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 U.S. 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 U.S. 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 U.S. 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 U.S. 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.
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 quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
The cross-border payments landscape is undergoing a transformation, and at the heart of this shift is the adoption of ISO 20022 — a universal standard that’s reshaping payment data communication across borders for financial institutions.
However, adoption of ISO 20022 has been uneven across markets, putting many financial institutions at risk of falling entirely out of sync with the cross-border payments ecosystem. According to SWIFT, less than a third of organizations had adopted the standard by the end of 2024. It’s a slower pace than expected, though it has picked up at the beginning of 2025.
Download part 1 of Convera’s latest report, The Payments Pulse to learn more about ISO 20022 benefits, industry adoption rates, transition challenges, and solutions.
As timelines tighten and global systems align, financial institutions must act to ensure they’re not left behind. To ensure compliance with SWIFT’s November 2025 migration deadline for international payments, organizations must either fully transform their operations on their own or partner with a trusted provider like Convera.
Financial institutions and the benefits of ISO 20022 compliance
ISO 20022 is an internationally recognized standard for financial messaging between financial institutions, providing richer data to improve interoperability in payments. SWIFT reports that ISO 20022 adoption enables up to 84% of exception messages to be handled automatically, significantly cutting down on the time and effort required for manual investigations. In addition, enhanced data quality supports more effective sanctions screening and streamlines software deployment, ultimately reinforcing compliance and fraud prevention strategies for financial institutions.
“Customer service also improves, thanks to greater transparency around payment fees, clearer remittance information and smoother reconciliation workflows,” says Joe Higginson, Director of Regional Sales, Financial Institutions, Convera. “And, beyond operational gains, ISO 20022 compliance also fuels innovation by providing data that helps financial institutions gain deeper customer insights and create new, tailored products backed by advanced reporting and analytics.”
However, unlocking these benefits comes with significant challenges, especially for financial institutions navigating the transition alone.
The cost of adopting ISO 20022 without a payments partner
Institutions that choose not to partner with a commercial payments provider like Convera face a steep path to compliance. Upgrading legacy payment systems to handle ISO 20022 messaging requires overhauling infrastructure to process structured data and retraining teams to manage new data formats and workflows. It also requires ongoing compliance monitoring across multiple jurisdictions.
Without expert support, ISO 20022 compliance can drain internal resources, delay operations, and expose the financial institution to compliance risks.
Cross-border payments transformation in action
A key complexity of the ISO 20022 rollout is that payment schemes around the world are migrating on varied timelines and with different implementation strategies. For example:
Fedwire in the United States plans to fully adopt ISO 20022 on July 14, 2025.
The SWIFT network will complete its transition to ISO 20022 for international cross-border payments in November 2025.
As national and regional systems evolve, financial institutions must ensure their payment flows are compatible across all channels, or risk payment rejections and operational bottlenecks.
Choosing the right partner for ISO 20022 migration
Convera has laid the groundwork to help financial institutions adopt ISO 20022 with minimal disruption. Our cross-border payments platform accommodates varying formats, timelines, and regional specifications meaning we speak all the “languages” of global payments.
Whether it’s sending or receiving ISO 20022 messages, Convera empowers our partners at financial institutions to:
Transmit and receive ISO-compliant cross-border payments via SWIFT.
Automatically translate between legacy and ISO formats, ensuring seamless interoperability.
Leverage enriched data for better fraud detection, reconciliation and cash flow insights.
In short, Convera helps financial institutions future-proof their payment systems without bearing the full cost of transformation on their own. Our structured cross-border payment data offers financial institutions end-to-end visibility into global payments on both sides of the transaction. Convera offers a critical competitive advantage that unlocks greater automation, yields better customer experiences and strengthens the regulatory standing of financial institutions.
“As an industry leader, Convera’s readiness puts our clients ahead of the curve,” says, Scott Johnson, Vice President of Product Delivery, Convera. “Our systems are already equipped to support ISO-compliant payment flows, both incoming and outgoing, ensuring you’re positioned for success in a fast-evolving landscape.”
How will ISO 20022 affect my financial institution?
Financial institutions will not be impacted if they process payments through Convera.
Financial institutions not working with a payment provider like Convera face the following implications:
Complianceconcerns: By November 2025, your institution must be fully compliant with ISO 20022 standards for both domestic and cross-border payments.
System upgrade: Transitioning to ISO 20022 requires significant updates to payment processing systems, including changes to message formats and data handling procedures.
Data capabilities: ISO 20022 provides richer and more structured payment data, enabling improved compliance monitoring, better customer insights and enhanced operational efficiencies. If you partner with Convera, you will see these benefits without having to do anything.
Why is ISO 20022 important?
ISO 20022 enhances the quality and richness of data in financial messages, leading to improved processing efficiency (removing human manual intervention in messaging), better regulatory compliance, and enhanced customer experience. It also supports the global harmonization of payment systems; ISO 20022 schemas provide a high level of business validation, reducing the risks of sending or receiving incorrect data.
What is the difference between Federal Reserve’s FedNow and Fedwire ISO 20222 and SWIFT network ISO 20022?
FedNow and Fedwire pertain to domestic payments (July 2025), and SWIFT pertains to cross-border payments (November 2025). North American financial institutions need to recognize that the July 2025 deadline for the Fed applies primarily to domestic payments, while the November 2025 SWIFT deadline pertains to international payments.
What is SWIFT’s role in ISO 20022 standardization?
ISO 20022 grew out of a previous standard in the securities messaging space, ISO 15022. SWIFT was a key contributor to ISO 15022 and maintained this leading role in the development of ISO 20022.
In June 2004, SWIFT was appointed Registration Authority (RA) for the standard – a role that SWIFT continues to fulfill. The RA is responsible for maintaining and publishing the central repository of ISO 20022 content and ensuring its integrity. In its role of RA, SWIFT developed and continues to support and update www.iso20022.org
“Financial institutions worldwide are at a tipping point, and time is of the essence to adopt ISO 20022,” says Johnson. “This new standard will modernize cross-border payments through streamlined operations, enhanced data quality and a more connected global financial ecosystem.”
