Forex News
Société Générale economist Sam Cartwright notes Euro area headline inflation rose to 3.2% year-on-year in May, with core inflation at 2.5%. Services, not energy, led the increase, partly due to Easter timing effects. Relative to the ECB’s March projections, both headline and core are tracking slightly higher, reinforcing expectations for a June rate hike and a modest further rise in energy inflation ahead.
Services strength and energy outlook
"Euro area headline inflation rose by 0.2pp to 3.2% yoy (SGe: 3.2%) in May, matching the Bloomberg median estimate. Meanwhile, core inflation increased by 0.3pp to 2.5% yoy (SGe: 2.5%), 0.1pp above the Bloomberg median estimate, with the unrounded figure at 2.54% yoy."
"Relative to the ECB’s March forecast, headline inflation is tracking 0.1pp higher in 2Q26 at 3.2% yoy, while core inflation is 0.2pp higher at 2.4% yoy, supporting the case for a June rate hike by the ECB."
"Looking ahead, our baseline assumption is that the Strait of Hormuz reopens at the end of June. This could push Brent prices slightly higher in the near term, but most of the pass-through from Brent to fuel prices has already occurred."
"As a result, energy inflation is expected to rise only marginally over the coming months, as households renew their energy utility contracts at higher prices. On the other hand, if the EU allows governments to spend an additional 0.3% of GDP on energy-related support outside its fiscal framework, as news reports suggest, such measures could temporarily dampen headline inflation in the near term, before indirect effects begin to feed through later in the year."
"We expect indirect effects and supply chain disruptions in energy-related commodities to drive headline and core inflation to peaks of around 3.8% yoy and 2.8% yoy, respectively, in early 2027. This reflects our view that domestic demand, and therefore firms’ pricing power, is supported by German fiscal loosening, AI-related investment, a recovering housing sector, and the ongoing impact of NGEU funds."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Gold remains stuck within a two-week range as traders monitor Middle East headlines.
- Inflation worries driven by elevated Crude Oil prices continue to weigh on Gold.
- XAU/USD trades below the 50-day and 100-day SMAs, keeping the near-term technical outlook tilted to the downside.
Gold (XAU/USD) remains trapped within a two-week range on Tuesday as traders track rapidly changing headlines from the Middle East. At the time of writing, XAU/USD trades around $4,493 after touching an intraday high of $4,541.
Iran’s Fars News Agency, citing an informed source, reported that the exchange of messages between Iran and the United States has been suspended for at least a few days over the proposed memorandum of understanding (MoU)
However, US President Donald Trump said on Monday that US-Iran negotiations are continuing “at a rapid pace”. Trump also told ABC News that he expects Washington and Tehran to reach an agreement within the next week to extend the ceasefire and reopen the Strait of Hormuz.
The conflicting headlines suggest a near-term deal remains unlikely, keeping dips in the US Dollar (USD) shallow and capping upside in Gold.
The metal also faces pressure as rising inflation concerns linked to higher energy prices have stalled the Federal Reserve’s (Fed) disinflation progress, increasing the likelihood of a prolonged period of higher interest rates.
US inflation has accelerated sharply since the US-Iran war began in late February, moving further away from the central bank’s 2% target.
Before the war started, markets were expecting at least two rate cuts this year. That view has now shifted, with traders pricing in the possibility of a rate hike before year-end, according to the CME FedWatch tool. Gold, which does not offer any yield, typically performs better when borrowing costs are low.
Cleveland Fed President Beth Hammack said on Tuesday, “may need to act soon if inflation trends don't cool.” Hammack also said it is “reasonable to keep rates steady for now, given uncertainties,” while adding that “sharp energy shocks are hard for monetary policy to deal with.”
The US and Iran remain far apart on several key issues, and unless a peace agreement is reached and the Strait of Hormuz reopens, Gold may continue to trade within its recent range. Traders also appear reluctant to push prices lower as the situation in the Middle East continues to evolve.
On the economic data front, markets now turn their attention to US labor market figures this week, including the JOLTS Job Openings report on Tuesday, the ADP Employment Change on Wednesday and the Nonfarm Payrolls (NFP) report on Friday.
Technical Analysis: XAU/USD holds above 200-day SMA while downside risks persist
On the daily chart, XAU/USD keeps a bearish near-term bias as spot holds beneath the 50-day Simple Moving Average (SMA) and the 100-day SMA while remaining above the 200-day SMA at $4,416.
