Forex News

Rabobank's Global Strategist Michael Every outlines China’s central role in current geopolitical and financial dynamics. Every covers Trump’s visit to Beijing and potential outcomes from US-China talks, questions over a possible Grand Bargain, and China’s leverage over Iran. It also notes Euroclear’s consideration of China onshore bonds and Beijing’s efforts to promote yuan internationalisation.

US-China talks and yuan strategy

"In Eastenders, Trump, with a billionaire CEO entourage, is meeting Xi after posting in Air Force One that he will be asking him “to ‘open up’ China so that these brilliant people can work their magic, and help bring the People’s Republic to an even higher level!”"

"Indeed, as some talk of UK Labour going back to the 1970s, the US language is also of Nixon–Mao 2.0, albeit from a very different starting point."

"Everybody gets how important these talks are, but few consider the full US *and* Chinese contexts, and many takes are coloured by what they think of Trump."

"We will have to wait and see if we get a Grand Bargain that reshapes geopolitics and geoeconomics – and, yes, imbalances; smaller agreement on tariffs, tech (as the Netherlands protests a US proposal to further bar chip giant ASML from the China market), and even Taiwan; a de minimis Farce Two Trade Deal can-kicking exercise, or a Great Escalation."

"On which note, some media suggest China might be prepared to put pressure on Tehran, yet the New York Times reports that Chinese firms are plotting arms sales to it."

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

Bank of England (BoE) MPC member, Huw Pill, said that he does not expect second-round effects to be as strong as in 2022, and also that the second-round effects are behavioral, affected by what the BoE does next. He spoke at an event hosted by NatWest on Thursday.

Key quotes:

We must not allow ourselves to drift off into deep space of unmoored inflation dynamics.

I do not expect 2nd round effects to be as strong as in 2022.

Labour market weakness means second round effects likely to be weaker than in 2022.

Latest GDP data shows some robustness.

Not clear labour market is as loose as when there were oil price spikes in 2008 or 2011.

Tighter financial conditions do not get BoE out of question of whether to raise rates itself.

Prompt but modest increase in rates advantageous.

Second-round effects are behavioural, affected by what BoE does.

If you wait until market forces you to move, that would be more challenging to BoE.

Cannot say now if rate rise would only be temporary or a plateau for rates.

Fiscal and global situation are influencing long-term market rates as well as inflation outlook.”

• USD/CAD trades near one-month highs, while the US Dollar Index advances to its strongest level in two weeks.
• Stronger US inflation and Retail Sales data boost expectations for a possible Fed rate hike by year-end.
• Higher Crude Oil prices linked to Middle East supply concerns are helping support the Canadian Dollar, limiting broader gains in USD/CAD.

USD/CAD extends gains on Thursday, rising for a third consecutive day, supported by renewed demand for the US Dollar (USD) as traders assess ongoing geopolitical developments alongside the latest US economic data, which reinforced expectations of a more hawkish Federal Reserve (Fed) stance.

At the time of writing, the pair is up 0.12% on the day, trading around 1.3723, close to one-month highs. However, elevated Oil prices linked to supply disruptions in the Middle East continue to provide underlying support to the commodity-linked Canadian Dollar (CAD), limiting stronger upside moves in USD/CAD.

Investors are closely monitoring the two-day summit in Beijing between US President Donald Trump and Chinese President Xi Jinping, where both leaders discussed trade, increasing bilateral investment and the ongoing Iran war. Trump told Fox News earlier on Thursday that Xi Jinping offered to help on Iran and said he wants to see the Strait of Hormuz reopened.

Meanwhile, US-Iran peace talks remain deadlocked, with no near-term breakthrough in sight as both sides continue to disagree over Tehran’s nuclear program.

On the data front, US Retail Sales rose 0.5% MoM in April, matching market expectations but slowing sharply from March’s 1.6% increase. The Retail Sales Control Group, which feeds directly into Gross Domestic Product (GDP) calculations, also increased 0.5% in April after rising 0.8% previously.

The data follows hotter-than-expected US Consumer Price Index (CPI) and Producer Price Index (PPI) reports earlier this week, which showed inflation accelerated sharply in April, largely driven by higher energy prices.

