Forex News
Brown Brothers Harriman’s Elias Haddad notes that resilient US growth and sticky PCE inflation keep the Dollar supported despite improved risk sentiment from progress on a US-Iran deal.
Dollar Index poised for range break
"We are sticking to our view the dollar index (DXY) risk overshooting the upper end of its nearly one year 96.00-100.00 range in the near term. Resilient US economic activity in both absolute and relative terms outweigh the drag to USD from easing geopolitical fears."
"Both headline and core PCE inflation are overshooting the FOMC’s 2026 projection of 2.7%. Moreover, core services less housing PCE printed for a second straight month at 3.5% y/y in April, well above the level consistent with a sustained return to the Fed’s 2.0% target."
"The Atlanta Fed GDPNow model real GDP growth estimate for Q2 cooled but continues to point at above-trend growth. GDPNow suggests the US economy will expand at an annualized rate of 3.8% in Q2, down from 4.3% in its previous release on May 21. In parallel, the May PMI data points to a widening US growth edge over peers."
"Encouraging progress over a US-Iran deal has turbocharged the rally in risk assets. Both sides are reportedly nearing an agreement that would extend the ceasefire by 60 days and reopen the Strait of Hormuz."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- The Canadian economy stagnated in the first quarter of 2026.
- USD/CAD trades in positive territory above 1.3800 on Friday.
Canada's Gross Domestic Product (GDP) was unchanged on a quarterly basis in the first quarter of 2026 following the 0.2% contraction recorded in the last quarter of 2025, Statistics Canada reported on Friday.
In this period, the annualized GDP declined by 0.1%, falling short of the market expectation for a growth of 1.5%. On a monthly basis, the GDP contracted by 0.1% in March.
Market reaction
USD/CAD edged higher with the immediate reaction to disappointing GDP data and was last seen rising 0.25% on the day at 1.3820.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
Brown Brothers Harriman reports that USD/JPY is trading directionless above 159.00 after Japan’s Ministry of Finance conducted record-sized FX intervention to cap the pair around 160.00. The bank notes that lower Oil prices may help pull USD/JPY toward 155.00, but a sustained break below that level would require a more hawkish Bank of Japan, which they see as unlikely for now.
Record intervention anchors Yen ceiling
"USD/JPY is directionless above 159.00. Japan's Ministry of Finance purchased a total of ¥11.735 trillion in the period from April 28 through May 27 to stem the surge in USD/JPY."
"That’s the biggest intervention amount on record and underscores authorities’ determination to keep a lid on USD/JPY around 160.00."
"The correction in crude oil prices takes some pressure off JPY and could help nudge USD/JPY lower to 155.00."
"But breaking materially below that level hinges on the Bank of Japan to lean more hawkish. It’s too soon to bet on that because almost all underlying CPI indicators softened in April."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Annual CPI inflation in Germany declined at a faster pace than expected in May.
- EUR/USD continues to trade in a tight channel at around 1.1650.
Annual inflation in Germany, as measured by the change in the Consumer Price Index (CPI), softened to 2.6% in May's flash estimate from 2.9% in April. This print came in below the market expectation of 2.8%. On a monthly basis, the CPI declined 0.2% following the 0.6% increase recorded in April.
The Harmonized Index of Consumer Prices, the European Central Bank's (ECB) preferred gauge of inflation, declined 0.1% on a monthly basis and rose 2.7% on a yearly basis. Both of these prints came in below analysts' estimates.
Market reaction
EUR/USD showed no immediate reaction to these figures and was last seen trading virtually unchanged on the day at 1.1645.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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