Markets were caught off guard by President Trump’s latest tariff threats targeting Europe and Apple. While stocks managed to recover some of their daily losses, they still ended the week in the red. Even more surprising was the nearly 2% drop in the U.S. dollar, which gave the Canadian dollar a boost, pushing it to a fresh 2025 low of 1.3712.
On Sunday, former President Trump agreed to push the deadline to July 9 following a phone call with European Commission President Ursula von der Leyen. Meanwhile, U.S. markets are closed today in observance of Memorial Day. The dollar remains unchanged, hovering near 99 without significant shifts in trajectory or sentiment.
If the Loonie closes the month below its 100-week simple moving average (SMA) of 1.375, it could signal a move toward the 1.35. A monthly close below 1.381, would mark four straight months of decline, something we haven’t seen since February to May of 2021.
On the macro side, retail sales in Canada had a solid showing in March, ticking up 0.8% to hit $69.8 billion. The boost mainly came from motor vehicle and parts dealers. If you strip out gas stations and auto sales, core retail sales still edged up by 0.2%.
Looking at the bigger picture, sales climbed 1.2% in the first quarter of 2025, marking the fourth quarter in a row of growth. And despite recent drops in consumer confidence, early estimates suggest April’s retail sales will stay strong, rising another 0.5% month-over-month.
Still, this momentum probably won’t sway the Bank of Canada ahead of its June meeting. The odds of an interest rate cut have slipped to 24%, meaning they’re likely staying put for now.
Fiscal to stay on focus
Kevin Ford – FX & Macro Strategist
For years, U.S. debt carried virtually no risk premium, and despite large budget deficits, markets didn’t seem to mind, until now. Ultimately, government borrowing costs come down to one thing: investor confidence in the U.S.’s ability to repay its debt.
Now, rising interest rates and slowing economic growth are setting the stage for what could turn America’s national debt into a real crisis. To put it in perspective: after Social Security, net interest payments are the largest expense in U.S. history. Servicing the debt alone now takes up around 4.5% of GDP, the highest among G10 countries. In other words, the U.S. now spends more on paying off its debt than on healthcare or national defense. That’s a staggering amount.
Bond markets are sending a clear message. The 10-year Treasury yield climbed over 20 basis points, while the 30-year broke past 5%, a level it hadn’t touched in 17 years, and stayed there. This isn’t just another rate shift; it’s a wake-up call.
You can’t run massive deficits, rack up debt, and assume borrowing costs will stay low forever. Investors aren’t questioning U.S. risk because the dollar is losing its reserve currency status, but because soaring deficits, while Treasury issuance at higher-rates are raising concerns about sustainability. Also, yields aren’t rising on growth optimism; they’re responding to fears about long-term creditworthiness. And we’ve seen this across G7 yields. When they start performing like emerging market debt, it’s not just about inflation or economic expectations anymore, it’s about credibility, debt stability, and erratic policy direction.
We’ve seen a version of this play out before. In 2022, the U.K. faced chaos when then Prime Minister Liz Truss pushed forward a tax-cut plan that threatened to blow up the budget deficit. Markets recoiled, long-term rates spiked, the pound plunged, and the country’s financial system came dangerously close to unraveling.
We’ll see if fiscal policy becomes clearer, and some of the uncertainty baked into long-term yields start to fade, helping ease market concerns. Until then, fiscal concerns stay front and center.
Peso continues gaining
The 20-day SMA has become a key short-term resistance level for the Peso at 19.50, a point where it gained nearly 1% against the U.S. dollar last week.
So far this year, the Peso has benefited from a global investor shift toward emerging and Latin American markets. The Mexican stock exchange has surged 17% YTD, as measured by the S&P/BMV IPC Index, while the Peso itself has climbed 8% against the USD.
After reaching 19.50 last week, the Peso has now slipped to 19.19. If bullish momentum continues, a move toward the 19 level could come into play. Market focus now turns to the October low at 19.1, which stands as the next major support. Much will depend on whether risk aversion eases and credit concerns fade, potentially paving the way for renewed demand in high-yield emerging market assets.
Dollar slightly rebounds after another tariff pause
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Trump’s tariff threats weigh on USD despite safe-haven demand
The dollar extended losses as Trump’s latest tariff announcements overshadowed any safe-haven flows, with markets focusing on potential EU retaliation.
The USD index remained under pressure following Trump’s threat of a 50% tariff on the EU from June 1, as traders positioned for escalating trade tensions.
On Sunday, Trump agreed to extend the deadline until July 9 after a phone call with Commission President Ursula von der Leyen.
The NZD and AUD were the standout performers against the greenback, with both currencies benefiting from the broader dollar weakness despite stabilizing risk sentiment.
USD/JPY found some stability around 142.80 as safe-haven demand provided modest support, though the broader Trump 2.0 policy uncertainty continued to drive structural USD hedging adjustments.
This week, RBNZ is expected to cut 25bp following RBA’s lead.
NY Fed’s Perli supports a standing repo facility
According to Roberto Perli, manager of the New York Fed’s System Open Market Account, the market for repurchase agreements is under pressure as a result of the Fed’s efforts to shrink its balance sheet.
According to Bloomberg, Perli stated that the Fed’s Standing Repo Facility would become increasingly crucial for rate control as the Fed’s balance sheet continues to shrink and bank reserves move from abundant to sufficient levels, which will likely result in an increase in upward pressure on money market rates.
Looking at APAC FX, USD/SGD price action is still weak and under pressure.
However, USD buyers may look to take advantage since it is 0.45% higher than September 2024 lows of 1.2789.
The next key resistance of 21-day EMA 1.2986 remains key hurdle level to go through for the pair.
Focus on inflation and growth data
The economic calendar features several key inflation releases across major economies. Notable reports include French CPI on Tuesday, Australian CPI on Wednesday, and preliminary German CPI figures on Friday. These readings will be closely watched for signs of persistent price pressures that could influence central bank policy outlooks.
The week brings a mix of growth-related data, including US GDP on Thursday, which is expected to confirm a 0.3% annualized contraction in Q1. Canadian monthly GDP for March and the quarterly annualized figure for Q1 will be released on Friday, offering insights into the health of the Canadian economy.
Wednesday sees the release of US consumer confidence data for May, which is expected to tick up slightly to 87. On Friday, US personal income and spending figures for April will shed light on the state of the American consumer. Any significant deviations from expectations could impact market sentiment.
The Reserve Bank of New Zealand’s rate decision on Wednesday stands out as a key event risk for the New Zealand dollar. Markets expect a 25bps cut to 3.25%, so any deviation from this expectation could trigger significant volatility in NZD crosses. The central bank’s forward guidance will also be closely scrutinized for clues on the future rate path.