Traders have dialed up bets that the Fed could deliver an interest rate hike by year-end following the latest batch of US economic data. According to the CME FedWatch Tool, markets are currently pricing in a roughly 42% probability of a rate hike at the December meeting, up from around 33% a day earlier.

Growing expectations of a more hawkish Fed have pushed US Treasury yields sharply higher in recent days while also boosting demand for the US Dollar. Ongoing tensions in the Middle East are providing additional support to the Greenback through safe-haven flows.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.78, its highest level in two weeks.

• US Retail Sales beat yearly forecasts, boosting US Dollar momentum.
• Jobless claims rise, but Fed officials emphasize inflation risks.
• Eurozone inflation data remains secondary as DXY hits highs.

EUR/USD edges lower for the third consecutive day on Thursday during the North American session, down 0.22%, as US economic data showed consumers' resilience. In contrast, labor market data showed a slight increase in the number of Americans filing for jobless benefits. The pair trades at 1.1679 after reaching a high of 1.1721.

EUR/USD weakens as sticky inflation keeps Fed cut bets sidelined

US Retail Sales rose in April by 0.5% MoM, aligned with estimates and below March’s print of 1.6%. Sales increased 4.9% YoY in the same period, exceeding estimates of 3.3% growth. Other data showed that Initial Jobless Claims for the week ending May 9 rose by 211K, above forecasts of 205K.

Household spending is notable due to the jump in energy prices, with receipts at gasoline stations rising 2.8%, after surging 13.7% in March. Data from the US EIA revealed that gasoline prices rose by 12.3% last month.

On the headline, the Greenback extended its gains according to the US Dollar Index (DXY). The DXY, which tracks the buck’s value against a basket of six currencies, is up 0.33% at 98.77, refreshing ten-day highs. Consequently, the Euro (EUR) dropped and is poised to extend its losses as Kansas City Fed Jeffrey Schmid stated that “inflation is the most pressing risk to the US economy.”

Schmid added that the economy “has shown remarkable resilience” and that the job market is “functioning effectively.”

His comments come after the latest consumer and producer price data, which reaffirmed that inflation remains sticky and stubbornly higher, clearly above the Federal Reserve’s 2% goal.

The money markets' view on interest rates suggests there is no chance of a Fed rate cut in 2026.

Across the pond, inflation in Spain came as expected at 3.2% YoY in April, down from March’s 3.4%.

Ahead of the Eurozone economic schedule, inflation in Italy will be featured. In the US, traders would digest the New York Empire State Manufacturing Index and Industrial Production.

EUR/USD Price Forecast: Technical outlook

Technical Analysis:

In the daily chart, EUR/USD trades at 1.1676, holding just under the clustered simple moving averages (SMA) around 1.1647, which now sit slightly below price and suggest only a modest underlying cushion within a broader capped setup. The Relative Strength Index (14) near 46 points to waning bullish momentum, while the confluence of the prior downward resistance trend line and the broken rising support line above current levels hints that rallies remain vulnerable to renewed selling pressure.

On the topside, immediate resistance is seen at the former rising trend-line area around 1.1759, followed by the downward resistance line region near 1.1796, where recent advances previously stalled. With no clearly defined structural floors below spot in this dataset, a sustained break under the nearby SMA cluster around 1.1647 would expose the pair to deeper losses, leaving EUR/USD reliant on fresh demand emerging at lower, as yet undefined, levels to arrest any further downside.

(The technical analysis of this story was written with the help of an AI tool.)

• DJIA futures pushed back above 50,000 in the overnight and premarket sessions on Thursday, recouping Wednesday's modest cash-index loss.
• April Retail Sales matched expectations at 0.5%, while the Control Group reading beat at 0.5% versus 0.4% consensus.
• Initial Jobless Claims climbed to 211K, above the 205K consensus and the prior week's 199K print.

Dow Jones Industrial Average (DJIA) futures traded above 50,000 in the overnight and premarket sessions on Thursday, more than reversing the modest pullback in the cash index on Wednesday. The recovery came as traders digested a mixed batch of US data and looked ahead to a packed lineup of Fed speakers, with the S&P 500 and Nasdaq Composite both sitting on record closes from Wednesday's session.