By partnering with Convera, businesses can benefit from expert guidance through detailed consultations and customized integration strategies, making the transition to structured payment formats both efficient and effective.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Budget worries weigh on USD
The US dollar was mostly weaker overnight as difficult US budget negotiations hit sentiment towards the US dollar with investors already nervous after a volatile few months thanks to US president Donald Trump’s trade war.
President Trump and Republican lawmakers have been deadlocked over questions about the size of state and local government tax deductions and potential cuts to social security.
The US dollar’s losses were most pronounced versus the so-called safe haven markets with USD/JPY down 0.2% while the USD/CHF fell 0.7%.
In Asia, the greenback was steadier, with USD/SGD and USD/CNH both flat on the day.
The Aussie and kiwi bucked the trend, with both currencies lower, after yesterday’s Reserve Bank of Australia move to cut interest rates.
The AUD/USD fell 0.6% with the Aussie lower versus most other major markets. The AUD/EUR led losses as it dropped 0.9% while AUD/JPY lost 0.8%.
The NZD/USD lost 0.1%.
RBA cuts, dovish shift sparks economic concerns
The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points (bps), as widely anticipated, bringing it down to 3.85%.
The central bank’s statement reflected a more dovish tone, highlighting concerns about rising unemployment, which could approach 6% in a potential “Trade War” scenario.
Additionally, the RBA revised its trimmed mean CPI forecast downward to 2.6% (from 2.7%) and lowered its GDP growth projection for December 2025 to 2.1% (from 2.4%).
The RBA noted that recent indicators of household spending have been weaker than expected, attributing this to slower-than-anticipated increases in real income. The board identified global uncertainties as a significant factor contributing to Australia’s weaker economic outlook.
While labour market conditions remain tight, the RBA acknowledged that inflation risks have become more balanced, with international developments expected to exert downward pressure on the economy.
AUD/USD took a dive post RBA’s rate decision. However, from a technical lens AUD/USD still looks more likely to eke out gains, with 30-day trading range still at slightly above average level. However, the Aussie is at a critical level, sitting on key support levels of 50-day EMA of 0.6362 and 21-day EMA of 0.6404.
For AUD/EUR and AUD/NZD however, EUR and NZD buyers may look to take advantage soon, given both are near the top end of the 30-day trading range.
Tariff effects evident in China’s April data
After a strong performance in the first quarter, China’s economic growth showed signs of slowing in April.
Retail sales growth eased to 5.1% year-on-year, down from previous levels. Both infrastructure and manufacturing fixed asset investment (FAI) experienced slight slowdowns.
The property sector also weakened, with declines in both property sales and new project starts compared to the previous year.
Export growth decelerated less than anticipated, though shipments to the U.S. dropped by 21% year-on-year, while exports to ASEAN countries surged by 21%, reflecting the impact of U.S. tariffs.
Meanwhile, both the Consumer Price Index (CPI) and Producer Price Index (PPI) remained in deflation.
That said, USD/CNH continues to show signs of a rebound, where USD buyers may look to take advantage now, in line with our views that the path of least resistance is higher.
The next key resistance levels to keep an eye on are 21-day EMA of 7.2366, and 200-day EMA of 7.2477.
Aussie lower after RBA
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.
Between Friday afternoon and yesterday’s close, the dollar slid 0.8% following Moody’s downgrade of the U.S. sovereign rating to Aa1. Unlike past rating cuts, where the greenback rallied on risk aversion. this time, the reaction has been notably different. Outside of FX, markets barely flinched, reinforcing the sense that this was more of a formality than a shock. The real question isn’t the impact, it’s why it took Moody’s so long. As the final of the three major rating agencies to lower U.S. debt, the move was widely expected, which likely explains why equities barely budged on Monday.
But timing is everything. Why now? Debt ceiling debates, rising fiscal spending, tax reforms, none of these are new. Yet Moody’s may be anticipating further fiscal deterioration, with Congress now discussing the next round of tax cuts and another wave of government spending. Treasury markets have certainly been pricing in the expectation of heavy issuance ahead, signaling that demand for U.S. debt might not be as strong as it once was. That could help explain why the 30-year yield flirted with 5%, though it has since pulled back by 10 basis points.
It’s safe to say Scott Bessent isn’t thrilled about how high Treasury yields are trading. Nearly $3 trillion in U.S. debt mature in 2025, much of it short-term. Can the market absorb that? The government will likely extend a large portion of this debt to 10- and 30-year issuances, adding more pressure to rates. Moody’s timing couldn’t be worse for the Treasury. With traders scaling back expectations for rate cuts, investors navigating a flood of new issuance, and trade policy uncertainty still looming, the second half of the year could be a tough one for fixed income, and the U.S. dollar.
CAD steady ahead of April CPI
Kevin Ford – FX & Macro Strategist
Among the select leaders invited to Pope Leo XIV’s inaugural Mass, Canadian Prime Minister Mark Carney and U.S. Vice President JD Vance took the opportunity to discuss trade. But much like previous conversations, it was more of the same, discussions around fentanyl, border security, and defense spending, without any concrete progress.
While fiscal concerns have weighed on sentiment toward the U.S. dollar, the Canadian dollar’s upside remains capped by expectations of a dovish shift from the Bank of Canada (BoC). April’s disappointing job numbers which saw a rise in unemployment to 6.9% have increased the likelihood of a BoC rate cut in June. Meanwhile, as noted last week, the newly re-elected Liberal government is proposing C$77 billion (2.5% of 2024 GDP) in additional deficit-financed fiscal stimulus over the next four years. The plan prioritizes infrastructure, defense spending, and new housing development, alongside personal and corporate tax cuts.
In the FX market, the Canadian dollar opened the week at 1.398, but its attempts to push higher have stalled near 1.40. Selling pressure resurfaced last week, bringing the pair back to its one-year average of 1.394. The widening spread between U.S. and Canadian short-term yields has added to the pressure, keeping 1.39 as a key support level in the near term.
