Forex News

Nordea's Chief Economist Helge J. Pedersen argues that rapidly rising defense spending in Europe represents a historic fiscal expansion that can support GDP in the short term but raises medium‑term risks. He highlights IMF research on multipliers, debt and inflation, and notes that targeted, high‑tech defense investment could enhance productivity and competitiveness over time.

Rearmament as fiscal stimulus and risk

"After decades of declining defense budgets, the world has now entered a new era of rearmament. The war in Ukraine, growing great power rivalry, and uncertainty about US security guarantees have sent defense spending markedly higher in Europe."

"Historically, rising defense spending has functioned as classic fiscal stimulus. When the state hires more soldiers, buys weapons, builds barracks, or invests in cyber defense, it creates activity in industry and the labor market."

"This is precisely why the IMF warns about the medium-term consequences. When defense spending rises rapidly, it typically happens through larger budget deficits."

"At the same time, there is a latent risk that rearmament leads to both higher inflation and higher interest rates. The IMF thus emphasizes that defense buildup typically pushes prices up temporarily, especially in economies with already high capacity utilization."

"Nevertheless, Europe's rearmament can also become a catalyst for a new industrial policy and future growth. Many governments now want to strengthen European production of ammunition, AI, satellites, cyber defense, and advanced technologies."

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

TD Securities strategists reiterate their view that the Reserve Bank of Australia (RBA) will likely need to raise the cash rate to 4.60% in this cycle. They note that the May policy statement suggests hesitation to hike in June, and expects the RBA minutes to clarify this. TD currently forecasts the next RBA cash rate increase in August, with a peak at 4.60%.

RBA minutes to guide hike path

"We discussed back in Feb that the RBA may ultimately need to take the cash rate to 4.60% in this cycle which looks increasingly likely."

"We forecast the next RBA cash rate hike in Aug, with the peak at 4.60%."

"It's just the timing that's the question."

"The May policy statement implies the RBA is hesitant to hike in June and the minutes may shed light on this."

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

Commerzbank’s Dr. Henry Hao notes that China’s post-Q1 recovery lost momentum in April, with industrial output at a three-year low and fixed-asset investment shrinking. Domestic consumption remains fragile as retail sales barely grew and youth unemployment rose. While property prices show tentative stabilization, policymakers are expected to keep a patient stance and delay targeted fiscal and monetary support until H2 unless weakness persists.

Growth momentum fades as risks build

"China’s economic recovery stalled in April as industrial output hit a three-year low and fixed-asset investment contracted. Surging raw material costs and sluggish retail sales highlight severe domestic weakness. Although property price declines slightly moderated, pervasive household caution persists. Chinese policymakers will likely maintain a patient policy stance, delaying targeted stimulus interventions until H2."

"The economic momentum China generated during Q1 dissolved rapidly in April, exposing the persistent vulnerabilities of a lopsided recovery. Growth decelerated across all major economic pillars as the biting effects of a global energy crisis began to heavily pressure factory floors. Industrial production slowed down to 4.1% yoy in April, representing its lowest level in nearly three years."

"Domestic consumption remains the weakest link in the recovery narrative, with retail sales growth declining to a mere 0.2% yoy in April. This reading marks the poorest consumer performance since the pandemic exit shock in late 2022, fueled by a severe slump in big-ticket, credit-intensive purchases such as vehicles and home appliances."

"Because these real estate stabilization measures take time to filter into broader household confidence, Beijing is currently maintaining a cautious, wait-and-see policy approach. While this weak April data highlights rising headwinds, we are holding our growth outlook steady for now, as we expect the government to step in with targeted fiscal and monetary interventions in if these economic challenges persist."

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

• Goldman Sachs maintains its bullish target for Gold at $5,400 by year-end.
• Central bank purchases are expected to increase, supporting Gold prices.
• Gold’s short-term outlook remains weak as higher yields globally weigh on investors’ appetite for the precious metal.

Central banks are expected to increase their Gold purchases in 2026, analysts at Goldman Sachs say, supporting a much-needed boost to the precious metal toward the end of the year. 