Overnight tone steadies after Wednesday's PPI shock

DJIA futures opened the overnight session on a constructive footing despite Wednesday's mild cash close, where the index slipped around 0.1% as financials and home improvement names dragged. The Asian and European sessions traded with a narrow upside bias, helped by a softer US Dollar and a small pullback in crude prices into Thursday morning. Treasury yields, which had pushed to fresh 2026 highs after Wednesday's hot Producer Price Index (PPI) print, stabilized just below the recent peaks. Headline PPI surged 1.4% MoM in April and 6% YoY, the steepest annual increase since December 2022, layering onto Tuesday's Consumer Price Index (CPI) reading of 3.8% YoY, the hottest since May 2023.

Retail sales hold up as consumer absorbs higher gas prices

April Retail Sales matched expectations at 0.5% MoM, marking a third straight monthly gain, though the headline slowed sharply from the upwardly revised 1.6% in March. The Retail Sales Control Group, which feeds directly into Gross Domestic Product (GDP) calculations, rose 0.5% versus 0.4% consensus. Retail Sales ex-Autos beat at 0.7% against 0.6% expected. The print carried its usual asterisk that nominal sales reflect higher prices rather than higher volumes, with gasoline station receipts again a meaningful contributor to the increase. On a YoY basis, headline sales rose 4.9%, suggesting the US consumer is still spending through the inflation pipeline driven by the ongoing US-Iran conflict.

Jobless claims tick up but labor market signals remain tight

Initial Jobless Claims rose to 211K for the week ending May 9, above the 205K consensus and the prior week's 199K (revised from 200K). Continuing Jobless Claims edged up 24K to 1.782 million, while the four-week moving average climbed only marginally to 203.75K. Despite the uptick, claims remain well below year-ago averages and consistent with a tight labor market by historical standards. The reading does not materially shift the Fed calculus, especially against the backdrop of accelerating price pressures earlier in the week.

Fed speaker slate in focus as 2026 cut bets evaporate

The data tape gives way to a string of Federal Reserve (Fed) appearances with the potential to extend the recent move higher in Treasury yields. Kansas City Fed President Jeff Schmid is scheduled at 14:15 GMT and carries a clear hawkish bias, having dissented at the December meeting in favor of holding rates rather than cutting. Cleveland Fed President Beth Hammack follows at 17:00 GMT, with New York Fed President John Williams at 21:45 GMT and Vice Chair for Supervision Michael Barr at 23:00 GMT. Per the CME FedWatch tool, markets now price essentially zero probability of a rate cut at the June 17 Federal Open Market Committee (FOMC) meeting and through year-end, a sharp reversal from earlier in 2026. Bank of America and JPMorgan have pushed first-cut forecasts into 2027.

Setup for Friday and the Warsh handover

Friday's data slate includes the New York Empire State Manufacturing Index (consensus 7.5 versus 11 prior) and Industrial Production (consensus 0.3% MoM versus a revised -0.5% prior reading). Neither is typically a major market mover, but both are worth tracking given the manufacturing complex's sensitivity to higher input costs from the energy spike. The bigger calendar item is the formal Fed handover, with Kevin Warsh set to take over as Chair from Jerome Powell on Friday. Warsh's hawkish lean on inflation, the unresolved US-Iran conflict that continues to keep crude near three-figure levels, and the hot CPI and PPI prints earlier this week leave the path of least resistance for yields skewed higher. The bar for any DJIA futures breakout above the 50,000 area runs through the tone Schmid sets later in the session.

Dow Jones 5-minute chart

• USD/CHF trades around 0.7830 on Thursday, up 0.15% on the day.
• US Retail Sales and inflation data reinforce the resilience of the US economy.
• Comments from policymakers support the view that restrictive monetary policy could remain in place for longer.

USD/CHF advances toward 0.7830 on Thursday, gaining 0.15% on the day at the time of writing, supported by renewed demand for the US Dollar (USD) following a series of solid economic releases in the United States (US). The Greenback's rebound comes as markets reassess monetary policy expectations and scale back bets on an early easing cycle from the US central bank.