Looking ahead, the weekly chart suggests price action may remain contained between the 60-week SMA at 1.392 and the 40-week SMA at 1.403. FX volatility has eased since April, and neutral positioning in the FX options market, reflected in one-month risk reversals, points to a range-bound outlook. However, if bearish sentiment toward the U.S. dollar deepens, the CAD could test support levels below 1.389.
Euro firms as confidence grows
George Vessey – Lead FX & Macro Strategist
The euro climbed toward $1.13 on Monday, extending its recovery from 1-month lows last week, fuelled by broad USD weakness following Moody’s downgrade of US credit. ECB President Christine Lagarde reinforced market sentiment, signalling that the central bank will not resist a stronger euro.
Rather than framing appreciation as a threat, she called it an “opportunity,” linking it to global capital shifts and diminishing confidence in US policy. Markets are responding, with long-dated euro call options gaining traction as one-year risk reversals rise above one-month levels – a sign that this rally is structural, not just a temporary bounce. Technically, EUR/USD still needs to clear the 21-day moving average to solidify the uptrend, but its first close above the 55-month moving average since 2021 suggests growing market conviction. The missing catalyst for a push toward $1.20 may not be short-term headlines, but rather steady reserve rebalancing, policy stability, and the ECB’s strengthening credibility.
On the data front today, all eyes are on Eurozone consumer confidence, which is expected to rise for the first time in three readings, providing another boost to sentiment.
Mexican Peso gains
Kevin Ford – FX & Macro Strategist
The Mexican Peso, along the Swedish Krona leads the pack today, posting the strongest gains among major currencies against the U.S. dollar, climbing 0.95 percent over the last two days. The Mexican peso gains along with its Latin America peers, as a downgrade in the US credit rating has put pressure on the dollar.
On the other end of the spectrum, the Australian Dollar struggled, slipping 0.7%, the weakest performer of the day. The AUD/USD has fallen around 20 pips after today’s interest rate decision saw the Reserve Bank of Australia cut interest rates by 25 basis points to 3.85%.
*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.
Post-Moody’s downgrade of US debt from AAA to AA1 late Friday, long-term Treasury yields surged toward the psychological 5% mark — a clear sign that investors are baking in a higher risk premium on US government debt (Figure 1). The US dollar fell across the board despite rising long-term Treasury yields, reinforcing long-term worries about US fiscal stability and confidence in US assets.
But unlike the 2011 S&P downgrade during the “fiscal cliff” saga — when inflation was low and Treasuries were the world’s ultimate safe haven — today’s backdrop couldn’t be more different. Inflation is stickier, policy erratic, and even US equities are flashing red on valuation metrics.
In fact, for the first time in nearly 25 years, the earnings yield on equities is now below the 10-year Treasury yield (Figure 2). Investors are accepting lower compensation for riskier assets — a reversal of the usual order of things — suggesting US stocks are overbought and underpaying relative to bonds.
But bonds don’t offer much comfort either. Yields have risen mostly due to the term premium (Figure 3): the extra return investors demand to hold longer-term debt amid heightened uncertainty. That’s not a bullish signal. It means bonds aren’t exactly a safe bet right now either.
Essentially, stocks look overvalued, bonds look risky, and the dollar index has felt the pressure — falling almost 1% since the downgrade, with the USD weakening versus most major currencies.
All of this points to a broader takeaway: risk appetite for US assets is deteriorating. That’s the crux of the now-ubiquitous “Sell America” narrative. And while dollar strength may linger in the short run thanks to rate differentials, the medium-term direction looks softer.
Looking ahead, Moody’s downgrade may dominate market chatter this week. US economic data — jobless claims, PMIs — are unlikely to shift sentiment much. Still, if trade negotiations continue on a positive path and openness to trade endures, strong prints could quietly lay the groundwork for a dollar rebound further down the line.
Euro firms as confidence grows
George Vessey – Lead FX & Macro Strategist
The euro climbed toward $1.13 on Monday, extending its recovery from 1-month lows last week, fuelled by broad USD weakness following Moody’s downgrade of US credit. ECB President Christine Lagarde reinforced market sentiment, signalling that the central bank will not resist a stronger euro.
Rather than framing appreciation as a threat, she called it an “opportunity,” linking it to global capital shifts and diminishing confidence in US policy. Markets are responding, with long-dated euro call options gaining traction as one-year risk reversals rise above one-month levels – a sign that this rally is structural, not just a temporary bounce. Technically, EUR/USD still needs to clear the 21-day moving average to solidify the uptrend, but its first close above the 55-month moving average since 2021 suggests growing market conviction. The missing catalyst for a push toward $1.20 may not be short-term headlines, but rather steady reserve rebalancing, policy stability, and the ECB’s strengthening credibility.
On the data front today, all eyes are on Eurozone consumer confidence, which is expected to rise for the first time in three readings, providing another boost to sentiment.
Pound rises but political breakthrough is no game-changer
George Vessey – Lead FX & Macro Strategist
The British pound surged toward $1.34, nearing its seven-month peak, as investors welcomed a partial reset in UK-EU economic relations. Optimism surrounding key UK economic data and a major political breakthrough has fuelled sterling’s gains alongside broad-based dollar weakness. GBP/EUR remains largely unchanged just beneath the €1.19 handle, but still up 1% on the month and above long-term average rates.
Nine years after Brexit, the UK’s Labour government secured a veterinary agreement, aligning agricultural and food standards with the EU. This eliminates border checks and paperwork, easing trade friction. In exchange, European fishing boats gain UK access for 12 years, and discussions on youth migration – a key EU demand- are now on the table. Both sides also agreed on closer defence cooperation, marking a shift toward stronger diplomatic ties.
However, the deal won’t significantly boost the UK economy or prevent tax hikes in the autumn. Deeper regulatory alignment could support sterling, but entrenched UK-EU red lines make further integration politically challenging. The UK government has ruled out single market access or a customs union too, reinforcing long-term trade barriers.
While sterling benefits from renewed optimism, the economic impact remains uncertain, and political hurdles could limit further gains. Investors will watch for additional policy shifts that could shape the pound’s trajectory in the months ahead as well as inflation data due early tomorrow morning which will likely impact Bank of England policy.