Central bank buying is expected to average 60 tonnes a month on average this year, more than the 12-month moving average of 50 tonnes seen in March, analysts Lina Thomas and Daan Struyven said in a note dated May 15, Bloomberg reports. 

Central bank buying is considered one of the main factors supporting the Gold price, which reached an all-time high of around $5,600 per troy ounce at the end of January. “There’s a strong underlying interest in Gold, and recent geopolitical developments are likely to reinforce diversification,” the analysts said, citing an in-house survey.

Given the boost from institutional demand, the analysts maintained Gold’s price target by year-end at $5,400, close to its record high. The precious metal currently trades at around $4,500, weighed down by soaring global bond yields as inflation expectations continue to climb.

Despite the upbeat forecast, Goldman Sachs was more cautious when analyzing the near-term outlook for the metal. Gold is “a natural source of cash if private investors face liquidity needs — for example, if equity markets sell off amid higher rates and weaker growth expectations,” the analysts said.

Some central banks are already stepping up their purchases. According to data from the World Gold Council (WGC), the People’s Bank of China (PBoC) has purchased 8 tonnes in April, the highest level since December 2024. Gold now accounts for approximately 9% of China's overall foreign exchange reserves.

In the first quarter, data from the WGC shows that global central banks bought 244 tonnes of Gold, a 3% increase compared with the same period a year earlier, despite a visible uptick in selling activity from certain countries during the quarter.

“Our view remains that investment and central bank demand will be supported by ongoing geopolitical risk, with further investment impetus from elevated inflation and persistent high gold prices,” the WGC said.

ING strategists Warren Patterson and Ewa Manthey report renewed strength in European gas, with TTF breaking above EUR50/MWh as Middle East risks persist. They argue the gas market is underpricing supply impacts from the Persian Gulf, expecting Asian buyers to increase spot purchases and compete with Europe, while EU storage remains relatively tight versus its five-year average.

TTF gains as supply risks grow

"The European gas market is seeing renewed strength with little sign of a resolution in the Middle East."

"TTF broke above EUR50/MWh and this strength is continuing in early-morning trading today."

"We have highlighted several times that the gas market is underpricing the scale of the supply impact from the Persian Gulf."

"Asian buyers will need to enter the spot market to replace disrupted contracted cargoes from the Persian Gulf, increasing competition between Asian and European buyers."

"Storage in the EU remains relatively tight at 36% full compared to a 5-year average of 50% full."

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

Kit Juckes at Societe Generale highlights that EUR/USD has lost downward momentum after slipping from 1.18 to 1.16, despite risk-off conditions and tumbling sentiment indicators. He links this resilience to a bearish Dollar consensus and to markets still pricing multiple ECB hikes, suggesting rate expectations must shift before EUR/USD trends decisively.

Euro holds despite risk-off backdrop

"Rates and equity markets are in ‘risk-off’ mode, the SG Sentiment Indicator is tumbling and yet, EUR/USD, having slipped from 1.18 to 1.16, has run out of downward momentum!"

"To some extent, this reflects the bearish USD consensus (President Trump wants a weaker dollar and lower rates and isn’t doing anything to make foreign investors relaxed about holding long dollar positions), and to some extent it reflects the fact that while the front end of the US rates curve is now pricing in a decent chance of a Fed hike this year (in which regard, Wednesday’s FOMC Minutes will be interesting) it is still pricing in 3 ECB hikes (and 2 ½ from the bank of England)."

"This still suggests that we need the rates market to move before FX can: If European rate hike expectations are questioned by the market (they look excessive given the economic outlook) the dollar is likely to get a lift (as it would if the FOMC minutes trigger a further rethink of the likely Fed rate path), but even so, any upward trend in the dollar is likely to be slowed by the underlying negative sentiment."

"Currently, the futures market is busy, once again, giving up on long USD positions."

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

TD Securities’ Global Strategy Team notes a sharp bear steepening in US yields, with 30-year rates holding above 5% for four consecutive days for the first time since 2007. Markets now price in just over one additional Fed hike between July 2026 and June 2027. Attention turns to demand at current yield levels, including the 20-year auction and upcoming Fed minutes.