With the US and UK markets closed on Monday for holidays, trading volumes may be lighter than usual to start the week. This could lead to some choppy price action, especially for USD and GBP currency crosses. Liquidity should improve as the week progresses and participation increases.
Antipodeans near top end of the range
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Trade deal progress and lower tariff rates have eased concerns over economic disruption. However, market sentiment turned sharply negative after Moody’s downgraded the US credit rating, citing mounting debt concerns and cutting the country’s score from Aaa to Aa1.
Two other big developments also grabbed the market’s attention: a disappointing bond auction and the House Republicans’ approval of the “Big, Beautiful Tax Bill” with rising deficits in a higher-rate environment raising questions about long-term sustainability.
US equities tumbled almost 2% in a few days, whilst long-dated Treasury yields spiked to multi-year highs, the 30-year yield is back above 5%, reflecting growing Wall Street worries about the US fiscal outlook.
While fiscal policy dominates, recent macro indicators show resilience. US composite PMI rose to 52.1, beating forecasts and calming recession fears. However, weak PMI data from Europe reinforce sluggish growth concerns, yet the euro remains relatively strong against the dollar.
From the UK, inflation surged with services inflation at 5.4%, exceeding expectations. The sharp rise, coupled with strong retail sales data has shifted BoE policy expectations, pushing gilt yields higher and supporting sterling.
Finally, a reset in UK-EU relations offered the pound further support but UK government has ruled out single market access or a customs union, reinforcing long-term trade barriers.
Global Macro Attention shifts to fiscal policy
Moody’s rating downgrade. Moody’s downgraded the U.S. sovereign rating to Aa1 citing deterioration of credit outlook. Moody’s is the final of the three major rating agencies to lower U.S. debt. The downgrade comes at a moment where the US administration will aim to pass Trump’s ‘Big, beautiful tax bill’. House of Republicans have passed the bill and now will move to the Senate, where it’s expected to find resistance from Democrats.
Global yields react. US 20-year bond auction this week saw weaker-than-expected demand, pushing rates up. 30-year yield hit 5.09%. Japan & Europe have seen similar trends. Markets are pushing back on fiscal deficits. US market faces nearly $3 trillion in US debt mature in 2025, much of it short-term and with rates this high, net interest payments will continue straining the US credit outlook. For the US, not the greatest timing to refinance 25% of debt.
Dollar weakness resumes. Between Friday afternoon and yesterday’s close, the dollar has slipped -1% in response to Moody’s downgrade of the U.S. sovereign rating to Aa1. In contrast to previous rating cuts, where the greenback surged as investors sought safety, this time, the market reaction has been noticeably different.
Macro in the backseat. While markets have been fixated on fiscal policy, some key macro data has quietly made an impact this week. Worth highlighting: May’s S&P Global PMI shows U.S. Manufacturing climbing to 52.3 (beating the 49.9 estimate and 50.2 prior), Services PMI rising to 52.3 (vs. 51.0 est. & 50.8 prior), and Composite PMI improving to 52.1 (surpassing the 50.3 estimate and 50.6 prior). A solid uptick across the board.
Regional outlook: US, EZ, & UK US Fiscal woes, Eurozone slump, and UK resilience
US fiscal concerns in focus. The combination of Moody’s US credit rating downgrade and the lackluster reception of a proposed tax cut bill in Congress reinforced long-term worries about US fiscal stability, which could accelerate diversification away from dollar-denominated assets. Indeed, the ongoing inverse correlation between US yields and the dollar highlights this stark regime shift.
Soft EZ activity data, so what? A raft of weaker-than-expected PMI data for key Eurozone economies—namely France, Germany, and the broader region reinforces the narrative of a sluggish Eurozone economy. The Eurozone Composite PMI fell from 50.4 to 49.5 in May, with the services sector being the main driver of the decline. While manufacturing has remained sluggish for some time, the previously-resilient services sector has now also slipped into contraction territory. Nonetheless, euro declines were pared, underscoring the prevailing sentiment that the euro still holds a relative advantage over the dollar at this juncture.
A resilient UK consumer. The repricing of BoE rate expectations has boosted sterling, with a hawkish May policy meeting and hot inflation data eliminating chances of a June cut. Markets now see just 40bps of cuts in 2025, down from 96bps earlier. The Citi Economic Surprise Index for the UK – which measures data surprises relative to market expectations – continues to climb, hitting its highest level since July 2024 and further boosted by strong retail sales which rose for a fourth month running.
UK-EU agree partial reset. The UK’s Labour government secured a veterinary agreement, aligning food standards with the EU, removing border checks, and easing trade friction. In return, EU fishing boats gain 12 years of UK access, and talks on youth migration are underway. Both sides also agreed on closer defense cooperation, strengthening diplomatic ties.
Week ahead Focus on inflation and growth data
Inflation readings take center stage. The economic calendar features several key inflation releases across major economies. Notable reports include French CPI on Tuesday, Australian CPI on Wednesday, and preliminary German CPI figures on Friday. These readings will be closely watched for signs of persistent price pressures that could influence central bank policy outlooks.
Growth indicators also in focus. The week brings a mix of growth-related data, including US GDP on Thursday, which is expected to confirm a 0.3% annualized contraction in Q1. Canadian monthly GDP for March and the quarterly annualized figure for Q1 will be released on Friday, offering insights into the health of the Canadian economy.
Consumer sentiment and spending eyed. Tuesday sees the release of US consumer confidence data for May, which is expected to tick up slightly to 87. On Friday, US personal income and spending figures for April will shed light on the state of the American consumer. Any significant deviations from expectations could impact market sentiment.
RBNZ rate decision in the spotlight. The Reserve Bank of New Zealand’s rate decision on Wednesday stands out as a key event risk for the New Zealand dollar. Markets expect a 25bps cut to 3.25%, so any deviation from this expectation could trigger significant volatility in NZD crosses.
Liquidity conditions in focus. With the US and UK markets closed on Monday for holidays, trading volumes may be lighter than usual to start the week. This could lead to some choppy price action, especially for USD and GBP currency crosses. Liquidity should improve as the week progresses and participation increases.
FX Views Diversifying away from dollars
USD Fiscal woe is fresh foe. Market attention has largely shifted to developments surrounding US fiscal stability, which has weighed heavily on the US dollar this week following the loss of upside traction the week prior. The dollar index is on track for its worst week in six, down over 1.2% at time of writing. The combination of Moody’s US credit rating downgrade and concerns over the deficit impact of the tax cut bill have pushed the 30-year Treasury yields above 5.1%, the highest level since 2023. A soft 20-year bond auction raised more alarms, reinforcing long-term worries about US fiscal stability, which could accelerate diversification away from dollar-denominated assets. Indeed, the inverse correlation between US yields and the dollar highlights this stark regime shift, whilst the steepening at the long end of the US curve is also typically dollar negative. The latter in this instance, reflects risk premia on US policies. Offering some welcome relief for the dollar though was US data, with flash PMIs surprising stronger than expected – cooling fears about a US economic slowdown.