*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
Aussie in focus ahead of RBA
The Australian dollar was higher overnight ahead of today’s key decision from the Reserve Bank of Australia.
Financial market pricing sees a 99% probability of a cut with a further 50bps worth of cuts priced in for the remainder of 2025 (source: Bloomberg).
However, the RBA is likely to provide a more cautious commentary, with inflation in Australia remaining persistently steady over the last 12 months and last week’s stronger than expected employment numbers also adding to the RBA’s concerns over price pressures. The RBA meets at 2.30pm AEST.
Otherwise, the overnight action was driven by the response to the weekend’s US credit downgrade from Moody’s.
The US dollar was mostly lower although US shares, which initially fell, recovered to end the day higher.
US confidence slump weighs on greenback
The University of Michigan 1Y inflation expectation increased from 6.5% to 7.3%, surpassing the consensus of 6.5% and reaching its highest level since 1981.
Consumer sentiment dropped from 52.2 to 50.8, below the consensus of 53.5.
US Federal Reserve members have continuously expressed concern about growing consumer inflation expectations, which will only make the Fed more hawkish.
Looking at APAC FX, any rebound in USD/SGD will be testing next key resistance levels of the 21-week EMA of 1.3240 and 50-week EMA of 1.3318 next.
Euro weaker in APAC with “rates near terminal”
The euro saw a small rebound in APAC yesterday but, more broadly, remains near recent lows.
Martins Kazaks, the governor of the central bank of Latvia, has shifted away from his dovish stance.
The trade situation appears to be de-escalating, despite the fact that there is still a lot of uncertainty, Kazaks stated. He stated on CNBC that there is still a chance of a brief and weak recession.
He stated that assuming the ECB’s baseline assumption continues, rates are likely near the terminal point and that there was no reason to hasten any rate cuts.
AUD/EUR is above the average of the 30-day trading range and EUR buyers may look to take advantage at current levels – with next target to the daily 200-day EMA 0.5917.
For EUR/SGD, it is at the low end of the 30-day trading range providing opportunity for EUR buyers at current levels.
Aussie higher as RBA looms
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 US dollar stabilized last week, supported by trade deal progress and lower tariff rates, which eased concerns over US economic disruption. However, 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.
Last week’s risk-on tone from US-China tariff de-escalation had lifted the dollar index for a fourth consecutive week, gaining 3% from three-year lows. Yet, structural challenges remain, and with Trump considering a return to country-specific tariffs, policy uncertainty clouds the outlook. The Moody’s downgrade highlights long-term risks, including debt sustainability, which could further erode the dollar’s haven appeal. Markets are reacting swiftly – equity futures dropped over 1%, and long-dated Treasury yields approached 5%, reflecting growing Wall Street worries over the US bond market.
Meanwhile, US economic data sent mixed signals last week. Inflation remained soft, as service-sector spending weakened, though tariff-driven price increases were evident in goods. Retail sales disappointed, suggesting consumers remain sensitive to price hikes, while industrial production suffered from tariff impacts, though bottlenecks may ease amid the trade truce. This week, the focus is on jobless claims and flash PMIs, but the overriding theme will be market reaction to the credit downgrade, as debt concerns now drive volatility across US markets.
Euro upside hinges on dollar weakness
George Vessey – Lead FX & Macro Strategist
The FX landscape continues to shift. With the USD’s downward trend stalling as tariff easing bolstered sentiment, EUR/USD dipped to $1.12, while risk-on conditions weighed on safe-haven currencies like JPY and CHF. However, with the “sell America” trade back in focus after Moody’s US credit downgrade, the euro might stand to benefit alongside other liquid haven peers.
The euro led gains among majors post-“Liberation Day”, finding a new equilibrium as economic data holds firm. German fiscal offsets have supported manufacturing, while expectations for a deeper ECB cutting cycle may fuel economic activity at the margins. That said, further upside hinges on USD weakness, as price action is increasingly disconnected from fundamentals. Without negative dollar developments, sustained euro gains remain uncertain. We need to see EUR/USD reclaim the 21-day moving average, currently located at $1.1294, to boost our conviction of a sustained uptrend. The 50-day moving average at $1.1115 is a major to support level to keep an eye on.
Looking ahead, Thursday’s Flash PMIs will be key. Markets anticipate a rebound in services, following last month’s unexpected decline, which could set the tone for the euro’s next move.
UK-EU summit could shape pound’s path
George Vessey – Lead FX & Macro Strategist
The British pound remains supported by a string of positive data surprises, but focus now shifts to the first UK-EU summit since Brexit, where the government aims to reset trade relations with its largest partner. GBP/USD has reclaimed the $1.33 handle, aided by dollar weakness, while GBP/EUR dipped below €1.19 amid souring risk sentiment.
We’ve already seen stronger than expected UK GDP growth in Q1, but its strength may prove temporary as March’s expansion was driven by investment and net exports, while private and public consumption stayed weak. Meanwhile, labour market data signals loosening conditions, with unemployment rising to 4.5%, vacancies falling to 761,000, and wage growth plateauing at 5.6% y/y. These trends suggest inflationary pressures may ease, reinforcing expectations for a 25bp rate cut at the Bank of England’s June meeting. However, April CPI inflation is expected to accelerate, with headline CPI forecast at 3.3% y/y, core inflation at 3.6% y/y, and service CPI at 4.9% y/y. Investors will also watch preliminary PMI data, which will provide insight into Trump’s trade policies’ impact on the UK economy.
The UK-EU trade negotiations could be the most influential factor for the pound, with a positive outcome potentially driving further GBP gains. While a new defence pact is expected, fishing rights and youth mobility remain contentious. Officials anticipate three key outcomes: a security pact, a declaration on global issues, and a framework for future negotiations.
*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
Moody’s downgrade hits USD
The US dollar was weaker in early Monday trading – mostly versus other safe havens – after credit ratings agency Moody’s downgraded US government debt from the highest Aa1 rating to Aaa.
Moody’s now follows S&P, which downgraded US debt in 2011, and Fitch, which cut the US’s rating in 2023.
