- 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.
CNY UK-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.
CAD Strong 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.
MXN Banxico 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.
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*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.