Category Currency

Written by the Market Insights Team

Dollar rebounds but caution still warranted

Antonio Ruggiero – FX & Macro Strategist

Tuesday’s strong rebound in consumer confidence, coupled with ongoing positive U.S.-EU trade negotiations, served as a catalyst for a US dollar rebound, with the greenback finishing yesterday’s session over 1% up week-to-date.

Then came some big news overnight – the US Court of International Trade ruled President Trump’s tariffs illegal, delivering a major blow to his economic agenda. The court found that the emergency law used to justify the tariffs did not grant unilateral authority, reinforcing Congress’s exclusive power over trade policy.

Markets responded swiftly – US equity futures and the US dollar surged, as investors anticipate a rapid rollback of levies that could ease pressure on US and global growth. The ruling mandates clarity within 10 days, though insights may emerge sooner via Trump’s social media updates.

Adding to the dollar support has been a rally in U.S. equities, which highlights an interesting trend: in typical risk-on environments, the dollar index (DXY) tends to fall as capital shifts toward riskier assets. This time, however, the rally seems more like a relief bid. Investors, facing few compelling alternatives and cautious about divesting from overbought U.S. assets, are clinging to any positive news—driving both equities and the dollar higher in tandem. While the equity rally lost some traction as the week progressed, the court ruling has seen a sharp rebound of almost 2% for the S&P500. Furthermore, a strong earnings report from Nvidia supported. The company projected robust revenue forecasts of approximately $45 billion for the fiscal second quarter, reinforcing confidence in its growth trajectory. Despite lingering concerns about the U.S. economic outlook, this news offers some relief to investors, underscoring how strong demand for AI could serve as a catalyst for resilient economic data in the coming months.

For the DXY to break decisively above the 21-day and 50-day moving averages (both hovering around the 100 level) would likely require a combination of positive economic data surprises and continued momentum on the trade front. That outcome isn’t off the table in the near term: trade negotiations appear to be progressing, with key dates ahead—July 9 for broader tariff plans, August 12 for China-specific measures and the newly-added July 1 for Europe—offering potential catalysts. Meanwhile, economic data has remained broadly resilient.

There are tentative signs that markets are holding out hope for a return to “business as usual.” Positive developments began with trade talks involving the UK and China, were briefly derailed by a downgrade and the unveiling of the “Big, Beautiful Bill”, and are now seeing fresh traction through negotiations with the EU.

Still, caution is warranted. The DXY has a long way to go, and sentiment remains fragile. The Trump administration have also said they will appeal the court ruling which permanently halts the tariffs unless the appeals court allows Trump to reinstate them during litigation. There is also a slate of important U.S. data releases that could offer further directional cues for the dollar, including national accounts, weekly jobless claims, personal income, today and key sentiment gauges such as the MNI Chicago Business Barometer and the University of Michigan Consumer Sentiment Index—both due Friday.

Fiscal strains hit Ottawa

Kevin Ford – FX & Macro Strategist

The year of Fiscal ambitions. First, Germany set the stage with a historic fiscal plan, reshaping its economic approach. Then, the U.S. took center stage with the big, beautiful bill, followed by Moody’s debt downgrade, intensifying global fiscal concerns. Now, Canada enters the mix. The newly elected government was expected to release its federal budget immediately post-election, yet, for the first time since 1968, excluding exceptional periods like Covid and post-9/11, Canada will forgo a spring fiscal plan. The timing is far from ideal, as demand for AAA-rated Canadian debt is no longer a given. Adding to the uncertainty, Fitch has issued a warning that Canada’s coveted AAA credit rating could be at risk.

In the meantime, the government has published the 205-26 Main Estimates. Canada’s budgeting process includes the Main Estimates and the Spring Fiscal Plan, each serving distinct roles. The Main Estimates outline detailed government spending for the upcoming fiscal year, forming the basis for appropriation bills that authorize expenditures. The Spring Fiscal Plan, on the other hand, provides a broader economic outlook, adjusting fiscal targets and policy priorities. While the estimates focus on departmental funding, the fiscal plan sets the overall financial strategy, ensuring both short-term spending and long-term planning align.