EUR Euro on borrowed strength. Investor sentiment toward the dollar continued deteriorating this week, benefiting the EUR as the most liquid alternative. EUR broke above its 21-day moving average, only to retreat below it following disappointing Eurozone PMI prints. This reinforces our view that further—and more sustainable—euro upside would require stronger, domestically anchored momentum. Reducing reliance on USD weakness, which has historically been the primary driver of EUR moves, is key to maintaining gains beyond short-term technical levels. While the recent UK-EU summit and signs of fiscal easing in Germany offer some optimism for the euro area’s growth outlook, de-escalation in U.S.-EU trade tensions is needed for the euro to break meaningfully higher. Additionally, the eurozone’s macro backdrop remains soft, with underwhelming PMI data and an ECB that has yet to convincingly shift away from its dovish stance.
GBP In a sweet spot. GBP/USD hit its highest level in three years this week closing in on the $1.35 mark. The pair is back above its key daily moving averages and is now circa 11% higher than it was back in January this year. And in fact, for the first time since the global financial crisis, options traders are no longer bearish on the pound over the long term. Meanwhile, due to the uplift in EUR/USD, sterling’s gains against the euro have been muted, or rather non-existent this week, but it has still gained over 3% since the knee-jerk selloff last month. With pound bulls encouraged by stronger-than-expected economic performance and the absence of a recession, sterling remains supported by a hawkish Bank of England, resisting dovish shifts and providing yield appeal. The G10 FX de-dollarization narrative continues to fuel sterling’s bullish momentum too, given its renewed role in diversification strategies. Moreover, investors welcomed a partial reset in UK-EU economic relations though the deal won’t significantly boost the UK economy or prevent tax hikes in the autumn. The pound looks poised to build on recent gains, but sudden shift in risk sentiment poses the biggest threat to sterling bulls, given the pound’s high-beta status and sensitivity to global market swings.
CHF Appealing but vulnerable. The Swiss franc has strengthened over 1% against the USD this week, extending its 9% YTD gains, as investors flock to safe-haven assets amid US fiscal concerns and rising Treasury yields. The franc has long been a go-to destination during market stress, but more so as the dollar’s haven appeal has weakened. However, its rapid appreciation is raising concerns at the Swiss National Bank (SNB). With the trade-weighted franc near record highs, markets are increasingly uneasy about potential intervention. The SNB has already signaled discomfort, and traders are pricing in a 50bps rate cut in June, with negative interest rates potentially returning by September. Thus, if trade tensions and recession fears continue to ease, a mean reversion in USD/CHF could unfold amidst a return to traditional market dynamics. This could be true for EUR/CHF too given the decoupling with rate differentials is so extreme.
CADBack below 1.39. After Trump’s 2016 win, the CAD gained ~4% vs USD. Post-2024 election it has been nearly flat. But macro backdrop is different: higher tariffs, deeper uncertainty, and a weakening Canadian economy. In 2016, expansion was just beginning. Now, uncertainty remains. Is CAD poised for another leg down? Although the CAD has benefited from US dollar weakness, its beta is the lowest amongst G10 peers. Also, CAD net non-commercial positioning in the futures market, even though has improved, remains short, limiting advances beyond the 1.38 level. On the macro side, Canada’s annual inflation eased to 1.7% in April (down from 2.3% in March), but underlying pressures remain sticky. CPI median hit 3.2%, its highest since March 2024, while CPI trim rose to a 13-month high of 3.1%. With Q1 GDP data due May 30, rate cut odds by the BoC for the June meeting have dropped to 35%. The Loonie kicked off the week near 1.40 and has gained 0.65% over the past five days, yet remains unable to break below 1.38, hovering just above key technical support. With renewed US dollar weakness, it has dipped below 1.39, touching a low of 1.381 and nearing the 90-week SMA at 1.3795. Looking ahead, with a light macro calendar next week, range-bound trading is likely to persist through month-end.
AUD Exporters eye China opportunity amid trade tensions. Australian exporters remain optimistic about their China business prospects as potential US tariffs could enhance their competitive positioning in Chinese markets. This fundamental backdrop supports AUD strength as trade diversion benefits become more apparent. From a technical perspective, AUD/USD still hovers above the 21-day EMA at 0.6410 with diminishing downward momentum. The pair maintains its position above the Cloud, reinforcing the positive outlook. However, recent price action suggests resistance at 0.6500 remains a key challenge. A breakout above this level would target 0.6545, with further upside potential to 0.6688. On the downside, any corrections should find support at Cloud levels of 0.6290 and 0.6177. A break below 0.6177 would shift the bias negative, targeting 0.5950. Key upcoming data including monthly CPI, building capital expenditure, housing credit, and retail sales will provide direction for the pair’s next move.
CNYTariff effects emerge as China data softens. China’s April economic data revealed moderating growth momentum following robust Q1 readings. Retail sales growth slowed to 5.1% year-on-year, while infrastructure and manufacturing fixed asset investment decelerated. Export growth patterns showed clear tariff impact, with US shipments declining 21% while ASEAN exports surged 21%, highlighting trade diversion effects. Industrial production growth moderated to 6.1%, while both CPI and PPI remained in deflationary territory. USD/CNH is more than 3% higher than its previous lows of 6.9713 back in September 2024. Technically, USD/CNH is converging toward the lower Bollinger Band with upward momentum dissipating, suggesting renewed downside pressure. Trading below the Cloud maintains the negative outlook. A break below 7.1900 opens further downside to 7.1475, with 7.0869 as the ultimate target. Any rebounds should be viewed as corrective, with resistance at 7.2242 and 7.2566 expected to cap advances. Only a close above 7.2566 would tilt bias upward. Chinese industrial profit data will be closely watched for further economic insights.
JPY BoJ’s Noguchi sticks to plan, USD/JPY at 2-week troughs. BoJ board member Asahi Noguchi stated on Thursday that there’s no need for significant adjustments to the central bank’s JGB plan for cutting JGB buying. This stance draws attention as long-end bonds face a selloff and with the 40-year JGB auction looming on May 28. USD/JPY is now at 2-week troughs. USD/JPY has shown negative price action, breaking below the 21-day EMA at 144.77 with emerging downward momentum. Technical analysis points to further downside risk toward 140.00, with 137.77 as the next target below that level. A weekly close below 140.25 would complete a head-and-shoulders top pattern, confirming the negative structure. Any advances should be treated as corrective moves likely to face rejection at higher levels. However, a close above the Cloud resistance at 149.00 would signal a potential positive reversal, exposing upside to 154.67. Tokyo core CPI and industrial production data will be key catalysts for the pair’s direction.
