Forex News
Brown Brothers Harriman’s Elias Haddad notes that the May ISM manufacturing index points to a more restrictive Federal Reserve (Fed) stance and a firmer US Dollar (USD), with the headline index rising to a four-year high. He highlights that the JOLTS report remains key for assessing US labor market downside risks, as sustained strength in hiring and low layoffs would help stabilize the outlook for the Dollar.
Fed data backdrop underpins Dollar
"The May ISM manufacturing index released yesterday supports a more restrictive Fed policy stance and firmer USD."
"The headline index improved more than expected to a four-year high at 54.0 vs. 52.7 in April driven by a faster expansion in new orders and slower contraction in employment."
"The Prices Paid sub-index unexpectedly dipped to a two-month low at 82.1 vs. 84.6 in April but is still indicative of upside risk to inflation."
"The April Job Openings and Labor Turnover Survey (JOLTS) is up next (3:00pm London, 10:00am New York). In March, the JOLTS report showed the hiring rate rose to a two-year high while layoffs continued to be low and stable."
"If sustained, this trend would significantly ease downside risks to the US labor market."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Nordea economists Tuuli Koivu and Anders Svendsen say rising Euro-area headline and core inflation, driven mainly by higher energy costs and robust services prices, strengthens the case for an ECB rate hike in June. They highlight upside revisions to inflation projections, persistent price pressures, and a still-solid labour market as reasons to expect four ECB hikes before a pause.
Inflation dynamics back further ECB tightening
"The flash inflation figures support an ECB rate hike at the June meeting, even though energy remains the main driver of headline inflation."
"Core inflation surprised slightly to the upside. The increase from 2.2% in April to 2.5% in May was partly due to a base effect stemming from very weak core inflation a year earlier but also the monthly momentum in core inflation was rather strong."
"In monthly terms, both service and non-energy industrial goods prices increased at a robust pace. Inside services, transport seems to play a role and is of course linked to high energy prices."
"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."
"However, there remains considerable uncertainty regarding the potential second-round effects of higher energy prices and the future path of core inflation."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Societe Generale analysts observe that EUR/PLN is trading near an ascending trendline from February 2025 and oscillating around its 200-day moving average. The pair is currently confined within a 4.2100–4.2650 consolidation band. A break outside this range is seen as essential to confirm a clearer directional trend in the coming weeks.
Range trade between 4.2100 and 4.2650
"EUR/PLN is in the vicinity of the ascending trendline drawn from February 2025, around 4.2100."
"The pair has been lacking clear direction, as reflected by crisscross moves around the 200-DMA."
"EUR/PLN is currently evolving within a consolidation range defined by the limits of 4.2100 and the recent pivot high at 4.2650."
"A break beyond either of these bands will be crucial in confirming a directional move."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Gold bounces up above $4,500 but remains capped below $4,540.
- News of a ceasefire in Lebanon has improved market sentiment and is weighing on the USD.
- XAU/USD remains trading within a range, with key resistance at $4,590.
Gold (XAU/USD) bounces up on Tuesday, retracing Monday's losses and returning to levels beyond $4,500. The precious metal has drawn some support from a ceasefire in Lebanon, although price action remains trapped within previous ranges, with investors awaiting developments from Iran’s war.
Israel and Hezbollah have agreed a partial ceasefire, and US President Donald Trump said that Israel’s Prime Minister Benjamin Netanyahu has frozen his plans to attack Beirut. Investors remain hopeful that a durable peace in the area is still possible, which is keeping the US Dollar Index (DXY) on the back foot on Tuesday, although risk appetite remains subdued, with the US-Iran peace talks stalled and the Strait of Hormuz closed, with no plan to reopen it on sight.
On the macroeconomic front, US manufacturing data revealed healthy business activity in May, and the focus now shifts to the US JOLTS Job Openings. These figures will frame a string of labour releases this week, ending with the key Nonfarm Payrolls report, which is expected to shed some more light on the US Federal Reserve’s (Fed) monetary policy plans.
Technical Analysis: Rangebound consolidation continues
XAU/USD trades at $4,530 after failing to extend gains beyond $4,540 earlier on the day, which leaves price action trapped within recent ranges. The 4-hour Relative Strength Index (RSI) near 55 suggests bullish momentum, with the positive Moving Average Convergence Divergence (MACD) hinting that downside pressure has eased even if bulls lack clear control.
Key resistance remains at $4,590, which has held bulls several times in the second half of May. A break above that zone would expose the confluence of the mid-May lows and the top of the bearish channel from April, at the $4,645 area
Immediate support is seen at Monday's low near $4,445, with additional protection at May's bottom, in the area of $4,370. The base of the bearish channel is now around $4,340.
(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.
European Central Bank (ECB) official and Finnish Central Bank Governor Olli Rehn said during the European trading session on Tuesday that an interest rate hike at the policy meeting this month should be viewed as an "insurance" move to guard against future inflation risks.
Market reaction
There seems to be no major impact of ECB Rehn's comments on the Euro (EUR). As of writing, EUR/USD trades 0.1% higher at around 1.1645.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- EUR/GBP inches up from 0.8639 lows but remains capped below 0.8650 on Tuesday.
- The Euro has been little moved by the hot Eurozone inflation levels released earlier on the day.
- The Pound maintains a bid tone as UK politics jump into the back seat.
The Euro (EUR) remains vulnerable against the British Pound (GBP) on Tuesday, capped below 0.8650, consolidating losses from the previous two trading days. The hotter Eurozone inflation figures have failed to provide any significant support to the Euro, as they do not alter the view that the European Central Bank (ECB) will hike rates next week.
