Forex News

BNY’s Bob Savage highlights that South American equities are being driven by commodity inflows, with energy holdings sharply above historical averages as investors use the region as a hedge against war-related supply shocks. At the same time, structural themes such as AI infrastructure, fintech expansion and data centers in Brazil and Chile are expected to support banking, retail and education sectors over the coming years.

Energy spike contrasts with tech underweights

"LatAm’s energy holdings spike started in January with the surprise U.S. action in Venezuela; it continues with the war in Iran. If peace talks lead to a sustainable deal to reopen the Strait of Hormuz, the risk for the region is in the unwind of energy as a safe-haven equity. Unlike the U.S. markets, where IT has held up against war inflation shocks, the LatAm region has seen a pullback in IT holdings."

"The spike in energy is notable – 50% over the three-year average in the span of five months. In comparison, materials are just 25% over the three-year average, while IT is 15% below. Markets are treating LatAm equities as a commodity hedge against war-driven supply shortages, even as real rates weigh on broader growth."

"Regional dynamics rest on demographics: the population is growing 0.6% y/y, and the average age is 31. Savings rates are rising, and urbanization is accelerating the shift from agriculture toward manufacturing and services. Banking, retail and education remain key growth industries, and AI will play a critical role in their profitability and productivity."

"Chile and Brazil are driving the region’s data center expansion – from roughly 300 today to 400 by mid-2027. Beyond U.S. hyperscalers, the tech ecosystem pushing for this growth includes MercadoLibre, Globant, TOTVS, Nubank and Rappi. Cloud services are in demand, and fintech innovation is thriving across the region."

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

Rabobank’s Senior Macro Strategist Teeuwe Mevissen reports that Eurozone growth indicators have deteriorated, with French and German PMIs signaling contraction and the German IFO near a five-year low. The European Commission has cut its GDP projections and raised inflation forecasts for the EU and Eurozone. Mevissen stresses the policy dilemma for the ECB and expects only one 25 bps rate hike versus market pricing of more than two.

Soft data clash with sticky price pressures

"Yesterday’s release of French preliminary May PMI data showed a plunge in the composite number to 43.5 from 47.6 the previous month, with weakness evident in both the manufacturing and the services sectors."

"The German PMI data was less of a shock but with a composite number reading 48.6, the economy is continuing to show signs of contraction. While this morning’s German IFO release was a little better than expected, it remains close to a 5-year low."

"Yesterday’s release of the spring forecasts from the European Commission reflected the growing pessimism regarding the economic toll of the Iran war."

"The EC’s forecast for inflation in the EU has been revised a full percentage point higher to 3.1% in 2026."

"This morning the market is priced for a little more than two 25 bps ECB rate hikes on a 6-month view. Rabobank has pencilled in just one for now."

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

United States (US) Secretary of State Marco Rubio said on Friday that they would all love to see an agreement with Iran but added that they are "not there yet," per Reuters.

"There needs to be a plan B if Iran refuses to reopen the Strait of Hormuz," Rubio added and noted that there was no concrete ask of NATO help on the strait. He also reiterate that Pakistan remains the "primary interlocutor" in Iran talks.

Meanwhile, citing a source with knowledge of the matter, Reuters reported that Qatar has sent a negotiating team to Tehran, in coordination with the US to help secure a deal to end the war.

Market reaction

Wall Street's main indexes are up between 0.5% and 0.7% on the day, while the US Dollar (USD) Index holds steady above 99.20 following these headlines.

Commerzbank reports Copper has fallen about 5% from mid‑May highs, mainly on higher risk aversion from rising Oil prices. Yet China’s April Copper output dipped 4.5% month-on-month and mining news from Chile and Indonesia point to weaker supply growth. Cochilco cut Chile’s 2026 production outlook, while Grasberg is not expected to reach full capacity until end‑2027.

Weaker mine output supports prices

"Copper has fallen by about 5% from its mid-May high."

"China’s copper production in April was 4.5% lower than in March and thus only 3% higher than a year earlier."