Long-end yields test demand this week

"The curve sharply bear steepened alongside oil on Friday in a global bond sell off, with 30y rates continuing to trade about 5%, the first time trading above the level for four consecutive days since July 2007."

"Markets began to price in over a hike in the cycle, with 32bp priced in between July 2026 and June 2027."

"Next week, markets will be focused on demand for rates at current levels."

"The 20y bond auction on Wednesday will grab attention with focus on the long-end after Friday's sell off."

"TIC flows will be released on Monday, which will help to gauge foreign demand for the month of March. "

"It will be a light data week, with Fed minutes grabbing the majority of the attention on Wednesday, particularly with three hawkish dissents on language at the meeting."

"In addition to minutes, Waller, Paulson and Barr are scheduled to speak."

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

• Silver rebounds toward $76.55 on Monday after last week’s sharp correction.
• Hopes of progress in US-Iran negotiations are weighing on the US Dollar and supporting precious metals.
• Elevated US Treasury yields and persistent concerns about inflation continue to limit Silver’s upside potential.

Silver (XAG/USD) trades around $76.55 on Monday, up 0.80% on the day at the time of writing, as the white metal stabilizes after last week’s heavy sell-off. The rebound comes as the US Dollar (USD) weakens modestly following renewed optimism surrounding possible diplomatic progress between the United States (US) and Iran.

Market sentiment improved after a spokesperson for Iran’s Foreign Ministry confirmed that discussions with Washington remain ongoing. According to Iranian officials, Tehran and Washington are reviewing a recent peace proposal, while technical discussions involving Iran and Oman are focused on restoring safe transit through the Strait of Hormuz.

The softer tone surrounding Middle East tensions has reduced demand for the safe-haven US Dollar. The US Dollar Index (DXY) eases toward the 99.10 area after reaching intraday highs earlier in the day, providing some support for Silver and other precious metals.

However, Silver’s recovery remains limited by persistently high global Bond yields and inflation concerns linked to elevated energy prices. The US 10-year Treasury yield holds near 4.6%, close to one-year highs, as investors continue to reassess the outlook for Federal Reserve (Fed) monetary policy.

Rising Crude Oil prices in recent days have reinforced fears that inflation could remain elevated for longer, leading markets to reduce expectations for aggressive Fed rate cuts. According to CME FedWatch data, traders are increasingly considering the possibility that the Fed may need to maintain restrictive monetary policy this year.

Higher yields tend to reduce the appeal of non-yielding assets such as Silver. OCBC strategist Christopher Wong noted that the recent surge in US yields and the stronger US Dollar had reversed part of the momentum that previously supported Silver, adding that sentiment remains fragile unless yields stabilize further.

Additional pressure on the Silver market comes from India’s recent decision to curb a large portion of Silver imports, a measure aimed at reducing pressure on the Indian Rupee. UBS analysts also recently lowered their forecasts for global Silver investment demand, citing softer industrial demand and increasing mining supply.

Despite these headwinds, the weaker US Dollar and improved market sentiment are allowing Silver prices to recover modestly at the start of the week.

MUFG’s Lee Hardman expects the British Pound (GBP) to stay on a softer footing as UK political uncertainty rises. He links intensified selling in gilts and the Pound to Andy Burnham’s move to enter Parliament and potentially challenge Prime Minister Keir Starmer, alongside concerns over a leftward policy shift, higher borrowing plans, and inflation risks from the energy price shock.

UK politics seen as headwind for Pound

"In contrast to the US dollar, the pound is expected to remain on a softer footing in the week ahead reflecting heightened political uncertainty in the UK, and fears that the Labour party will shift to the left under new leadership."

"It has been reported that he has called for GBP40 billion of additional government borrowing to fund long-term capital spending."

"The unfavourable domestic political developments come at a challenging time for the gilt market which is also facing the risk of much higher inflation from the energy price shock."

"We continue to hold a short GBP/CHF trade idea in the near-term."

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