The 2025–26 Main Estimates outline $486.9 billion in budgetary spending, with $222.9 billion requiring parliamentary approval. A key highlight is the planned C$31 billion defense spending boost through 2029, partly in response to U.S. President Donald Trump’s criticism that Canada relies too heavily on American military support. Prime Minister Mark Carney has pledged to surpass NATO’s 2% of GDP defense spending target by 2030 and strengthen partnerships with European allies.

While some see fiscal expansion as a positive for the Canadian economy and the Loonie, the new administration’s spending plans mark a record-high commitment. The deficit could end up deeper in the red than previously estimated by Fitch and other agencies before Canada’s April election, raising concerns over long-term fiscal sustainability. The 2025–26 Main Estimates present a total of $486.9 billion in budgetary spending, which reflects $222.9 billion to be voted and $264.0 billion in forecast statutory expenditures. Canadian debt markets have repriced as well, following global yields. As fiscal concern ease for now, yields drop, US dollar recovers some ground and Canadian dollar retreats closer to its 1-month average at 1.387.

Banxico’s dovish shift stalls Peso rally

Kevin Ford – FX & Macro Strategist

Banco de Mexico (Banxico) has released its quarterly economic forecast, painting a cautious picture with clear downside risks to growth. GDP projections for 2025 took a sharp hit, falling well below market expectations. Governor Victoria Rodríguez Ceja announced that Mexico’s GDP is now expected to grow only 0.1% in 2025, down from a previous estimate of 0.6%. The 2026 outlook was also revised downward, from 1.8% to 0.9%, with Banxico citing a combination of internal economic weakness and global challenges, particularly shifts in U.S. trade policy, as key factors adding uncertainty to Mexico’s external demand.

On the inflation front, Banxico maintained its forecasts, signaling no imminent demand-driven pressures. The bank expects inflation to average 3.3% in late 2025, slightly above its prior estimate of 3%. Inflation currently stands at 3.69%, its lowest level in three years, with projections suggesting it could stabilize around 3% in 2026. Supporting this view, Banxico presented evidence that inflation is no longer in a high-variance regime, reinforcing its stance that the inflationary cycle has largely passed.

The Mexican peso reacted negatively to Banxico’s dovish tone. After three consecutive weeks of gains, momentum has lost steam and the USD/MXN has found support just above its 60-week SMA at 19.2, rebounding from weekly and 2025 lows at 19.18, though still below its five-year average of 19.5. A push to retest 2025 lows will require fresh momentum and weaker dollar. Banxico’s reluctance to signal a more aggressive easing cycle has kept market expectations anchored around a terminal rate near 6.5%, leaving carry-erosion concerns unchanged. In the near term, with the dollar strengthening across the board, the peso’s range is likely to hover between 19.2 and 19.4. The Mexican peso has staged a solid comeback, appreciating 9% from its yearly high of 21.2. After a rough 2024, where it tumbled nearly 20% from its low of 16.2, the currency has rebounded, posting a year-to-date gain of approximately 7% against the U.S. dollar.

Euro’s balancing act between policy and market sentiment

Antonio Ruggiero – FX & Macro Strategist

For now, capital outflows from the U.S., driven by concerns over a weaker dollar policy under President Trump, continue to support the euro, with EUR/USD spot sitting above its short-term moving averages. However, sustained data-driven momentum is required for the euro to break decisively beyond the $1.13 level. While comments from ECB President Christine Lagarde earlier this week reinforced the narrative of the euro emerging as the new dollar, rhetoric alone will not suffice to shift global reserves away from the dollar.

