has also benefited, to the extent that even external bond managers are re-entering the U.S. Treasury market, assuming that savings levels and trade surpluses begin picking up again while long-dated yields remain at a high level."

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

Silver prices (XAG/USD) fell on Thursday, according to FXStreet data. Silver trades at $75.58 per troy ounce, down 0.41% from the $75.89 it cost on Wednesday.

Silver prices have increased by 6.33% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 60.05 on Thursday, up from 59.87 on Wednesday.

(An automation tool was used in creating this post.)

ING analysts Warren Patterson and Ewa Manthey say the Brent market remains highly sensitive to Iran-related news, with prices dropping sharply on renewed hopes of a US-Iran agreement and improved tanker flows through the Strait of Hormuz. Their base case projects Brent averaging $104/bbl this quarter before easing into the $90s later in the year, contingent on recovering Persian Gulf exports.

Brent outlook hinges on Hormuz flows

"The oil market remains overly sensitive to Iran-related headlines, with participants continuing to pin considerable hope on reports that talks between the US and Iran are progressing."

"The latest report suggests that the US is in the “final stages” with Iran, raising hopes for an end to the war and reopening of the Strait of Hormuz."

"Our base case sees Brent averaging $104/bbl this quarter."

"Then, we see oil trading into the $90s in the second half of the year, assuming that Strait of Hormuz oil flows amount to around 4m b/d by the end of May."

"We will need to see this trend of tankers passing through the Strait of Hormuz continue for our base case to hold."

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

Danske Bank’s Danske Research Team notes that EUR/USD has seen only a modest move higher, with the pair holding just above 1.16 despite falling global yields. The FOMC minutes signalled a more hawkish tilt, with most members seeing scope for further policy firming if inflation stays above target, which supports the Dollar and caps Euro gains.

Euro struggles despite softer yields

"In the euro area, final HICP inflation for April confirmed the flash estimate of 3.0% y/y with core at 2.2%, and price pressures remain largely confined to energy."

"Overall, the April inflation report supports a more cautious response from the ECB as the inflation shock is still highly contained, but it is still early days of the supply shock's propagation. "

"In the ECB space, a Reuters sources story suggests the case for a June rate hike is now "nearly sealed" as the inflation outlook shifts towards the adverse scenario. However, policymakers are likely to avoid pre‑committing to further moves, with many preferring to wait for the September projections. Even a peace deal in Iran before the meeting would not change much near term, as elevated energy prices are expected to persist."

"In the US, the FOMC minutes underlined a deeper policy split following the divided rate decision. While the Committee kept the fed funds rate at 3.5-3.75%, a majority now judge that "some policy firming would likely become appropriate" if inflation, amplified by the Iran war's impact on energy prices, remains persistently above 2%. A majority would have preferred to remove the easing bias from the statement, reinforcing a more hawkish tilt that markets will scrutinise closely."

"We have changed our Fed call and now look for two hikes coming in December 2026 and March 2027."

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

• NZD/USD may navigate the region around initial support at the lower boundary of the descending channel around 0.5810.
• The 14-day Relative Strength Index around 48 signals fading upside momentum without reaching outright oversold conditions.
• The immediate barrier lies at the 50- and nine-day EMAs of 0.5879 and 0.5882, respectively.

NZD/USD moves little after registering modest gains in the previous day, trading around 0.5870 during the European hours on Thursday. The technical analysis of the daily chart signals an ongoing bearish bias as the pair remains within the descending channel pattern.

The NZD/USD pair is holding a mild bearish bias as it sits just under the nine- and 50-day Exponential Moving Averages (EMAs). The pair has slipped back below these short- and medium-term trend gauges, suggesting rallies are likely to face supply near the moving average cluster, while the 14-day Relative Strength Index (RSI) around 48 hints at fading upside momentum but not outright oversold conditions.

On the downside, the NZD/USD pair may fall toward the lower boundary of the descending channel around 0.5810, followed by the six-week low of 0.5794, recorded on April 13. A break below this confluence support zone would put downward pressure on the pair to navigate the region around a nearly six-month low of 0.5681, which was recorded on April 6.

The NZD/USD pair may retest the immediate barrier at the 50-day EMA of 0.5879, aligned with the nine-day EMA at 0.5882. A sustained break above these moving averages could support the pair to test the upper boundary of 0.5940, followed by the three-month high of 0.6014, which was reached on February 26.

(The technical analysis of this story was written with the help of an AI tool.)

United Overseas Bank (UOB) strategists Quek Ser Leang and Lee Sue Ann say USD/JPY’s uptrend is losing steam after the pair failed to extend gains beyond 159.25 and posted its first daily decline in seven sessions. They still see scope for a move above 159.45 in the months ahead, but warn that a break below 158.40 would turn the short-term outlook neutral, with today’s range seen at 158.40–159.10.

Dollar-Yen momentum fades near recent highs

"24-HOUR VIEW: We expected USD to “trade in a range between 158.75 and 159.25” yesterday. However, USD fluctuated between 158.57 and 159.16. We are not able to derive much from the price action. Today, USD could trade between 158.40 and 159.10"

"1-3 WEEKS VIEW: Tracking our positive USD view from early last week (as annotated in the chart below), we highlighted on Tuesday (19 May, spot at 158.80) that “short-term upward momentum is starting to fade, and USD must break and hold above 159.25 before further gains are likely.” Yesterday, USD closed lower for the first time in seven days (158.91, -0.08%). Upward momentum continues to slow, and a breach of 158.40 (no change in ‘strong support’ level) would shift the outlook for USD from positive to neutral."

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