The greenback was weaker on the news with the biggest losses versus safe havens. The USD/JPY and USD/CHF both fell 0.4% in early Monday trade.
The USD/CNH fell 0.1% while USD/SGD lost 0.2%.
The Australian dollar wasn’t able to capitalise on the USD’s early Monday weakness with the pair buffeted by a choppy 2.3% range last week and ending last week down 0.1%.
Kiwi falls from highs despite manufacturing recovery
The NZD/USD ended lower last week after a volatile 2.1% range with the pair down 0.5%.
Amidst RBNZ interest rate cuts and indications of a broad-based economic rebound, New Zealand’s BNZ manufacturing PMI increased to 53.9 in April from 53.2 the previous month, marking the fourth consecutive month of growth.
Keep in mind that the PMI’s 50 threshold distinguishes between expansion and contraction.
With employment at its highest level since July 2021 and both output and new orders in positive territory, all sub-indices grew.
Looking from a technical lens, NZD/USD is now sitting on both strong 50-day EMA support of 0.5848 and 200-day EMA support of 0.5856.
NZD/USD is now circa 7%+ away from its highs of 0.6379, last seen back in September 2024.
Inflation and RBA cut to set the tone for this week
The week kicks off with key inflation figures, starting with the EU’s final CPI readings (YoY and MoM). The UK’s April CPI will be closely watched for signs of easing price pressures. Japan’s National CPI is expected to show a slight uptick to 3.7% YoY.
The Reserve Bank of Australia’s rate decision on Tuesday dominates the monetary policy calendar, with markets anticipating a 25bps cut to 3.85%. Any deviation from consensus could trigger AUD volatility, while guidance on future easing will influence regional risk sentiment.
Preliminary May PMIs will offer fresh insights into global activity, including Eurozone and UK composite figures. Germany’s IFO Business Climate and final Q1 GDP may signal whether its fragile recovery holds. US existing home sales and new home sales round out the housing data slate.
UK retail sales will test consumer resilience after March’s modest gains, while Canada’s March retail sales could reflect lingering weakness. China’s April retail sales set the tone for Asian demand trends early in the week.
With no major holidays, trading conditions should remain stable, though thinner volumes ahead of the US Memorial Day (May 26th) weekend may amplify moves in late-week sessions.
USD lower after downgrade
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.
Global markets surged higher on Monday after US Treasury Secretary Scott Bessent announced a de-escalation in trade tensions that saw both the US and China slash tariffs for a 90-day period.
The US agreed to cut tariffs from 145% to 30% while China will reduce their tariffs from 125% to 10% for the next 90 days. US president Donald Trump said the agreement achieved a “total reset” with China.
US stock markets led the charge higher on the day of the announcement with the US’s Dow Jones up 2.8%, the S&P 500 up 3.3% while the Nasdaq jumped 4.4%.
On the macro front, US annual headline inflation fell from 2.4% in March to 2.3% in April while the core reading was steady at 2.8%. A weaker-than-expected producer prices report followed Tuesday’s softer consumer inflation number.
The US dollar was volatile over the week. The US dollar was initially stronger as news of the US-China trade deal boosted sentiment towards the greenback.
However, the US dollar was later weaker as the lower-than-expected inflation reading caused markets to speculate the Federal Reserve might be more willing to cut US interest rates.
In other markets, the euro weakened versus the US dollar as some easing of tariff concerns saw investment flows move back into the US.
The USD was weaker in Asia, however, with USD/JPY down for four straight days.
Global Macro Risk-on mode activated on US-China trade truce
Tariff reset rally. Just a few months ago, a 30% tariff rate on China would have seemed extreme. Now, those levels are fueling one of the biggest equity market rallies in recent history. The last time the S&P 500 erased a 15% year-to-date decline in under six weeks was back in 1982. The US-China tariff deal includes a 115%-point reduction in tariffs, lowering US tariffs on Chinese imports from 145% to 30% and Chinese tariffs on US imports from 125% to 10%. China will suspend or remove non-tariff countermeasures imposed since April 2, 2025, such as export restrictions on critical minerals.
Inflation softens with no tariff bite yet. April’s US consumer prices index rose just 0.2% m/m, undershooting expectations and bringing headline inflation down to 2.3% y/y, its lowest since February 2021. Core inflation remains at 2.8% y/y, and supercore came in at the lowest in about four years. Overall price pressures appear to be easing with little urgency so far by companies to pass along the cost of higher tariffs to consumers.
US dollar reversal losing steam. The US dollar’s pullback from its 50-week moving average signals fading momentum, though rising US yields suggest investors are looking beyond short-term inflation relief toward tariff impacts as well as the upcoming tax bills. The Fed’s cautious stance has provided some dollar support through yields, but if core economic data weakens, that support could shift, exposing the currency to further downside risks. While trade de-escalation offers near-term relief, longer-term risks linger, and markets will be watching closely to see if prior tensions start to weigh on the economy.
Regional outlooks: US, EZ, UK Shifting focus
US deregulation elation. A bigger policy shift might also be in play — one the market could actually cheer: a pivot from trade disruption to deregulation, another pillar of Trump’s original campaign. A “Big, Beautiful Bill” aimed at slashing taxes just landed in Congress. Deregulation has historically been equity-positive, but if Trump proves as erratic on this as he was on trade, markets could start worrying about the government’s ability to manage an even larger deficit. The sharp rise in long-term US yields suggests this risk is already on the radar. In this case, higher yields may not boost USD demand — especially if the risk premium doesn’t compensate for growing concerns about fiscal sustainability and political unpredictability.
Europe’s mixed signals. In Eurozone macro news, the ZEW expectations survey rebounded in May, signalling growing optimism around economic stability, government formation, and trade progress. However, the current situation gauge failed to show any recovery, highlighting ongoing economic uncertainty. Meanwhile, first-quarter industrial production growth amounted to 4.7%, which is the highest on record outside of the recovery from the first lockdown in 2020, though this appears particularly related to US frontloading of European products.