"News from the mining sector also supported prices: Chile’s copper commission, Cochilco, has revised downward its outlook for mine production in the leading supplier country, citing low ore grades and operational difficulties following disappointing first-quarter figures: Production expectations for this year were revised down by 2% to 5.3 million tons."

"For next year, however, Cochilco expects a slight recovery of 4% to 5.5 million tons."

"Mine production in Indonesia is also disappointing, as the resumption of production at the world’s second-largest copper mine, the Grasberg Mine, is proceeding more slowly than hoped, and full capacity is not expected to be reached until the end of 2027."

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

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann expect USD/JPY to trade intraday between 158.80 and 159.25 after a brief pop to 159.34 failed to strengthen momentum. On a 1–3 week view, the bank retains a positive stance but warns that a break below 158.40 would turn the outlook neutral, while a close above 159.25 could open 159.70. Over 1–3 months, upside beyond 159.45 is seen as limited below 162.00.

Dollar-Yen holds firm near recent highs

"24-HOUR VIEW: Yesterday, we expected USD to “trade between 158.40 and 159.10.” Our view was incorrect, as USD popped to a high of 159.34 and then dropped quickly to end the day little changed at 158.96 (+0.03%). The brief advance did not result in any increase in upward momentum. Today, we expect USD to trade between 158.80 and 159.25"

"1-3 WEEKS VIEW: We turned positive on USD early last week. On Tuesday (19 May, spot at 158.80), we highlighted that “short-term upward momentum is starting to fade, and USD must break and hold above 159.25 before further gains are likely.” Yesterday (21 May, spot at 158.85), we highlighted that “upward momentum continues to slow, and a breach of 158.40 (‘strong support’ level) would shift the outlook for USD from positive to neutral.” While USD subsequently popped above 159.25 (high of 159.34), it pulled back to close at 158.96 (+0.03%). In other words, we continue to hold the same view. Looking ahead, should USD close above 159.25, it could open up the way for a move to 159.70."

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

• EUR/GBP trades near more than one-week lows as the British Pound outperforms despite weak UK Retail Sales data.
• Stronger German IFO and GDP data fail to lift the Euro amid concerns over slowing Eurozone growth and rising inflation pressure.
• Cautious comments from ECB President Christine Lagarde add to pressure on the Euro.

EUR/GBP trades on the back foot on Friday and is set to end the week in negative territory, as the British Pound (GBP) outperforms most major peers despite weaker-than-expected UK Retail Sales data, while upbeat German economic data fails to provide meaningful support to the Euro (EUR). At the time of writing, the cross is trading near more than one-week lows around 0.8635.

Data released earlier on Friday showed Germany’s IFO Business Climate Index rose to 84.9 in May from 84.5 in April, beating market expectations of 84.2 and signaling improving business sentiment in the Eurozone’s largest economy.

The IFO Current Assessment gauge climbed to 86.1 from 85.4 previously, while the Expectations Index edged up to 83.8 from 83.5. Additional data showed Germany’s GfK Consumer Confidence survey for June improved to -29.8 from -33.1 in the previous month.

Meanwhile, Germany’s final Q1 Gross Domestic Product (GDP) reading confirmed the economy expanded 0.3% QoQ and 0.4% YoY.

In the United Kingdom, Retail Sales fell 1.3% MoM in April after rising 0.6% in March, marking a steeper decline than the 0.6% drop expected by markets. On an annual basis, Retail Sales growth slowed to 0% from 1.4% previously, missing forecasts for a 1.3% increase.

The Euro remains under pressure as rising energy prices linked to ongoing Middle East tensions continue to fuel concerns over the Eurozone’s heavy dependence on imported energy. Data released earlier this week showed inflation pressures accelerating across the bloc while business activity weakened sharply, reinforcing fears of slower economic growth.

The Euro also struggled to gain support after cautious remarks from European Central Bank (ECB) President Christine Lagarde, who reiterated that policymakers would continue to follow a “data-dependent, meeting-by-meeting approach.” Lagarde added that long-term inflation expectations remain broadly well anchored and stressed that the ECB would take the necessary measures to maintain price stability at its 2% target.