The euro tested highs near $1.15 back in April but failed to break through, struggling to approach that resistance level since. Market sentiment has begun to suggest that the euro’s bullish momentum is weakening. Technical indicators, such as the Relative Strength Index (RSI) – which measures the strength and momentum of price movements – recently dipped below 50 before recovering, signaling potential trend weakness. Despite this, we believe it is premature to speculate on a reversal of the bullish trend. The spot rate remains above key moving averages, and unless President Trump delivers further unexpected policy moves or European economic data continues to disappoint, a decisive downturn is not yet imminent.

Beyond technical indicators, the euro area continues to grapple with structural productivity challenges, smaller capital markets and more limited debt issuance. Despite these economic concerns, market participants appear to maintain their conviction that the euro currently offers more stability than the dollar. The key question remains: when will investors shift focus to these underlying weaknesses and reconsider their bullish stance on the euro?

Euro-area consumer inflation expectations increased for a second consecutive month in April, with anticipated price rises of 3.1% over the next 12 months. However, we caution against reading too much into these projections. The broader outlook suggests inflation will remain subdued, as aggregate demand and productivity continue to face headwinds, keeping inflation closer to the 2% target.

Our daily report yesterday outlined the rationale behind this forecast, reinforcing expectations that the ECB remains committed to a 25 basis-point rate cut on June 5, with a following quarter cut increasingly likely by year-end.

US Dollar index rebounds

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: May 26-30

All times are in ET

Have a question? [email protected]

*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 the Market Insights Team

Dollar rebounds but caution still warranted

Antonio Ruggiero – FX & Macro Strategist

Tuesday’s strong rebound in consumer confidence, coupled with ongoing positive U.S.-EU trade negotiations, served as a catalyst for a US dollar rebound, with the greenback finishing yesterday’s session over 1% up week-to-date.

Then came some big news overnight – the US Court of International Trade ruled President Trump’s tariffs illegal, delivering a major blow to his economic agenda. The court found that the emergency law used to justify the tariffs did not grant unilateral authority, reinforcing Congress’s exclusive power over trade policy.

Markets responded swiftly – US equity futures and the US dollar surged, as investors anticipate a rapid rollback of levies that could ease pressure on US and global growth. The ruling mandates clarity within 10 days, though insights may emerge sooner via Trump’s social media updates.

Adding to the dollar support has been a rally in U.S. equities, which highlights an interesting trend: in typical risk-on environments, the dollar index (DXY) tends to fall as capital shifts toward riskier assets. This time, however, the rally seems more like a relief bid. Investors, facing few compelling alternatives and cautious about divesting from overbought U.S. assets, are clinging to any positive news—driving both equities and the dollar higher in tandem. While the equity rally lost some traction as the week progressed, the court ruling has seen a sharp rebound of almost 2% for the S&P500. Furthermore, a strong earnings report from Nvidia supported. The company projected robust revenue forecasts of approximately $45 billion for the fiscal second quarter, reinforcing confidence in its growth trajectory. Despite lingering concerns about the U.S. economic outlook, this news offers some relief to investors, underscoring how strong demand for AI could serve as a catalyst for resilient economic data in the coming months.

For the DXY to break decisively above the 21-day and 50-day moving averages (both hovering around the 100 level) would likely require a combination of positive economic data surprises and continued momentum on the trade front. That outcome isn’t off the table in the near term: trade negotiations appear to be progressing, with key dates ahead—July 9 for broader tariff plans, August 12 for China-specific measures and the newly-added July 1 for Europe—offering potential catalysts. Meanwhile, economic data has remained broadly resilient.

There are tentative signs that markets are holding out hope for a return to “business as usual.” Positive developments began with trade talks involving the UK and China, were briefly derailed by a downgrade and the unveiling of the “Big, Beautiful Bill”, and are now seeing fresh traction through negotiations with the EU.

Still, caution is warranted. The DXY has a long way to go, and sentiment remains fragile. The Trump administration have also said they will appeal the court ruling which permanently halts the tariffs unless the appeals court allows Trump to reinstate them during litigation. There is also a slate of important U.S. data releases that could offer further directional cues for the dollar, including national accounts, weekly jobless claims, personal income, today and key sentiment gauges such as the MNI Chicago Business Barometer and the University of Michigan Consumer Sentiment Index—both due Friday.