The Relative Strength Index (RSI) at 45 stays below the neutral 50 line and the Moving Average Convergence Divergence (MACD) indicator is marginally negative, together suggesting subdued upside momentum while prices consolidate under these key trend gauges.
On the topside, initial resistance is located at the 50-day SMA around $4,629, with a subsequent barrier emerging at the 100-day SMA near $4,800. On the downside, the 200-day SMA at $4,416 forms the first meaningful support zone, and a sustained break under this longer-term average would likely open the door to a deeper corrective phase in XAU/USD.
(The technical analysis of this story was written with the help of an AI tool.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
ING analysts Warren Patterson and Ewa Manthey note that Oil prices remain highly sensitive to shifting US–Iran negotiation headlines, with recent breakdowns in talks boosting prices. They highlight additional risks from Iranian threats in the Bab el‑Mandeb and Russia’s jet fuel export ban.
Oil reacts to Iran and Russia risks
"Oil prices received a boost yesterday as talks between the US and Iran appeared to break down -- again. This has become a common pattern in recent months, and there are still plenty of mixed messages. President Trump says that negotiations are continuing."
"As a result, oil prices continue to be whipsawed by quickly changing headlines."
"Iran, meanwhile, issued threats against vessels transiting the Bab el‑Mandeb, the narrow Red Sea chokepoint that carries a major share of the world’s energy shipments. This is a concern for oil markets, given that the Saudis have diverted a large amount of oil that should be exported from the Persian Gulf to the Red Sea."
"The Russian government has banned jet fuel exports until the end of November amid the recent surge in Ukrainian drone attacks on energy infrastructure. Russia is a marginal exporter of jet fuel, shipping only around 30k b/d."
"The global impact will be limited, but it’s still an unwelcome twist for a market already stretched thin by disruptions in the Middle East."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- USD/JPY moves closer toward the 160.00 mark, reviving fears of another Japanese intervention.
- Elevated Oil prices and wide interest rate differentials continue to weigh on the Japanese Yen.
- Japanese officials reiterate readiness to respond in the currency market if needed.
USD/JPY ticks higher on Tuesday, moving toward the 160.00 mark once again and raising the risk of another intervention by Japanese authorities. At the time of writing, the pair trades around 159.80.
The move higher in USD/JPY appears largely driven by speculation, as the US Dollar (USD) trades slightly lower against most major currencies amid cautious optimism surrounding a potential US-Iran peace deal, even after reports that Iran suspended negotiations with Washington.
US President Donald Trump told ABC News on Monday that he expects Washington and Tehran to reach an agreement within the next week to extend the ceasefire and reopen the Strait of Hormuz.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading consolidating losses above the 99.00 mark.
Is another Yen intervention getting closer?
With USD/JPY once again approaching the 160.00 level, traders are increasingly watching for signs of another intervention by Japanese authorities. Japan’s Finance Minister Satsuki Katayama said on Tuesday that authorities remain ready to respond in the currency market if needed. Katayama also said Japan is closely coordinating with the United States on foreign exchange moves.
The 160 area remains a key line in the sand where officials previously stepped into the market in 2024 and earlier this year to support the Yen.
Japan’s Ministry of Finance reportedly purchased a record ¥11.735 trillion worth of Yen between April 28 and May 27.
However, the intervention seen in late April proved short-lived. Ongoing tensions in the Middle East support demand for the US Dollar while pushing Oil prices sharply higher. Elevated Oil prices increase Japan’s energy import costs due to the country’s heavy reliance on imported fuel from the region.
Meanwhile, the Bank of Japan’s (BoJ) slow pace of policy normalization keeps the interest rate differential wide against other major central banks, which remains a key headwind for the Yen.
Recent inflation data has also dimmed expectations for another BoJ rate hike at the upcoming meeting later this month, while rising Oil-driven inflation risks increase the likelihood that other major central banks, particularly the Federal Reserve (Fed), may need to keep interest rates higher for longer.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- WTI trades around $90.15, down 0.89% on Tuesday at the time of writing.
- Iran suspends message exchanges with the US through mediators.
- Investors await the weekly API Crude Oil inventory report later in the day.
West Texas Intermediate (WTI) edges lower on Tuesday, trading around $90.15 at the time of writing, down 0.89% on the day. Traders remain cautious as negotiations aimed at reinforcing the ceasefire between the United States (US) and Iran continue to fluctuate, creating uncertainty over the global supply outlook.