Support for the US Dollar strengthened after US Retail Sales rose by 0.5% in April, in line with market expectations. Although growth slowed from the 1.6% increase recorded in March, the figures continue to highlight the resilience of consumer spending despite elevated borrowing costs. This trend reinforces the view that US economic activity remains on solid footing.

Recent inflation data also supports that outlook. The Producer Price Index (PPI) report showed producer prices increased by 1.4% MoM in April, while annual producer inflation accelerated to 6%, reaching its highest level in more than three years. These figures pushed US Treasury yields higher on Wednesday before easing slightly on Thursday, while also providing support to the USD across the market.

This combination of resilient economic data has led investors to revise expectations regarding the Federal Reserve (Fed). Markets are now reducing expectations for future rate cuts and increasingly pricing in the possibility that rates could remain elevated for a longer period, with some even considering the risk of additional tightening later this year.

On the geopolitical front, a White House official said the meeting between US President Donald Trump and Chinese President Xi Jinping was 4viewed positively. Discussions reportedly focused on strengthening economic cooperation between the world's two largest economies, including broader access for US businesses to Chinese markets and a potential increase in Chinese purchases of US agricultural products.

Comments from Fed officials also continue to support the US Dollar. Fed Kansas City President Jeffrey Schmid said on Thursday that persistent inflation remains the biggest risk to the economy. He added that the US economy remains resilient and that the labor market continues to function effectively, although elevated energy prices continue to weigh on households and businesses.

• AUD/USD weakens after decent US Retail Sales reinforce confidence in the US economy.
• Hot US PPI data and high Treasury yields support expectations for higher Fed rates.
• Trump and Xi discussed stronger economic cooperation and increased trade access.

The AUD/USD pair weakens toward the 0.7220 region on Thursday as the United States (US) Dollar (USD) strengthens after April Retail Sales held up in the United States (US).

Support for the USD emerged after US Retail Sales rose 0.5% in April, meeting market expectations and highlighting the continued resilience of consumer spending despite elevated borrowing costs. The retail data, which dropped from 1.6% in March, reinforces confidence in the underlying strength of the US economy and further supports expectations that the Fed could maintain a restrictive policy stance for longer.

The latest US Producer Price Index (PPI) report showed producer inflation surged 1.4% MoM in April, while annual PPI accelerated to 6.0%, marking the strongest increase in more than three years. The hotter inflation figures pushed US Treasury yields higher on Wednesday, although they are somewhat declining on Thursday, and boosted the Greenback across the board as traders scaled back expectations for Fed rate cuts and increasingly priced in the possibility of additional tightening later this year.

According to a White House official, the meeting between US President Donald Trump and Chinese President Xi Jinping was described as “good,” with both leaders discussing ways to enhance economic cooperation between the world’s two largest economies. The two sides reportedly explored expanding market access for American businesses into China, increasing Chinese investment, and boosting Chinese purchases of US agricultural products.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.7223, maintaining a mildly bearish near-term bias as it slips below the 20-period Simple Moving Average (SMA) at 0.7241 while holding above the 100-period SMA at 0.7197. The pair is pivoting around the horizontal level at 0.7223, and the Relative Strength Index (RSI) near 44 suggests fading momentum, hinting that sellers retain the upper hand while buying interest emerges on dips.

On the topside, immediate resistance is clustered near 0.7239 and the 20-period SMA at 0.7241, with a further cap at the horizontal barrier around 0.7243. On the downside, initial support sits at the 0.7223 pivot, followed by the horizontal floor at 0.7220, while the 100-period SMA around 0.7197 offers a deeper layer of demand if downside pressure extends.

(The technical analysis of this story was written with the help of an AI tool.)

• Gold trades sideways below $4,700 as elevated US Treasury yields and a firmer US Dollar cap upside momentum.
• Sticky US inflation and hawkish Fed commentary reinforce expectations that interest rates could remain elevated for longer.
• Technically, XAU/USD remains trapped between the 21-day and 50-day SMAs as momentum indicators signal neutral, range-bound price action.

Gold (XAU/USD) trades under modest pressure on Thursday as the US Dollar (USD) extends its advance amid uncertainty surrounding US-Iran negotiations and a hawkish Federal Reserve (Fed) outlook.

At the time of writing, XAU/USD is trading around $4,680, remaining trapped within a narrow trading range after rising to a three-week high near $4,773 on Tuesday.