Euro’s balancing act between policy and market sentiment

Antonio Ruggiero – FX & Macro Strategist

For now, capital outflows from the U.S., driven by concerns over a weaker dollar policy under President Trump, continue to support the euro, with EUR/USD spot sitting above its short-term moving averages. However, sustained data-driven momentum is required for the euro to break decisively beyond the $1.13 level. While comments from ECB President Christine Lagarde earlier this week reinforced the narrative of the euro emerging as the new dollar, rhetoric alone will not suffice to shift global reserves away from the dollar.

The euro tested highs near $1.15 back in April but failed to break through, struggling to approach that resistance level since. Market sentiment has begun to suggest that the euro’s bullish momentum is weakening. Technical indicators, such as the Relative Strength Index (RSI) – which measures the strength and momentum of price movements – recently dipped below 50 before recovering, signaling potential trend weakness. Despite this, we believe it is premature to speculate on a reversal of the bullish trend. The spot rate remains above key moving averages, and unless President Trump delivers further unexpected policy moves or European economic data continues to disappoint, a decisive downturn is not yet imminent.

Beyond technical indicators, the euro area continues to grapple with structural productivity challenges, smaller capital markets and more limited debt issuance. Despite these economic concerns, market participants appear to maintain their conviction that the euro currently offers more stability than the dollar. The key question remains: when will investors shift focus to these underlying weaknesses and reconsider their bullish stance on the euro?

Euro-area consumer inflation expectations increased for a second consecutive month in April, with anticipated price rises of 3.1% over the next 12 months. However, we caution against reading too much into these projections. The broader outlook suggests inflation will remain subdued, as aggregate demand and productivity continue to face headwinds, keeping inflation closer to the 2% target.

Our daily report yesterday outlined the rationale behind this forecast, reinforcing expectations that the ECB remains committed to a 25 basis-point rate cut on June 5, with a following quarter cut increasingly likely by year-end.

Sterling slips but uptrend still intact

George Vessey – Lead FX & Macro Strategist

Due to the court ruling that Trump’s tariffs are illegal, the pound has given back a chunk of gains made against the US dollar. GBP/USD has fallen from $1.36 towards $1.34 this week, but remains above its 21-day moving average and other long-term moving averages in a sign hat then uptrend is still intact for now. Indeed, the bounce in the dollar might prove short-lived, with legal uncertainty over the tariff ruling set to intensify and potentially reinforcing the “Sell America” trade as political risk premium rises.

Recent price action emphasises the weight US developments have on global markets and FX volatility. The pound is less sensitive to dollar price changes compared to many other G10 peers, but it’s still clearly influenced. Nevertheless, sterling sentiment has turned notably more optimistic, underpinned by idiosyncratic GBP strength. This has been driven by a combination of supportive UK trade developments, resilient domestic economic data, and a relatively hawkish Bank of England (BoE). As a result, GBP has appreciated against more than 70% of its global peers year-to-date. GBP/EUR for example, is trading 1.5% higher month-to-date and looks poised to test the €1.20 handle thanks largely to widening rate differentials in favour of sterling.

Cutting through the noise and zooming out on a monthly chart of GBP/USD, we note the currency pair is primed to clock its fourth monthly rise in a row. Last month its close comfortably above its 100-month moving average for the fourth time in about ten years. The chart looks bullish, with upside potential of $1.40 a possibility later this year, particular if investors resume offloading dollar-denominated assets amidst ongoing US policy angst.

Dollar index, stocks and oil rebound

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: May 26-30

All times are in BST

Have a question? [email protected]

*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

Dollar finds support ahead of tech earnings

The dollar steadied after recent weakness, with the DXY index unable to break above 100.00 overnight despite mixed flows during the New York session.

US equity futures found initial support on Nvidia’s Q1 earnings, though gains faded as markets awaited CEO commentary scheduled this Friday.