UK growth spurt. UK GDP data showed stronger-than-expected growth in the first quarter. The economy expanded 0.7%, surpassing forecasts of 0.6% and well above the 0.1% increase in Q4 2024. March’s 0.2% growth, beating flat expectations, highlights momentum, with exports reaching their best levels in over two years—though the data was compiled before “Liberation Day” tariffs. Alongside sticky wage growth seen in the labour report this week, the solid GDP print suggests the Bank of England (BoE) may hold off on rate cuts in June.
Week ahead Inflation and RBA cut to set the tone
Inflation data takes center stage. The week kicks off with key inflation figures, starting with the EU’s final CPI readings (YoY and MoM) on Monday. The UK’s April CPI (Wednesday) will be closely watched for signs of easing price pressures. Japan’s National CPI (Friday) is expected to show a slight uptick to 3.7% YoY.
Central bank spotlight on RBA. The Reserve Bank of Australia’s rate decision (Tuesday) dominates the monetary policy calendar, with markets anticipating a 25bps cut to 3.85%. Any deviation from consensus could trigger AUD volatility, while guidance on future easing will influence regional risk sentiment.
Growth and PMI updates to gauge momentum. Preliminary May PMIs (Thursday) will offer fresh insights into global activity, including Eurozone and UK composite figures. Germany’s IFO Business Climate (Thursday) and final Q1 GDP (Friday) may signal whether its fragile recovery holds. US existing home sales (Thursday) and new home sales (Friday) round out the housing data slate.
Retail sales in focus. UK retail sales (Friday) will test consumer resilience after March’s modest gains, while Canada’s March retail sales (Friday) could reflect lingering weakness. China’s April retail sales (Monday) set the tone for Asian demand trends early in the week.
Lighter liquidity risks. With no major holidays, trading conditions should remain stable, though thinner volumes ahead of the US Memorial Day weekend (May 26) may amplify moves in late-week sessions.
FX Views Gains with guardrails
USD Short-term relief, long term risks. Despite a substantial recovery from 3-year lows in April to 4% this week, the dollar’s rebound appears to have lost traction. Broader sentiment continues to lean USD-negative: unless boosted by news of tariff negotiations that have soothed markets in recent weeks, the dollar index is always looking for a reason to tilt lower. While hard data hasn’t yet shown clear signs of tariff-related stress on the US economy, uncertainty around the White House’s next steps on trade, along with growing talk of de-dollarization, continue to weigh on the greenback. The rebound in US equities and trade de-escalation may shift the Fed’s focus back to inflation, making another rate cut unlikely in the short-term. Despite cooler CPI at 2.3%, the Fed’s wait-and-see approach held, leaving easing expectations largely unchanged. The hawkish stance should support the dollar or at least limit further downside but while we have seen short-term dollar relief, the broader de-dollarization narrative erodes any long-term confidence in the dollar.
EUR Balancing in a shifting landscape. EUR/USD remains largely at the mercy of US risk sentiment. With concerns around the US economy easing a bit, the pair’s recent impressive rally has cooled. The strength in the euro isn’t rooted in economic fundamentals, but rather in strong demand for EUR-denominated assets — as investors increasingly flirt with the idea that “the euro is the new dollar.” But this raises questions about the sustainability of the rally, especially with the ECB staying firmly dovish. This divergence between policy stance and market pricing is widening the gap between spot and fair value. Looking ahead, the ECB could find itself in a bind. If the euro keeps appreciating, exporters across the Euro Area may feel the pinch — pressuring revenues and Draghi’s much-hailed competitiveness. That would likely prompt an even more dovish response from the ECB, which has been more focused on growth than inflation for some time now. EUR/USD remains about four cents from its 2025 peak and a retest of fresh highs isn’t on the cards unless the pair closes back above its 21-day moving average at $1.1314. Over the coming weeks and months, expect the EUR/USD to hover in the $1.11–$1.15 range.
GBP Trade talks shaping sentiment. At the start of the week, easing US-China trade tensions pushed GBP/USD down toward its 50-day moving average at $1.3091. As the week progressed, the pair bounced back, driven by persistent positive sentiment toward the pound. Traders reinforced bullish GBP positions, with one-month GBP/USD risk reversals climbing for the third time in four days. UK preliminary GDP data surprised to the upside, showing 0.7% q/q growth. However, the print did little to further the pound’s bullish momentum. Instead, weaker US data dented dollar demand and reinforced the broader anti-USD narrative. Despite the upbeat sentiment around sterling, ongoing unpredictability from Washington and the still-nascent UK-US trade negotiations could limit directional conviction. Meanwhile, GBP/EUR gained further traction, briefly trading above the €1.19 handle. Fading market volatility and improving global risk appetite benefited the risk-sensitive pound more than the euro. If risk appetite remains elevated, Sterling’s high-beta status could support an extension above €1.19. Still, key resistance levels, including the 200-day moving average at €1.1925, need to be cleared to build conviction for a move toward €1.20.Looking ahead, next Monday’s first post-Brexit UK-EU summit could be pivotal. Any signals of deeper cooperation may provide further support for the pound.
CHF Unwinding haven demand. After appreciating against 98% of the word’s currencies last month, the Swiss franc’s fortunes have turned in May, up versus just 16% of its global peers so far, as traders exit safe-haven assets thanks to cooling trade tensions. Indeed, EUR/CHF is up almost 2% from its April lows now, but knocking on its 200-day moving average resistance barrier. Despite the recent weakness, the Swiss franc’s appreciation in 2025 poses a deflationary risk for the Swiss National Bank, given already subdued inflation per last week’s CPI release. SNB President Schlegel hasn’t ruled out rate cuts to negative territory, and his Friday speech will be closely watched for policy signals. Meanwhile, with EUR/USD beyond SNB’s control, the central bank is being forced to manage EUR/CHF more actively. The decoupling of EUR/CHF from rate differentials lingers near extreme levels, leaving the pair vulnerable to FX-driven tightening.