Buyers are showing little conviction to push XAU/USD higher as expectations that the Federal Reserve (Fed) will keep interest rates elevated for longer continue to weigh on sentiment. The view was further reinforced by the latest US inflation data, which showed elevated energy costs linked to the ongoing Middle East war continued to pressure both consumers and producers for a second straight month.

Hotter-than-expected inflation data, combined with a somewhat stable labor market, suggest the Fed can afford to remain patient before adjusting policy settings. However, traders have increased bets that the US central bank could deliver a rate hike by year-end.

The hawkish repricing has pushed US Treasury yields and the US Dollar (USD) higher, keeping upside moves in the non-yielding metal limited. At the same time, lingering uncertainty surrounding the US-Iran negotiations is providing additional support to the Greenback.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.54, hovering near its highest level in more than a week.

Boston Fed President Susan Collins said on Wednesday that “it’s possible” the US central bank may need to raise interest rates to cool inflation pressures and added that she expects the Fed will need to keep policy restrictive “for some time." Collins also noted that job growth over the past year has been running near the breakeven rate, while the unemployment rate remains “relatively low.”

On the geopolitical front, Trump arrived in Beijing for the two-day summit, where discussions focused on key issues including trade, US relations with Taiwan and the ongoing war in Iran. According to a White House readout cited by Reuters, both sides discussed expanding market access for American businesses in China and increasing Chinese investment in the United States. The readout also said both leaders agreed that the Strait of Hormuz must remain open and that Iran can never be allowed to obtain a nuclear weapon.

Technical Analysis: XAU/USD struggles for direction between 21-day and 50-day SMAs

On the daily chart, XAU/USD holds just above the 21-day Simple Moving Average (SMA) at around $4,684, but remains capped by the 50-day SMA near $4,740, leaving the near-term tone sideways to mildly corrective after its recent advance.

The 200-day SMA down at roughly $4,341 continues to underpin the broader uptrend, while a neutral Relative Strength Index (RSI) around 50 and a positive, stabilizing Moving Average Convergence Divergence (MACD) histogram suggest consolidative price action rather than a clear directional push.

On the topside, initial resistance is seen at the 50-day SMA around $4,740, with a subsequent barrier at the horizontal level near $4,850, where sellers could re-emerge.

On the downside, immediate support is provided by the 21-day SMA at about $4,684. A break below this area would expose the next notable floor around $4,500, ahead of the more strategic 200-day SMA near $4,341.

(The technical analysis of this story was written with the help of an AI tool.)

UOB’s Senior Economist Alvin Liew notes that United States (US) inflation pressures have broadened beyond energy, with April Consumer Price Index (CPI) and Producer Price Index (PPI) both reaccelerating and core measures drifting further above the Federal Reserve’s 2% target. Liew now forecasts headline CPI at 3.7% and core at 3.0% in 2026, sees upside risks from Oil, and expects inflation only to move closer to 2% in 2027.

Broader price pressures and upside risks

"We now expect headline CPI inflation to average higher at 3.7% in 2026 (previous: 3.3%) while core CPI inflation will average close to 3.0% (previous: 2.8%), above the long term 2% target but within tolerable ranges for core CPI. We still project US headline and core CPI inflation to ease towards 2% in 2027 as base effects normalize, but the risk is for inflation to remain above target for longer than previously anticipated."

"Unsurprisingly, the risk to CPI in 2026 is still on the upside and the outlook is highly dependent on the ongoing geopolitical developments in the Middle East. If the ceasefire holds and oil prices retreat well below US$100/bbl, inflation should subside in 2H 2026."

"However, if this temporary ceasefire is broken and the conflict escalates on a sustained basis, then oil prices may be well above US$100, and headline inflation could easily head towards 5% by end-2H."

"Moreover, given the extent of jump in Apr’s PPI and reasonable gap between PPI and CPI, it might be indicative that the passthrough from producer prices unto consumer prices have yet to materialize fully, implying possibly higher upside inflation risks in months to come."

"Despite the moderation from Mar’s outsized monthly gain, the Apr CPI report suggests that inflation pressures are becoming more pervasive, with energy no longer the sole driver."

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