Tech-correlated Asian FX expected to track semiconductor sector sentiment, with chip and AI-related headlines remaining key drivers.

USD/JPY currently above key psychological handle of 145.00.

USD/CNH and USD/SGD were both flat overnight.

NZD/USD gains 0.3% post RBNZ rate decision, while AUD/USD down 0.26% overnight.

FOMC flags inflation fears

The latest FOMC minutes reveal concerns about rising inflation risks, a weakening labor market, and potential shifts in the USD’s safe-haven status.

Inflation concerns stem from tariffs, with many participants noting firms are likely to pass on costs to consumers, potentially causing persistent price increases.

While long-term inflation expectations remain anchored, risks of upward shifts were highlighted.

On the labor market, uncertainty looms, with participants warning of potential weakening tied to trade and government policies.

Finally, an unusual shift in asset price correlations raised concerns about the dollar’s waning safe-haven appeal and its broader economic implications.

Looking at APAC FX, USD/SGD was flat overnight, but has rebounded recently.

Next key resistance level for the pair is at 21-day EMA of 1.2964 and 50-day EMA of 1.3092, where USD buyers may look to take advantage.

Fed’s Williams warns of inflation expectations and is hawkish

Williams, the president of the New York Fed, stated that it was critical to have a strong anchor for inflation expectations.

He stated that in order to prevent inflation from becoming permanent, the Fed must prevent it from being persistent.

According to Williams, the Fed had to act decisively when inflation started to stray from its target in order to do that.

He added, the Fed must keep an eye on the entire inflation curve; while short-term expectations may diverge, the curve must demonstrate that they will eventually return to normal.

From technical lens, looking at Antipodeans post RBNZ rate decision, AUD/USD is trading near mid of 30-day trading range while NZD/USD is above the 30-day trading range.

AUD/USD currently sits at 21-day EMA of 0.6424 support, whereas NZD/USD slightly above 21-day EMA support of 0.5932. 

Kiwi tick up post RBNZ rate decision

Table: seven-day rolling currency trends and trading ranges  

Key global risk events

Calendar: 26 – 30 May

Have a question? [email protected]

*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

CAD climbs back above 1.38

Kevin Ford – FX & Macro Strategist

After rebounding on Tuesday, the US dollar is holding steady. A potential reduction in Japan’s government bond supply is driving down longer-dated global yields, while a trio of strong US economic indicators, including upbeat Consumer Confidence data and fading trade war fears, is providing additional support for the Greenback. Investors are also focused on the release of the Fed minutes later today.

Meanwhile, market volatility has eased, with the VIX dropping from last week’s high of 25 to 19, just above its 10-year average of 18.5. This decline helped US stocks start the shortened trading week on a strong note. The S&P 500 rallied 2%, the Nasdaq 100 gained 2.4%, and the Russell 2000 closed up 2.5% on Tuesday. All S&P 500 sector ETFs posted gains, led by consumer discretionary and tech. Semiconductor stocks, which had been on a seven-session losing streak, saw a turnaround, particularly Nvidia, which advanced ahead of its earnings release today. A reminder that the S&P500 is just 3.6% away from its all-time high.

In Canada, the S&P/TSX Composite Index climbed 0.8% on Tuesday, setting a fresh all-time high. The rally was fueled by strong gains in the US and optimism surrounding Toronto’s heavyweight financial sector.

The USD/CAD has found support at 1.37, pausing its five-session slide from last week. This level aligns with a year-long trendline dating back to June 2021, reinforcing medium-term uptrend support. The bounce back to 1.38 was also influenced by oversold reading, US and Canada government bond yield differentials and renewed Dollar strength.

The Loonie remains unable to close below its 100-week simple moving average (SMA) at 1.375, reinforcing the ongoing range-bound trading. If it continues to hold above 1.381, it would mark the end of its three-month decline.

From a technical perspective, the 60-day SMA is nearing a crossover below the 200-day SMA, establishing a key resistance zone near 1.40.