CNYUK-US trade deal stirs Chinese concerns. China has expressed concerns that the UK-US trade arrangement could potentially force Chinese businesses out of UK supply chains. Beijing criticized bilateral trade arrangements that target other countries, placing London in a difficult position between competing economic powers. USDCNH is currently on its decline, converging toward the lower Bollinger band with strengthening downward momentum. The technical picture remains negative, potentially triggering further downside to 7.1475, and possibly 7.0869. Post-breakdown rebounds are typical but likely to be corrective, with resistance expected at the Ichimoku Cloud (7.3224-7.3281). Only a close above the Cloud would shift the bias to positive, while sustaining levels above 7.3682 would confirm a positive outlook targeting 7.4011, followed by 7.4273. Market participants should monitor China’s upcoming economic data releases including fixed asset investment, industrial production, retail sales, unemployment rate and loan prime rate announcements for further direction.
JPY Wholesale inflation eases but price pressures persist. Japan’s April wholesale inflation moderated to 0.2% m/m from 0.4% and to 4% y/y from 4.3%, while yen-based import prices fell 7.2% y/y. Despite this easing, the corporate goods price index reached a fresh record high for the eighth consecutive month, indicating persistent inflationary pressures. Food and beverage prices increased by 3.6% y/y, while agricultural goods soared 42.2%, reflecting continued price hikes at the start of the fiscal year. USD/JPY was down for the fourth-consecutive trading session as of this writing. A close back below the Cloud would favor further downside targeting 140.00 and potentially 137.77. Conversely, sustained trading above the Cloud (resistance at 150.00) would expose upside to 154.67. Market participants should focus on upcoming Japanese trade balance data, au Jibun Bank Services PMI, and the national core CPI release which could influence BOJ policy expectations.
CADStrong resistance at 200-day SMA. While the full extent of economic damage from tariffs remains uncertain, and dovish pressure on the Fed is unlikely to disappear entirely, sentiment toward the US dollar should keep the Loonie trading above 1.39. Meanwhile, FX options market positioning has turned neutral on the Canadian dollar. Economic fundamentals in Canada remain weak, with April’s job gains largely driven by short-term government initiatives. The new prime minister has outlined key policy priorities to address the struggling domestic economy, with markets welcoming the prospect of greater fiscal stimulus and the auto tariff carve-out, which allows CUSMA-compliant auto parts to be exempt from U.S. tariffs. After opening the week at 1.392 and testing key support at 1.389, the Canadian dollar’s upside moves have met resistance near the 200-day SMA at 1.401. This selling pressure was evident again in sharp corrections throughout the week, bringing the pair back to its 1-year average at 1.394. The widening spread between US and Canadian short-term yields has added pressure on the CAD, which is likely to maintain 1.39 as a key support level in the coming weeks. The weekly chart suggests price movements next week could remain contained between the 60-week SMA at 1.392 and the 40-week SMA at 1.403. If bearish sentiment around the US dollar picks up again, the CAD may test support levels below 1.389.
AUD Wage growth accelerates as RBA cut speculation intensifies. Australia’s Q1 wage price index rose 0.9% q/q, exceeding expectations of 0.8%, with annual wage growth climbing to 3.4%. Healthcare and education sectors drove the increase, with public sector wages rising 1.0% q/q while private sector wages increased by 0.9% q/q. This wage acceleration could influence the RBA’s upcoming rate decision. On the technical front, AUDUSD declined from 0.6515, and currently below the 21-day EMA (currently at 0.6397) with strengthening downward momentum. Despite this correction, the pair remains above the Ichimoku Cloud, maintaining a generally positive medium-term outlook. Current declines appear corrective in nature, with potential support at Cloud levels (0.6290 and 0.6177). The recent breakout above 0.6409 confirms positive structure with upside targets at 0.6545 and potentially 0.6688. Only a close below the Cloud support at 0.6177 would shift the outlook to negative. AUDUSD is now near December 2024 highs. Market focus now centers on the upcoming RBA rate decision, which could significantly impact the pair’s direction.
MXNBanxico cuts to 8.5% as expected. Banco de Mexico’s latest decision came as no surprise, with a unanimous vote to lower the overnight interest rate by 50 basis points to 8.5%. Markets interpreted the press release as dovish, with current pricing suggesting Banxico’s terminal rate will reach 6.25% by the end of 2025.
Despite the erosion of carry as rate cuts unfold, the peso has still managed a 6.8% year-to-date gain against the dollar, driven by global risk-on sentiment that has fueled a broader rally in emerging markets and Latin American assets. The Mexican stock exchange has surged alongside, up 17% YTD, as measured by the S&P/BMV IPC Index.
Tariffs remain a challenge, with President Sheinbaum’s administration actively working to ease trade tensions, though uncertainty around trade policy continues to weigh on sentiment.
Banxico’s dovish stance had little immediate impact on the peso, although the Peso has rebounded from its weekly low at 19.3 to its 5-year average at 19.5. However, momentum beyond 19.3 may now face some limitations.
*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.
Further dampening dollar demand towards the end of the week was a batch of US data misses. April retail sales showed that pre-emptive buying ahead of tariffs faded, following March’s spending surge. Meanwhile, subdued PPI suggests that companies are absorbing higher costs, though this may not be sustainable.
April retail sales growth decelerated, with the value of purchases rising just 0.1%, unadjusted for inflation. Seven out of 13 categories saw declines, signaling broad-based weakness as the prior March spending surge faded. Meanwhile, prices paid to US producers unexpectedly declined in April by the most in five years. PPI components imply a modest 0.1% m/m increase for the core PCE deflator, the Fed’s preferred inflation gauge. Portfolio management fees plunged 6.9% m/m, while medical services softened relative to CPI, reinforcing expectations that the Fed could resume rate cuts later in the year. Yet, sharp revisions to the upside from the previous two PPI prints cloud the outlook.
Elsewhere, manufacturing surveys from the Empire State and Philadelphia Fed signaled worsening business conditions but higher new orders, hinting at slight expansion despite pricing pressures. These surveys point to a potential rise in the ISM manufacturing PMI for May, with higher raw material costs projected in the months ahead.