According to Iran’s Tasnim news agency, Tehran’s negotiating team has halted message exchanges with Washington through mediators due to attacks in Lebanon. In response, US President Donald Trump stated that the United States would maintain its blockade on Iranian ports. However, Trump also said that an agreement to reopen the Strait of Hormuz and extend the ceasefire with Iran could be reached within the next week.
Meanwhile, Israeli Prime Minister Benjamin Netanyahu stressed that operations against Hezbollah in southern Lebanon would continue. This situation is sustaining concerns about a broader regional escalation that could disrupt energy flows across the Middle East.
Danske Bank highlights that several members of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are reportedly considering a modest increase of around 188,000 barrels per day in their July production target. According to the analysts, such a move is unlikely to have a significant impact on prices unless it translates into higher realized exports.
Market participants are now focused on the release of the American Petroleum Institute (API) weekly Crude Oil inventory report later on Tuesday.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
MUFG’s Derek Halpenny and Abdul-Ahad Lockhart underline that the latest ISM Manufacturing data show strong United States (US) economic resilience despite Middle East uncertainty. The headline index has reached a four-year high, with broad-based gains across sub-indices and rising new orders. MUFG’s inflation composite points to energy and manufacturing inputs as key drivers of ongoing price pressures, complicating the Federal Reserve’s policy stance.
Strong ISM and Oil lift inflation composite
"The renewed pessimism over finding a resolution in the US-Iran conflict after two weeks of optimism highlights the back and forth in expectations over the path forward in the Middle East. That uncertainty is generally bad for business, but the ISM Manufacturing report yesterday suggested US companies are managing to deal with this uncertainty that has now existed for three months. The overall index jumped to 54.0 in May, the highest in four years with four of the five sub-indices that contributes to the headline index all rising."
"From a modelling perspective, the ISM manufacturing prices index remains a key input into our US inflation composite index. Although the manufacturing PMI has had a diminished direct market impact in recent years, it continues to provide a reliable signal on the cyclical backdrop. On a rolling two-year basis, the latest ISM manufacturing prices index represents a +2 standard deviation shock, adding upward pressure to the overall index."
"Looking at the rest of the components for our US inflation composite index, we see energy and manufacturing inputs continue to drive inflation pressures. Elevated oil and commodity prices are reinforcing upstream price pressures. By contrast, domestic wage dynamics remain contained and are not a key driver of current inflation trends."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Deutsche Bank economists say in their World Outlook (WO) report, the United Kingdom (UK) entered the energy shock with stronger Q1‑2026 data, prompting only a marginal downgrade to growth. Stockpiling is expected to cushion activity as higher energy costs feed into inflation and real incomes. They forecast UK Gross Domestic Product (GDP) growth at 1% in 2026, rising modestly to 1.2% in 2027, with political uncertainty weighing on investment.
Solid start but inflation and politics weigh
"A stronger Q1-26 performance means the UK economy entered the energy shock on a firmer footing, hence only a marginal downgrading of the growth forecast since the last WO."
"Stockpiling will also support activity as the lagged energy effects feed into inflation (and thus real disposable incomes)."
"We remain cautious on the outlook from summer, as inflation bites into spending."
"Political uncertainty will also rear its head again, dampening investment and housing activity."
"Overall, we see GDP growth of 1% this year, rising to 1.2% next year."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Nordea’s Tuuli Koivu and Anders Svendsen argue that persistent inflation pressures and a resilient labour market point to a new European Central Bank (ECB) hiking cycle starting in June. They expect four rate hikes before a pause, noting that even if energy disruptions ease, services prices and PMI signals suggest underlying pressures will keep inflation expectations in check only with additional tightening.
Nordea expects four ECB rate hikes
"We expect the ECB to start hiking rates in June Compared to the ECB staff’s March projections, headline inflation is likely to be slightly higher than expected in the second quarter of 2026 and the June projections are therefore likely to revise the baseline profile somewhat higher, at least in the near term."
"For example, PMIs indicate that price pressures have already started to spread to the services sector."
"We continue to expect that the ECB will begin hiking rates in June. Even under a scenario in which the Strait of Hormuz reopens soon, price pressures are unlikely to vanish quickly."
"At the same time, economic growth momentum is now markedly weaker than in the post-pandemic period and we expect the ECB to deliver four rate hikes before pausing."
"Thus, in our baseline forecast, four rate hikes are enough to anchor inflation expectations in the forthcoming wage negotiations."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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