Diverging paths are a red flag

Antonio Ruggiero – FX & Macro Strategist

Since the infamous “liberation day” on April 2, the US dollar index (DXY) has fallen by 4.5%, while 10-year government yields have surged nearly 30 basis points. This divergence suggests that the higher yields demanded by investors are not attractive enough to draw them in, prompting capital to flow out of U.S. assets. As the chart below illustrates, the explanatory power of the 10-year yield on DXY movements was stronger before April 2 (with a higher beta of 1.54) than it has been since liberation day (beta of 0.81). This speaks to the lack of confidence in US assets and diversification away from the dollar.

Yesterday’s comments from Fed officials Kashkari and Williams confirmed the Fed’s “wait and see” stance, signaling no imminent rate cuts “until there is more clarity on the path for tariffs and their impact on prices.” Clearly, protecting long-run inflation expectations remains a top priority for them. Fed officials don’t seem to be the only ones waiting: US durable goods orders dropped 6.3% in April, unwinding a 7.6% rise in March, mostly due to a sharp 51.5% drop in commercial aircraft bookings. The data reflect growing business caution as companies await clarity on trade policy and tax changes while focusing on cost control.

Yesterday’s remarks might not sit well with President Trump, who finds himself caught between the Fed’s caution and the bond market’s pressure. This week’s tariff announcements on the EU provided a familiar pattern: disruptive tariff hikes push yields higher, only for Trump to dial them back shortly after, attempting to ease market tensions. While Trump’s moves are becoming more predictable than many initially expected, the still-elevated uncertainly – combined with growing concerns over U.S. debt sustainability – continues to erode the country’s reputation as the world’s premier reserve asset. 

Beyond the dollar: sterling’s homegrown momentum

George Vessey – Lead FX & Macro Strategist

It is true that much of the circa 8% year-to-date gains for GBP/USD has been driven by broad US dollar weakness, but it’s also true that since the start of the year, sterling exhibits a lower beta to declines in the dollar index than most of its G10 peers, meaning it’s less sensitive to dollar weakness. Moreover, there has undoubtedly been a more optimistic shift in GBP sentiment thanks to idiosyncratic sterling strength driven by UK trade deals, resilient domestic data and a relatively hawkish Bank of England (BoE).

The de-dollarization narrative continues to drive bullish sentiment for the pound and G10 currencies, as investors seek diversification. However, domestic factors have also played a key role in supporting sterling. UK data has largely been solid in recent weeks, evidenced by the UK Economic Surprise Index at an almost 1-year high. Recently we’ve seen retail sales posted strong gains in April, consumer confidence improved in May and inflation remains sticky – contrasting with the Eurozone’s disinflation trend. This reinforces the BoE’s more cautious stance keeping rate differentials in sterling’s favour. Markets are pricing about 56 basis points of cuts from the BoE over the next 12 months, versus 60 from an ECB that has already eased a lot more meaning the policy gap remains around 200bps in the UK’s favour and the pound may be poised for further gains versus the euro.

Trade agreements have also boosted sterling’s outlook. While the UK-US deal reduced tariff uncertainty, the UK has secured new agreements, including a Free Trade Agreement with India, and more crucially a reset with the EU providing further tailwinds for the pound.

The bottom line is that sterling’s momentum isn’t just a byproduct of shifting USD flows; it’s underpinned by some solid domestic fundamentals. This is reflected by the fact the pound has outperformed over 70% of a 50-currency basket in the past five months.

Euro defying weakness, seeking strength

Antonio Ruggiero – FX & Macro Strategist

Bullish momentum in the euro continues, driven by a deteriorating U.S. outlook, with EUR/USD up nearly 10% year-to-date. The erratic tariffs-on, tariffs-off behavior from Trump is now fueling a steady upward move in the EUR—contrary to previous cycles when similar developments would typically push the currency lower due to expectations of weaker global demand and lower interest rates.