MXN Peso pushes ahead. The 20-day SMA has become a strong short-term resistance line for the Peso, at 19.50, which has gained close to 1% versus the US dollar this week. The Peso has benefited this year from a shift from global investors to emerging and Latin American markets. The Mexican stock exchange has surged up 17% YTD, as measured by the S&P/BMV IPC Index, while the peso has gained 7% against the USD YTD. The Peso kicked off the week at 19.5 before dipping to a low of 19.2, testing key support at its 60-week SMA. A retracement near its 20-day SMA could trigger sell pressure, fueling upward momentum to retest this year’s low at 19.2—also a seven-month high. Should the currency gain further traction, a push toward the 19 level could be in play. Much of this will hinge on whether risk aversion eases and credit risk concerns fade, potentially driving renewed demand for high-yield emerging market assets. On the macro side, revised GDP data confirms a Q1 rebound, avoiding recession, but growth concerns persist. Weak US growth, tariffs, and trade uncertainty weigh on the economy. Slower activity and rising slack in Q2 are expected to drive disinflation, reinforcing rate-cut expectations. However, it’s key to note that March retail sales delivered a stunning surprise for the Mexican economy, soaring from -1.1% to 4.3%, the sharpest growth rate since November 2023, fully reversing the previous month’s decline.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
This week, two big developments grabbed the market’s attention: a disappointing bond auction and the House Republicans’ approval of the “Big, Beautiful Tax Bill.”
First, the Treasury Department held a routine auction for $16 billion in newly issued 20-year bonds. These auctions typically don’t make headlines, but this one sparked investor concerns about growing uncertainty in U.S. economic policy, particularly whether the market can absorb the refinancing of nearly $3 trillion in U.S. debt maturing in 2025, much of it short-term. Their concerns might be justified, as the auction resulted in a 5.05% yield on the 20-year note, a noticeable increase from the 4.6% average across the last five auctions. While the 20-year bond isn’t as liquid as other maturities, the lack of demand raised red flags in the market. But does this signal trouble for the world’s largest debt market?
To put things into perspective, a significant portion of the U.S. government’s maturing debt is short-term. Since 2000, Treasury securities with maturities of less than a year have consistently accounted for 25%-40% of total maturities. When combined with 1- to 5-year notes, short- and mid-term debt makes up about 70% of the total debt structure.
On the other side, this weak auction comes at a sensitive time for markets. Investor anxiety is mounting as a Republican-led Congress advances a tax bill that could add $3.3 trillion to the national debt by 2034. Historically, the U.S. has maintained an average federal fiscal deficit of 3.4% as a share of nominal GDP, but rising deficits in a higher-rate environment raises questions about long-term sustainability.
That said, while the newly approved tax bill signals further fiscal expansion, adding about $380 billion to the deficit annually, the baseline 10% tariff could help offset part of the gap. Tariffs have become a lasting feature of U.S. trade policy, making this revenue stream a crucial factor in shaping the country’s fiscal outlook. According to estimates from the Congressional Budget Office (CBO), current tariff rates are expected to generate approximately $2.7 trillion in revenue between 2026 and 2035. Even after accounting for potential economic growth slowdowns, tariff revenues could still total around $2.3 trillion over the same period.
As more clarity emerges around fiscal policy, some of the uncertainty premium in long-term yields may start to fade, easing market concerns. However, the dollar is still on track for its biggest weekly fall in six weeks and is struggling to reclaim the critical 100 threshold.
Business outlook rebounds for Canadian small businesses
Kevin Ford – FX & Macro Strategist
The Canadian Federation of Independent Business (CFIB) stands as Canada’s largest organization representing small and medium-sized enterprises, with a vast network of 100,000 members spanning every industry and region.
Optimism among SMEs remains exceptionally low, with businesses engaged in international trade reporting even weaker confidence levels compared to those operating solely within Canada.
Although small business confidence in Canada saw a modest uptick in May, reaching 40 on a 0-100 scale, it remains significantly below the neutral threshold of 50—signaling ongoing uncertainty. Employment plans are sluggish, with both full- and part-time hiring falling well below typical seasonal trends. At the same time, business owners anticipate price increases of 2.9% over the next year, a slight dip from the 3.5% forecast in the previous month.
Looking at the broader historical trend, optimism among entrepreneurs has steadily declined over the years, underscoring the increasing challenges of the business landscape. The average optimism index stood at approximately 64 from 2000 to 2010, declined to 61 between 2011 and 2020, and has dropped further to around 55 in the current decade. These figures reflect the mounting difficulties that small businesses continue to navigate.
The Loonie kicked off the week near 1.40 and has gained 1% over the past five days, yet remains unable to break below 1.38, hovering just above the key technical support. Looking ahead, with a light macro calendar next week, range-bound trading is likely to persist through month-end, with key resistance level at 20-day SMA at 1.388. However, with renewed US dollar weakness, as the Loonie has dipped below 1.39, touching a low of 1.3803, it could gain momentum to test key support at the 90-week SMA at 1.3795.
Euro shrugs off weak PMI prints
Antonio Ruggiero – FX & Macro Strategist
EUR/USD brushed off an intra-day drop of nearly 0.4% following a raft of weaker-than-expected PMI data for key Eurozone economies—namely France, Germany, and the broader region. The Eurozone Composite PMI fell from 50.4 to 49.5 in May, with the services sector being the main driver of the decline. While manufacturing has remained sluggish for some time, the previously-resilient services sector has now also slipped into contraction territory.
Contributing to yesterday’s decline was the ECB’s April meeting minutes, which confirmed policymakers’ concerns over the region’s weak economic outlook. The tone of the minutes suggested that the ECB’s dovish stance is here for the long run, particularly given the increasingly disinflationary backdrop. Altogether, yesterday’s events reinforce the narrative of a sluggish Eurozone economy, as elevated uncertainty continues to weigh on activity. Nonetheless, EUR/USD pared losses heading into the daily close, underscoring the prevailing sentiment that the euro still holds a relative advantage over the dollar at this juncture.
Contributing to the rebound may have been the EU’s proactive approach in launching a potential trade truce with the US, as it submitted a revised trade proposal to the White House. Overall, while we maintain a constructive view on EUR/USD—still trading above both short- and long-term moving averages—a more sustainable rebound will likely require stronger hard data and greater clarity on trade developments.
Peso pushes ahead
Kevin Ford – FX & Macro Strategist
The 20-day SMA has become a strong short-term resistance line for the Peso, at 19.50, which has gained close to 1% versus the US dollar this week. The Peso has benefited this year from a shift from global investors to emerging and Latin American markets. The Mexican stock exchange has surged up 17% YTD, as measured by the S&P/BMV IPC Index, while the peso has gained 7% against the USD YTD.