Preliminary data released by Eurostat on Tuesday revealed that the Eurozone Harmonised Index of Consumer Prices (HICP) accelerated to a 3.2% year-on-year (YoY) growth in May, in line with market expectations, from 3.0% (YoY) in April. Likewise, the core HICP rose to a one-year high of 2.5% in the 12 months to May, up from 2.2% in April, above market expectations of a 2.4% increase.
The data confirms the inflationary impact of the energy shock stemming from Iran’s war, while the increase in core inflation suggests that price pressures are spilling through the broader economy, adding pressure on households and businesses. This practically confirms a 25-basis-point rate hike at next week's monetary policy meeting.
The Sterling, on the other hand, is showing some strength as Prime Minister Keir Starmer seems to have withstood calls to resign, following the disastrous result in May's local elections, which eases concerns about a void of power, at least for now.
Earlier on Tuesday, Consumer Credit eased to GBP 1.86 billion in April from the upwardly revised GBP1.90 billion in March, with Mortgage approvals increasing to 65.94K from 63,97 K in March against market expectations of a moderate decline. Net Lending to Individuals fell to GBP 6.2 billion in April from GBP 8.7 billion in March. The Pound, however, was little moved after these figures.
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.
TD Securities strategists focus on AUD/NZD after a sharp post-RBNZ selloff. They argue the start of the Reserve Bank of New Zealand (RBNZ) hiking cycle versus a peaking Reserve Bank of Australia (RBA) cycle should cap the prior AUD/NZD uptrend, but expect short-term consolidation. The team implements a 1m 1.18/1.2050/1.23 AUD/NZD fly, citing historical retracement patterns and limited scope for further NZD-positive surprises near term.
Fly structure for expected consolidation
"AUD/NZD fly into RBNZ hiking cycle. Last week's RBNZ meeting was a hawkish surprise."
"That being said, we expect some short-term spot consolidation after this week's selloff. We enter a long 1m 1.18/1.2050/1.23 AUD/NZD fly structure to express this view."
"AUD/NZD saw its largest one-day depreciation since July 2016. Across 13 observations of one-day selloffs (20y lookback) that exceeded the move on May 27, AUD/NZD would retrace higher over the next week 69% of the time."
"With rest of the RBNZ hiking cycle priced-in and little NZ data release in the next month, we believe it's unlikely for AUD/NZD to fall on further bullish NZD catalysts in the near-term."
"Risk to the trade is unexpected increase in AUD/NZD vol moving spot price beyond the breakeven levels for the fly structure."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
UOB’s Quek Ser Leang and Lee Sue Ann describe EUR/USD as neutral after Monday’s reversal from 1.1606 to close at 1.1630. They expect the pair to consolidate intraday between 1.1610 and 1.1660, while the broader 1.1590–1.1685 range remains in force. On a multi‑week horizon, they flag building downside momentum, with a break of 1.1540 potentially opening the way toward 1.1410.
Sideways now but downside risk building
"24-HOUR VIEW: EUR reversed its initial sharp drop to 1.1606 yesterday, as it rebounded and closed 0.25% lower at 1.1630. Given the brief drop, there has been no significant increase in downward momentum. Today, instead of continuing to decline, EUR is more likely to trade in a range between 1.1610 and 1.1660."
"1-3 WEEKS VIEW: Our most recent narrative was from last Monday (25 May, spot at 1.1620), when we highlighted that EUR “is neutral now, and it is likely to trade between 1.1590 and 1.1685.” We continue to hold the same view for now."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Rabobank’s Senior Macro Strategist Bas van Geffen highlights that Brent futures near the mid-$90s per barrel, down from a recent peak of $108, still reflect only a relatively optimistic scenario for the Iran conflict. A prolonged disruption in the Strait of Hormuz could keep Oil markets tight, drive input costs higher and sustain inflationary pressure.
Hormuz disruption and Oil price risks
"Financial markets have continued to trade a relatively optimistic scenario for the Iran war, which may not fully reflect the potential for physical shortages around the globe – especially if the situation in the Middle East lasts much longer, or if tensions flare up again. At the time of writing, near-term Brent futures are trading around $96/barrel."
"The Strait of Hormuz has effectively been closed for several months now, and the balance of risks is skewed towards a longer closure. The first signs of the inflationary effects have started to manifest already, and a more protracted conflict would probably add to these price pressures."
"Our global strategist now assumes that the Strait of Hormuz remains out of normal operation for up to three more months. Even if the US and Iran agree to extend the ceasefire, this would not resolve the conflict."
"So, at best, an extended ceasefire would lessen the near-term tail risks – although both sides have already violated the current armistice. At the same time, it arguably increases the medium-term risks for the global economy. The longer the conflict remains unresolved, the longer Hormuz will effectively remain closed – putting more strain on supply chains. And if negotiations fail and tensions were to re-escalate in a couple of months, this will happen against a backdrop of further depleted fossil fuel supplies."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
DBS Group Research’s Philip Wee highlights that USD/JPY is again trading near 160, keeping markets wary of potential Japanese authorities’ intervention and a possible 25 bps rate hike by the Bank of Japan (BoJ) to 1% at its June meeting.
Governor Ueda’s recent rhetoric on the weak Japanese Yen (JPY) and low real rates supports gradual policy normalization over the coming weeks.
Yen under pressure as BoJ eyes hike
"USD/JPY is near 160 again, keeping markets alert for more currency interventions and a 25-bps hike to 1% by the Bank of Japan at its June 16 meeting."
"BoJ Governor Kazuo Ueda’s keynote address on June 3 will provide the final policy cues before the rate announcement."
"Ueda has become more vocal about the JPY’s depreciation driving up import costs, stressing that real interest rates remained historically low, two factors supporting more rate normalization."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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