In other words, the euro is increasingly acting as the preferred alternative to the U.S. dollar, regardless of whether these tariff announcements are inherently EUR-positive or not. EUR/USD is currently trading above its BEER-implied fair value of $1.1244, suggesting the possibility of medium-term adjustment pressures—particularly if the outlook for the U.S. improves. For now, however, that scenario seems remote. As my colleague George noted yesterday, sentiment remains tilted toward euro strength, with one-year EUR/USD risk reversals reaching their highest levels since 2003 (excluding the March 2020 spike).

Looking ahead, key inflation data is due Friday. In the euro area, deflationary concerns persist. Most economists agree that weak demand is likely to outweigh any inflationary pressures from supply bottlenecks. Low oil prices and a strong euro are compounding the downward pressure on prices. France’s meagre 0.7% year-on-year increase in May, released yesterday, could be an early indication of this trend.

A persistently dovish ECB means the current BEER-spot gap is likely to remain in place —though a reversal is still possible, should U.S. sentiment improve meaningfully.

US Dollar rebounds, yields drop, stocks gain

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: May 26-30

All times are in ET

Have a question? [email protected]

*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 the Market Insights Team

Beyond the dollar: sterling’s homegrown momentum

George Vessey – Lead FX & Macro Strategist

It is true that much of the circa 8% year-to-date gains for GBP/USD has been driven by broad US dollar weakness, but it’s also true that since the start of the year, sterling exhibits a lower beta to declines in the dollar index than most of its G10 peers, meaning it’s less sensitive to dollar weakness. Moreover, there has undoubtedly been a more optimistic shift in GBP sentiment thanks to idiosyncratic sterling strength driven by UK trade deals, resilient domestic data and a relatively hawkish Bank of England (BoE).

The de-dollarization narrative continues to drive bullish sentiment for the pound and G10 currencies, as investors seek diversification. However, domestic factors have also played a key role in supporting sterling. UK data has largely been solid in recent weeks, evidenced by the UK Economic Surprise Index at an almost 1-year high. Recently we’ve seen retail sales posted strong gains in April, consumer confidence improved in May and inflation remains sticky – contrasting with the Eurozone’s disinflation trend. This reinforces the BoE’s more cautious stance keeping rate differentials in sterling’s favour. Markets are pricing about 56 basis points of cuts from the BoE over the next 12 months, versus 60 from an ECB that has already eased a lot more meaning the policy gap remains around 200bps in the UK’s favour and the pound may be poised for further gains versus the euro.

Trade agreements have also boosted sterling’s outlook. While the UK-US deal reduced tariff uncertainty, the UK has secured new agreements, including a Free Trade Agreement with India, and more crucially a reset with the EU providing further tailwinds for the pound.

The bottom line is that sterling’s momentum isn’t just a byproduct of shifting USD flows; it’s underpinned by some solid domestic fundamentals. This is reflected by the fact the pound has outperformed over 70% of a 50-currency basket in the past five months.

Diverging paths are a red flag

Antonio Ruggiero – FX & Macro Strategist

Since the infamous “liberation day” on April 2, the US dollar index (DXY) has fallen by 4.5%, while 10-year government yields have surged nearly 300 basis points. This divergence suggests that the higher yields demanded by investors are not attractive enough to draw them in, prompting capital to flow out of U.S. assets. As the chart below illustrates, the explanatory power of the 10-year yield on DXY movements was stronger before April 2 (with a higher beta of 1.54) than it has been since liberation day (beta of 0.81). This speaks to the lack of confidence in US assets and diversification away from the dollar.

Yesterday’s comments from Fed officials Kashkari and Williams confirmed the Fed’s “wait and see” stance, signaling no imminent rate cuts “until there is more clarity on the path for tariffs and their impact on prices.” Clearly, protecting long-run inflation expectations remains a top priority for them. Fed officials don’t seem to be the only ones waiting: US durable goods orders dropped 6.3% in April, unwinding a 7.6% rise in March, mostly due to a sharp 51.5% drop in commercial aircraft bookings. The data reflect growing business caution as companies await clarity on trade policy and tax changes while focusing on cost control.