The Peso kicked off the week at 19.5 before dipping to a low of 19.2, testing key support at its 60-week SMA. A retracement near its 20-day SMA could trigger sell pressure, fueling upward momentum to retest this year’s low at 19.2—also a seven-month high. Should the currency gain further traction, a push toward the 19 level could be in play. Much of this will hinge on whether risk aversion eases and credit risk concerns fade, potentially driving renewed demand for high-yield emerging market assets.
On the macro side, revised GDP data confirms a Q1 rebound, avoiding recession, but growth concerns persist. Weak US growth, tariffs, and trade uncertainty weigh on the economy. Slower activity and rising slack in Q2 are expected to drive disinflation, reinforcing rate-cut expectations. However, it’s key to note that March retail sales delivered a stunning surprise for the Mexican economy, soaring from -1.1% to 4.3%, the sharpest growth rate since November 2023, fully reversing the previous month’s decline.
Dollar weakness sees Yen, Swiss Franc and Sterling shine
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
This week, two big developments grabbed the market’s attention: a disappointing bond auction and the House Republicans’ approval of the “Big, Beautiful Tax Bill.”
First, the Treasury Department held a routine auction for $16 billion in newly issued 20-year bonds. These auctions typically don’t make headlines, but this one sparked investor concerns about growing uncertainty in U.S. economic policy—particularly whether the market can absorb the refinancing of nearly $3 trillion in U.S. debt maturing in 2025, much of it short-term. Their concerns might be justified, as the auction resulted in a 5.05% yield on the 20-year note, a noticeable increase from the 4.6% average across the last five auctions. While the 20-year bond isn’t as liquid as other maturities, the lack of demand raised red flags in the market. But does this signal trouble for the world’s largest debt market?
To put things into perspective, a significant portion of the U.S. government’s maturing debt is short-term. Since 2000, Treasury securities with maturities of less than a year have consistently accounted for 25%-40% of total maturities. When combined with 1- to 5-year notes, short- and mid-term debt makes up about 70% of the total debt structure.
On the other side, this weak auction comes at a sensitive time for markets. Investor anxiety is mounting as a Republican-led Congress advances a tax bill that could add $3.3 trillion to the national debt by 2034. Historically, the U.S. has maintained an average federal fiscal deficit of 3.4% as a share of nominal GDP, but rising deficits in a higher-rate environment raises questions about long-term sustainability.
That said, while the newly approved tax bill signals further fiscal expansion, adding about $380 billion to the deficit annually, the baseline 10% tariff could help offset part of the gap. Tariffs have become a lasting feature of U.S. trade policy, making this revenue stream a crucial factor in shaping the country’s fiscal outlook. According to estimates from the Congressional Budget Office (CBO), current tariff rates are expected to generate approximately $2.7 trillion in revenue between 2026 and 2035. Even after accounting for potential economic growth slowdowns, tariff revenues could still total around $2.3 trillion over the same period.
As more clarity emerges around fiscal policy, some of the uncertainty premium in long-term yields may start to fade, easing market concerns. As a result, the US dollar index has regained some momentum heading into the weekend, rebounding from its weekly low of 99.3. Nevertheless, the dollar is on track for its biggest weekly fall in six and is struggling to reclaim the critical 100 threshold.
Euro shrugs off weak PMI prints
Antonio Ruggiero – FX & Macro Strategist
EUR/USD brushed off an intra-day drop of nearly 0.4% following a raft of weaker-than-expected PMI data for key Eurozone economies—namely France, Germany, and the broader region. The Eurozone Composite PMI fell from 50.4 to 49.5 in May, with the services sector being the main driver of the decline. While manufacturing has remained sluggish for some time, the previously-resilient services sector has now also slipped into contraction territory.
Contributing to yesterday’s decline was the ECB’s April meeting minutes, which confirmed policymakers’ concerns over the region’s weak economic outlook. The tone of the minutes suggested that the ECB’s dovish stance is here for the long run, particularly given the increasingly disinflationary backdrop. Altogether, yesterday’s events reinforce the narrative of a sluggish Eurozone economy, as elevated uncertainty continues to weigh on activity. Nonetheless, EUR/USD pared losses heading into the daily close, underscoring the prevailing sentiment that the euro still holds a relative advantage over the dollar at this juncture.
Contributing to the rebound may have been the EU’s proactive approach in launching a potential trade truce with the US, as it submitted a revised trade proposal to the White House. Overall, while we maintain a constructive view on EUR/USD—still trading above both short- and long-term moving averages—a more sustainable rebound will likely require stronger hard data and greater clarity on trade developments.
Soaring UK retail sales points to consumer resilience
George Vessey – Lead FX & Macro Strategist
The pound is flirting near 3-year highs versus the US dollar, on track to record its best week in six as traders capitalise on the weaker USD and digest the slew of domestic UK data this week. Retail sales just came out this morning and surprised to the upside, in a further sign that consumers are proving resilient in the face of rising bills and the global trade war.
Retail sales in the UK rose 1.2% in April, marking the fourth consecutive monthly increase. This follows the best quarter for British retailers since 2021, boosted by warmer weather and slightly improved consumer sentiment. Earlier this morning, data from GfK revealed UK consumer confidence edged higher in May, with the sentiment gauge rising to -20, up three points from April.
Elsewhere on the UK data front, UK public sector borrowing hit £20.2 billion, exceeding forecasts, though prior figures were revised lower. Meanwhile, 30-year UK bond yields topped 5.50%, reflecting global bond turmoil, including stress in US Treasuries and Japanese debt. The rise poses a challenge for Chancellor Rachel Reeves, with yields averaging 5.15% since the autumn budget, 55bps higher than the prior six months. If global bond turbulence persists, Reeves could face mounting scrutiny, especially if public finance data continues to disappoint.
There are several positive factors supporting sterling. Closer trade relations with both the US and EU, a string of positive UK economic data surprises and sticky inflation prompting a less dovish Bank of England (BoE) outlook and the de-dollarisation narrative. The options market has turned more and more optimistic on the pound’s long-term outlook and hedge funds remain bullish, steadily increasing their long positions since January. This rising demand for sterling suggests further upside potential, especially if asset managers shift to overweight positions in the coming months. As highlighted earlier in the week though, with resilience in EUR/USD, the pound’s uplift against the euro has been contained around the €1.19 handle, with pair still down over 1.5% year-to-date.
Still, with pound bulls encouraged by stronger-than-expected economic performance and the absence of a recession, sterling remains supported by a hawkish BoE resisting dovish shifts and providing yield appeal. The G10 FX de-dollarization narrative continues to fuel sterling’s bullish momentum, alongside its renewed role in diversification strategies.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Greenback stages comeback from two-week lows
The US dollar was higher overnight as markets reacted to the passage of President Donald Trump’s budget bill through the House of Representatives although the financing deal still needs to pass the Senate.
The US dollar index had its first winning session of the week as it rebounded from two-week lows.