Dollar’s rebound lacks conviction
George Vessey – Lead FX & Macro Strategist
The S&P 500 has jumped 4% this week, erasing its year-to-date losses as the US-China trade truce brings relief. The 90-day tariff rollback signals an end to the worst phase of the trade war, fuelling risk appetite and driving Treasury yields higher as traders exit safe-haven assets. But the US dollar’s rebound has already lost steam, further hindered by fresh speculation that President Donald Trump favours a weaker buck.
Despite the initial dollar rebound, its gains have proved short-lived. Investors remain wary of lingering trade-related economic damage, and without clear evidence of recovery, the incentive to chase the dollar higher remains weak. This is despite short-end yields rising as traders steadily dial back expectations for Federal Reserve rate cuts this year, with less than 50 basis points of easing now priced in. Long-end Treasuries remain vulnerable too as Washington’s fiscal policy shifts toward tax cuts without deficit reduction, adding upward pressure on yields and downward pressure on the dollar.
Meanwhile, following US-South Korea trade talks, speculation is once again mounting that President Trump favours a weaker dollar, potentially pressuring other governments to allow their currencies to appreciate in trade negotiations. Asian currency weakness against the dollar has long been seen as an advantage for regional exporters, a stance the administration has sought to challenge.
The key takeaway for now is while the short-term dollar relief from trade de-escalation is clear, the longer-term risks remain. Markets will closely watch economic data in the coming weeks to gauge whether the damage from prior tensions starts surfacing. Indeed, in the FX options market, 1-year dollar sentiment is now the most bearish in five years, highlighting persistent uncertainty.
Real estate slowdown, little relief for buyers
Kevin Ford – FX & Macro Strategist
Canada’s housing market remains under pressure, with existing home sales slipping 0.1% in April, according to the Canadian Real Estate Association. Prices are also losing ground according to the MLS benchmark, which declined 1.2% month-over-month, while the national average home price dropped 3.9% compared to last year.
Toronto saw a slight uptick in monthly home sales, rising 1.8%, but sales are still down 21.3% year-over-year, with the average price dipping 4.2%. Vancouver faced a steeper decline, with sales falling 3.3% from March and 23.4% year-over-year, while prices slid another 6.6%.
Housing inventory has climbed to its highest level since the pandemic, as sellers wait for demand to rebound. However, ongoing economic uncertainty and a weakening job market raise the risk of even more listings, potentially putting further downward pressure on prices.
Still, some signs point to a possible turnaround, lower interest rates and improving affordability could provide much-needed support in select markets. At the end of April, Canada had 5.1 months of available inventory, matching the long-term average. A seller’s market typically holds below 3.6 months of supply, while a buyer’s market extends beyond 6.4 months, meaning buyers are awaiting for better conditions while market slowly quiets and uncertainty lingers.
In the FX market, after opening the week at 1.392 and testing key support at 1.389, the Canadian dollar’s upside moves have met resistance near the 200-day SMA at 1.401. This selling pressure was evident again in sharp corrections throughout the week, bringing the pair back to its 1-year average at 1.394. The widening spread between US and Canadian short-term yields has also added pressure on the CAD, which is likely to maintain 1.39 as a key support level in the coming weeks.
Looking ahead, the weekly chart suggests price movements next week could remain contained between the 60-week SMA at 1.392 and the 40-week SMA at 1.403. Also, neutral positioning in the FX options market, reflected in one-month risk reversals, suggests low-volatility and range-bound outlook in the near term. However, if bearish sentiment around the U.S. dollar returns, the CAD may test support levels below 1.389.
Euro consolidates around $1.12
George Vessey – Lead FX & Macro Strategist
Although EUR/USD remains largely at the mercy of US risk sentiment, we had some notable data out of Europe this week, which has arguably helped the pair recover ground back above the $1.12 handle, though still down four weeks in a row and 1% month-to-date.
Eurozone industrial production grew 4.7% in Q1, the strongest outside of the post-lockdown rebound in 2020, boosting 0.4% GDP growth. A key driver was US frontloading of European goods ahead of Trump’s tariffs, particularly in pharmaceuticals, where production rose 23.2% – notably in Ireland, a key hub. However, with Liberation Day tariffs now in effect, demand for Eurozone exports is set to weaken, casting doubt on whether this surge is sustainable. The ECB’s dovish stance combined with trade uncertainty may weigh on sentiment, keeping the euro’s upside in check despite recent strong data.
A cautious recovery trend compared to late 2024 could emerge once uncertainties ease and inventories normalize, but don’t expect first-quarter momentum to hold. That said, the euro’s upside hinges largely on dollar weakness, especially with the growing disconnect between price action and underlying fundamentals. Without negative USD catalysts, sustained euro strength remains questionable, particularly as ECB policy remains dovish and trade uncertainties persist.
Third straight half-point cut from Banxico
Kevin Ford – FX & Macro Strategist
Banco de México’s latest rate cut was widely expected, with a unanimous decision to lower the overnight interest rate by 50 basis points to 8.5%. The move comes as the economy narrowly avoided a recession, expanding just 0.2% in the first quarter, while the central bank halved its 2025 GDP forecast to 0.6%.
Inflation accelerated to 3.93% in April, exceeding the 3% target, but policymakers remain focused on guiding inflation toward their goal within a tolerance range of plus or minus one percentage point. Markets viewed the press release as dovish, pricing in Banxico’s terminal rate at 6.25% by the end of 2025. What caught attention was the revised CPI forecast for the second quarter, lifted to 3.9% from 3.5% in the accompanying statement.
Despite carry erosion as rate cuts unfold, the peso has still gained 6.8% against the dollar this year, driven by broad risk-on sentiment supporting rallies in emerging markets and Latin American assets. The Mexican stock exchange has followed suit, climbing 17% year-to-date, as tracked by the S&P/BMV IPC Index.
Tariffs remain a headwind, with President Sheinbaum’s administration working to ease trade tensions, though lingering uncertainty continues to cloud the outlook.
Banxico’s dovish stance had little immediate effect on the peso, though it has rebounded from its weekly low of 19.3 to its five-year average of 19.5. However, momentum beyond 19.3 could face increasing resistance.
*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.