The USD’s best gains were in Europe with the EUR/USD down 0.4% and USD/CHF up 0.4%.
The USD/SGD climbed 0.3% while USD/CNH gained 0.1%.
AUD lower as economic pulse weakens
The Australian and NZ dollars were also weaker.
Yesterday’s purchasing manager index numbers found Australia’s business growth has slowed, with the S&P Global flash PMI Composite Output Index slipping to a three-month low of 50.6 in May, down from 51 in April.
The slowdown was more pronounced in the services sector, as the Services PMI hit a six-month low of 50.5, while the Manufacturing Output Index also dipped to 50.6 from 51.
S&P Global noted that while private-sector output and new orders continued to expand, growth rates have softened to some of the weakest levels seen in 2025, pointing to waning economic momentum.
On a brighter note, employment in both services and manufacturing sectors remained strong.
The AUD/USD remains in a sideways pattern with the pair trading between 0.6350 and 0.6515.
BoJ’s Noguchi sticks to plan amid bond market ripples
BoJ board member Asahi Noguchi stated on Thursday that there’s no need for significant adjustments to the central bank’s JGB plan for cutting JGB buying.
This stance draws attention as long-end bonds face a selloff and with the 40-year JGB auction looming on May 28.
From a technical lens, USD/JPY seems ripe for reversal, given the Bessent and Kato had just “reaffirmed their shared belief that exchange rates should be market determined and that, at present, the dollar-yen exchange rate reflects fundamentals,” the Treasury department said Wednesday.
USD rebounds
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by the Market Insights Team Dollar’s slide extends as fiscal fears deepen
Antonio Ruggiero – FX & Macro Strategist
The US dollar index (DXY) extended its losing streak for a third consecutive session, falling to 99.7 on Wednesday. The combination of Moody’s downgrade and the lackluster reception of a proposed tax cut bill in Congress has revived “Liz Truss-style” fears around the US fiscal outlook, pushing long-term yields higher. On top of that, a quiet data week has added to the bearish tone, as traders latch onto the downward momentum in the USD to avoid missing out, reinforcing the selling pressure.
The recent spike in oil prices, triggered by worsening conflict in the Middle East, lifted traditional safe havens like gold—up nearly 4% week-to-date—but had a muted impact on the dollar. This divergence further confirms the ongoing USD sell-off, with most major FX pairs now retracing back to levels seen before last week’s US-China trade truce.
Unless investor confidence in the US outlook is meaningfully restored, it’s hard to see a strong bullish impulse for the dollar in the near term. A key catalyst would be clearer policy direction: most recent trade agreements remain temporary and loosely defined—subject to revision or cancellation by the US administration. With critical dates approaching—July 9 for the broader tariff plan and August 12 for China-specific measures— and no clear next steps, the policy uncertainty continues to dampen sentiment.
Meanwhile, across the Atlantic, improving ties between the UK and EU are helping to fuel a broader risk-on rally. Equity markets across the eurozone are up around 10% month-to-date, partly driven by renewed optimism following the recent EU-UK summit and its focus on a potential security and defense pact. This builds on momentum already supported by Germany’s earlier fiscal expansion, which had given the sector a notable boost.
As a result, the dollar is coming under pressure from two reinforcing dynamics: the “Sell America” trade—spurred by domestic policy uncertainty and fiscal concerns—and a growing risk-on sentiment. The latter, even under typical market conditions, tends to weigh on the USD as investors rotate into higher-beta assets abroad.
The CAD around US elections Kevin Ford – FX & Macro Strategist
A year after Donald Trump’s 2016 victory, the Canadian dollar strengthened ~4% against the U.S. dollar. Today, after the 2024 election, CAD is practically flat, though many expect a similar drop. But the macro backdrop is vastly different; tariffs are higher, business uncertainty is deeper, and Canada’s economy appears to be bottoming out. In contrast, 2016 saw the start of an expansion cycle, the BoC starting rate hikes from 0.5% to 1.75% by 2018, and a stronger global growth outlook. Now, prolonged tariffs could add pressure to the labour market, though much may already be priced in as demonstrated by CAD weakness through the second half of 2024. Could the currency be set for another leg down, this time driven by dollar bearishness? What could limit a similar path?
Although the CAD has benefited from US dollar weakness, its beta is the lowest amongst G10 peers. Also, CAD net non-commercial positioning in the futures market, even though has improved, remains short, limiting advances beyond the 1.38 level.
And perhaps most critically, the Loonie won’t see real gains until the Fed abandons its ‘higher for longer’ stance, which has kept yield differentials between the two countries at historic highs.
Euro strength builds
Antonio Ruggiero – FX & Macro Strategist
EUR/USD is up 1.5% so far this week, driven predominantly by a deteriorating US outlook. However, sentiment has also been buoyed by the outcome of the EU-UK summit, which delivered a modest but symbolically important boost to the common currency. The substance of this week’s UK-EU agreement remains limited—likely confined to sector-specific arrangements—but the optics suggest a renewed alignment between the two economies.
In the current “Sell America” narrative, this symbolic partnership is seen as a counterweight to US-driven fragmentation. It supports domestic assets and has helped push the euro past its 21-day moving average, with the currency now eyeing a potential 10% year-to-date gain.
Further EUR upside would benefit from more domestically anchored momentum—particularly improved growth prospects in both the UK and euro area. This would reduce reliance on USD weakness and build a more durable appreciation path, rather than one purely supported by bearish sentiment toward the dollar. Still, a more pronounced and formal de-escalation in US-EU trade tensions is likely needed for the euro to break significantly higher. The eurozone’s macro backdrop remains soft, and the ECB is yet to adopt a convincingly less dovish stance.
Attention is now on today’s PMI prints for Europe and the German IFO business climate index. Consensus points to improvements across services, manufacturing, and composite indicators for May—momentum that could help solidify the bullish narrative.
Sharp bounce in retail sales Kevin Ford – FX & Macro Strategist
March retail sales delivered a stunning surprise for the Mexican economy, soaring from -1.1% to 4.3%, the sharpest growth rate since November 2023, fully reversing the previous month’s decline. Gains were broad-based, with notable increases in vehicle services (+1.8%), textiles, jewelry, clothing, and footwear (+0.8%), health products (+5.9%), stationery (+10.4%), and vehicle-related items (+6.6%).
However, the Peso edged lower yesterday as market jitters resurfaced over US credit concerns. Still, with a 7% year-to-date gain against the US dollar, it remains a top performer among Latam currencies, alongside the Brazilian real.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
The US dollar index (DXY) extended its losing streak for a third consecutive session, falling to 99.7 on Wednesday. The combination of Moody’s downgrade and the lackluster reception of a proposed tax cut bill in Congress has revived “Liz Truss-style” fears around the US fiscal outlook, pushing long-term yields higher. On top of that, a quiet data week has added to the bearish tone, as traders latch onto the downward momentum in the USD to avoid missing out, reinforcing the selling pressure.
The recent spike in oil prices, triggered by worsening conflict in the Middle East, lifted traditional safe havens like gold—up nearly 4% week-to-date—but had a muted impact on the dollar. This divergence further confirms the ongoing USD sell-off, with most major FX pairs now retracing back to levels seen before last week’s US-China trade truce.
Unless investor confidence in the US outlook is meaningfully restored, it’s hard to see a strong bullish impulse for the dollar in the near term. A key catalyst would be clearer policy direction: most recent trade agreements remain temporary and loosely defined—subject to revision or cancellation by the US administration. With critical dates approaching—July 9 for the broader tariff plan and August 12 for China-specific measures— and no clear next steps, the policy uncertainty continues to dampen sentiment.
Meanwhile, across the Atlantic, improving ties between the UK and EU are helping to fuel a broader risk-on rally. Equity markets across the eurozone are up around 10% month-to-date, partly driven by renewed optimism following the recent EU-UK summit and its focus on a potential security and defense pact. This builds on momentum already supported by Germany’s earlier fiscal expansion, which had given the sector a notable boost.
As a result, the dollar is coming under pressure from two reinforcing dynamics: the “Sell America” trade—spurred by domestic policy uncertainty and fiscal concerns—and a growing risk-on sentiment. The latter, even under typical market conditions, tends to weigh on the USD as investors rotate into higher-beta assets abroad.
Euro strength builds
Antonio Ruggiero – FX & Macro Strategist
EUR/USD is up 1.5% so far this week, driven predominantly by a deteriorating US outlook. However, sentiment has also been buoyed by the outcome of the EU-UK summit, which delivered a modest but symbolically important boost to the common currency. The substance of this week’s UK-EU agreement remains limited—likely confined to sector-specific arrangements—but the optics suggest a renewed alignment between the two economies.
In the current “Sell America” narrative, this symbolic partnership is seen as a counterweight to US-driven fragmentation. It supports domestic assets and has helped push the euro past its 21-day moving average, with the currency now eyeing a potential 10% year-to-date gain.
Further EUR upside would benefit from more domestically anchored momentum—particularly improved growth prospects in both the UK and euro area. This would reduce reliance on USD weakness and build a more durable appreciation path, rather than one purely supported by bearish sentiment toward the dollar. Still, a more pronounced and formal de-escalation in US-EU trade tensions is likely needed for the euro to break significantly higher. The eurozone’s macro backdrop remains soft, and the ECB is yet to adopt a convincingly less dovish stance.
Attention is now on today’s PMI prints for Europe and the German IFO business climate index. Consensus points to improvements across services, manufacturing, and composite indicators for May—momentum that could help solidify the bullish narrative.
Sterling struggling versus euro
George Vessey – Lead FX & Macro Strategist
The higher-than-expected UK inflation data yesterday caused a brief positive knee-jerk reaction higher in the pound after traders trimmed bets on Bank of England (BoE) easing this year. However, despite widening rate differentials favouring more upside in GBP/EUR, the pair is actually down 0.4% so far this week. GBP/USD is up over 1%, but this is mainly due to broad USD selling as debt concerns weigh on the US currency. In fact, sterling is down against the majority of G10 currencies this week, which speaks of idiosyncratic GBP weakness.
Sterling jumped to a fresh 3-year best versus the dollar, close to $1.35 yesterday, but failed to breach this level that it’s been stuck under for a record period. However, amid the resurrection of the “sell America” trade whereby US bonds and the dollar are being shunned, it’s only a matter of time before $1.35 is reclaimed in our view. Technical speaking, momentum indicators remain bullish, the breakout higher from a short-term consolidation period and close back above the 21-day moving average, points to more gains in the short term. However, given rotation away from US assets, European assets, including the euro, are a key alternative, which is keeping GBP/USD in check around the mid-€1.18 region. The worry too is that the UK is entering a stagflation period of elevated inflation and subdued growth.
Today’s flash PMI data will provide some of the best forward-looking signs into the health of economies. Last month saw a sharp drop in the UK’s composite figure into contraction territory and if momentum continues to slow, stagflation alarm bells will start ringing louder, potentially weighing on sterling versus many G10 peers. That said, sentiment towards the dollar remains sour amid US fiscal woes, meaning GBP/USD is likely to hold firm.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Greenback down for third day after downgrade
The US dollar was down again for the third-straight session this week as worries about the recent downgrade from credit-agency Moody’s and the inability to pass President Trump’s budget hit bond markets.
The US ten-year bond yield neared 4.60% while the 30-year yield moved above 5.00% and hit the highest level since mid-2023.
The US dollar fell on the news as markets fretted about the US outlook.
So far this week, the USD’s biggest losses have been versus the Scandinavian and European markets – indicating the risk of a repatriation of investment funds. Safe havens like the Swiss franc and Japanese yen also gained.
The USD/SGD and USD/CNH returned to recent lows.
On the other hand, the Aussie and kiwi underperformed, with global growth worries weighing on these markets.
Fed in “wait-and-see” mode
During a conference on Tuesday, San Francisco Fed President Mary Daly stated that the Fed should maintain its “central position and then be prepared to move agilely — but not abruptly or quickly when we don’t need to because we don’t have enough information.”
Cleveland Fed President Beth Hammack, who was on the same panel as Daly and Raphael Bostic of the Atlanta Fed, emphasized that she is evaluating the outlook using possibilities, such as whether tariffs could lead to a one-time or more sustained spike in inflation.
According to Bloomberg, she stated, “At this time, I believe the best course of action we can take is to sit on our hands and really carefully go through the data.”
Looking at key component of the dollar index, the EUR/USD is now above average of 30-day trading range, whereas EUR/SGD is at 27% of the 30-day trading range.
The euro’s been stronger across markets with clear gains versus the AUD and NZD.
The dollar index has shown negative short term price momentum and weakness on the back of rising fears of US debt picture.
EUR buyers might look to take advantage of the current EUR positive momentum.
New Zealand trade could support kiwi
With export growth outperforming import growth, New Zealand jumped from a NZD12 million deficit to an April trade surplus of NZD1.4 billion, exceeding consensus estimates of $670 million.
Aircraft and machinery drove a slight 1.8% year-over-year increase in imports, while exports surged 25% year-over-year due to strong demand for dairy and fruits.
Exports to the US increased by 25%, China by 30%, and the EU by 34%. In the meantime, South Korea’s imports increased 30% and the US’s 66%.
NZD/USD is currently in a short-term uptrend with key support levels of 21-day EMA of 0.5910, and 50-day EMA of 0.5858 next.
USD/SGD, USD/CNY at lows
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
The British pound is in the spotlight this morning after jumping to a fresh 3-year high against the US dollar. The upside surprise in UK inflation has prompted money markets to trim expectations of Bank of England rate cuts for 2025, causing a sharp spike higher in UK gilt yields and sterling. Meanwhile, the US dollar remains under pressure as the “sell America” trade resumes in the wake of fresh fiscal concerns this week.
A case for Trumponomics?
Kevin Ford – FX & Macro Strategist
Trumponomics operates on three key pillars: trade, tax, and deregulation. Each is designed to work in tandem rather than independently, creating a cohesive strategy rather than isolated policy shifts. According to Scott Bessent’s latest remarks at the Milken Conference, the US administration aims to shrink the fiscal deficit by roughly 100 basis points annually, acknowledging that cutting a trillion dollars in a single year would trigger a severe 3% shock to GDP. The approach balances fiscal discipline with targeted tax cuts, striving for a 3.5% fiscal deficit relative to nominal GDP to maintain economic growth near 3% within a year.
A significant part of this strategy involves re-privatizing the economy. Bessent has advocated for reducing government spending and streamlining the public sector by shedding excess labor, arguing that deregulation, particularly in banking, will empower small community lenders to drive local economic growth. By scaling back restrictions, these institutions could ramp up lending, fostering entrepreneurship and strengthening regional economies.
On the trade front, the administration is pursuing a dual approach: expanding global market access while reshoring critical manufacturing sectors. The emphasis is on strategic industries such as pharma, semiconductor production, and steel, sectors deemed vital for national security and long-term economic stability. By bringing production back to US soil, policymakers hope to rebalance the economy and reinforce domestic supply chains. Speaking at the Milken Conference, the Treasury chief asserted that reducing the deficit could eliminate credit risk from US Treasury debt, ultimately allowing interest rates to “naturally come down.” While that premise is attractive, execution remains a challenge. Fiscal tightening may dampen near-term growth, and if markets lose confidence in the administration’s ability to navigate the trade-offs effectively, volatility could rise.
Although US financial markets have weathered past crises, including the Great Financial Crisis and pandemic-driven inflation, there is no guarantee that the current approach will provide a smooth path forward. Investors are closely monitoring trade policies, recognizing that tariffs and supply chain restructuring could introduce short-term disruptions before yielding long-term benefits. Stagflation, weaking economy, housing market, lots of worries mounting, lots at play. The stakes are high, and the interplay between fiscal discipline, deregulation, and trade strategy will ultimately determine whether Trumponomics delivers lasting economic resilience.
Euro’s technical break out
George Vessey – Lead FX & Macro Strategist
The euro has climbed back above its 21-day moving average, a level we’ve been calling out for several days, in a sign that the uptrend in EUR/USD is about to resume following a month-long correction/consolidation phase that saw the pair slide from $1.16 to $1.11. Renewed US dollar weakness explains much of the strength in the euro versus the dollar given the euro’s historical beta of 0.88 to the broad dollar.
However, the domestic backdrop is also telling. Yesterday we had data revealing the current account surplus in the Euro Area widened to a record high of €60.1 billion in March from €37.7 billion a year earlier. The goods surplus rose to €51.9 billion from €36.3 billion, the services surplus increased to €12 billion from €9.3 billion. The strong export of goods might be yet another sign of front-running US tariffs. Meanwhile, consumer morale in the Euro Area also improved more than expected in May, though remains markedly below its long-term average. Despite FX traders expecting more easing by the European Central bank compared to the Fed this year, it isn’t dissuading euro bulls. In fact, many hedge funds are eyeing gains past $1.20 as they re-initiate short-dollar positions.
With the structural headwinds facing the dollar, coupled with Europe’s more promising cyclical outlook thanks to fiscal stimulus, the longer-term outlook for EUR/USD remains positive in our view. But the path higher is likely to be more measured than the sharp rally we saw earlier this year, which has already seen EUR/USD gain around 10% year-to-date.
A tricky spot for the BoC
Kevin Ford – FX & Macro Strategist
Canada’s annual inflation rate eased to 1.7% in April, down from 2.3% in March but slightly above market expectations of 1.6%. However, underlying price pressures are proving sticky, CPI median, which reflects the midpoint of inflation across components, climbed to 3.2%, its highest level since March 2024. CPI trim, which filters out extreme price movements, also ticked up to a 13-month high of 3.1%.
This puts the Bank of Canada in a tricky spot, while signs of economic softening persist, stronger core inflation suggests rate cuts might not be imminent. April’s slowdown largely stemmed from falling energy prices (-1.7% vs. -0.3% in March), as the removal of the consumer carbon tax amplified the effects of OPEC’s output hikes. Gasoline prices plunged (-18.1% vs. -1.6%), natural gas prices followed suit (-14.1% vs. 6.4%), and transportation costs eased (-1.9% vs. 1.2%).
Meanwhile, uncertainty surrounding U.S. tariffs remains a key risk. The Bank of Canada, set to announce its next rate decision on June 4, has acknowledged the difficulty in assessing their full impact but notes they are already weighing on the Canadian economy.
These inflation figures are one of two major releases this week before the central bank’s decision, with the final first-quarter GDP data due on May 30. For now, the odds of a rate cut for the June cut have plunged to 35%.
Pound spikes to 3-year high
George Vessey – Lead FX & Macro Strategist
Sterling rose to its highest level since February 2022 against the US dollar today, supported mostly by the weaker US dollar as the “sell America” trade resumed in the wake of Moody’s US credit downgrade. Like the euro, the pound appears to have exited a period of consolidation, but this morning’s hotter-than-expected UK inflation data has helped.
UK inflation jumped to 3.5% in April, the highest in over a year and up from 2.6% in March – driven by higher energy and transport costs. Core inflation rose to 3.8% y/y, exceeding expectations of 3.6%, while services inflation, the Bank of England’s (BoE) key metric, surged to 5.4%, far above the 4.8% forecast. This has caused a hawkish repricing of BoE easing expectations, knocking off around 10bps of cuts in total for the rest of 2025.
The BoE now faces a dilemma, as its chief economist Huw Pill warned that rate cuts may be happening too quickly, with inflation’s downward momentum “stuttering”. The BoE had anticipated April’s inflation spike, citing Ofgem’s energy price cap increase, higher water bills, and rising employer national insurance contributions. However, it’s the sharp rise in services inflation that has shifted market expectations, pushing front-end gilt yields higher and strengthening sterling. Investors will now closely watch BoE policy signals, as the central bank weighs inflation risks against economic growth concerns.
GBP/USD is trading in the top half of the $1.34-$1.35 range for the first time in three years. The pair is back above its key daily moving averages and is now circa 11% higher than it was back in January this year. And in fact, for the first time since the global financial crisis, options traders are no longer bearish on the pound over the long term. Meanwhile, due to the uplift in EUR/USD, sterling’s gains against the euro have been muted, or rather non-existent this week.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