Yesterday’s remarks might not sit well with President Trump, who finds himself caught between the Fed’s caution and the bond market’s pressure. This week’s tariff announcements on the EU provided a familiar pattern: disruptive tariff hikes push yields higher, only for Trump to dial them back shortly after, attempting to ease market tensions. While Trump’s moves are becoming more predictable than many initially expected, the still-elevated uncertainly – combined with growing concerns over U.S. debt sustainability – continues to erode the country’s reputation as the world’s premier reserve asset. 

Euro defying weakness, seeking strength

Antonio Ruggiero – FX & Macro Strategist

Bullish momentum in the euro continues, driven by a deteriorating U.S. outlook, with EUR/USD up nearly 10% year-to-date. The erratic tariffs-on, tariffs-off behavior from Trump is now fueling a steady upward move in the EUR—contrary to previous cycles when similar developments would typically push the currency lower due to expectations of weaker global demand and lower interest rates.

In other words, the euro is increasingly acting as the preferred alternative to the U.S. dollar, regardless of whether these tariff announcements are inherently EUR-positive or not. EUR/USD is currently trading above its BEER-implied fair value of $1.1244, suggesting the possibility of medium-term adjustment pressures—particularly if the outlook for the U.S. improves. For now, however, that scenario seems remote. As my colleague George noted yesterday, sentiment remains tilted toward euro strength, with one-year EUR/USD risk reversals reaching their highest levels since 2003 (excluding the March 2020 spike).

Looking ahead, key inflation data is due Friday. In the euro area, deflationary concerns persist. Most economists agree that weak demand is likely to outweigh any inflationary pressures from supply bottlenecks. Low oil prices and a strong euro are compounding the downward pressure on prices. France’s meagre 0.7% year-on-year increase in May, released yesterday, could be an early indication of this trend.

A persistently dovish ECB means the current BEER-spot gap is likely to remain in place —though a reversal is still possible, should U.S. sentiment improve meaningfully.

Stocks extend rebound, gold falters

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: May 26-30

All times are in BST

Have a question? [email protected]

*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

Risk appetite returns amid key data releases

US equities rallied overnight, with the Nasdaq 100 surging 2.4% to close above 21,400, outperforming global peers. The S&P 500 also broke and closed above the 5,900 level, signaling renewed optimism.

The USD strengthened broadly overnight, with the DXY Index stalling near 99.50, at the time of writing. 

Despite lower US yields, the USD/JPY edged higher, and closed at 144.21.

Both the AUD and NZD remained under pressure, with upcoming Australia’s CPI and RBNZ decision likely to drive near-term direction. Oil markets are focused on the OPEC+ ministerial meeting, where members are reportedly discussing a potential third consecutive production increase for July

Consumer confidence in the US exceeds forecasts

The US Conference Board reported that consumer confidence increased from 85.7 to 98, above the Bloomberg consensus of 87.1.

The Conference Board stated: “The recovery was evident prior to the US-China trade agreement on May 12 but accelerated after that.

Over the following six months, consumers’ pessimism about business conditions and employment availability decreased, and their confidence about future income prospects returned.

Looking at APAC FX, USD/SGD has bounced back up overnight.

The next key resistance levels are 21-day EMA of 1.2968, 50-day EMA of 1.3099.

Note that the chart shows select weekly moving averages.

USD buyers may look to take advantage now.

ECB Villeroy: The Eurozone’s rate normalization is probably not complete

According to Reuters, ECB policymaker Francois Villeroy de Galhau stated on Tuesday that the normalization of interest rates in the Eurozone is most likely not finished.

Villeroy, who is also the chairman of the Bank of France, stated in a speech that “this normalization is probably not complete, and we are likely to see this at our governing council next week.”

“The French inflation figure for May, published just this morning at the low level of 0.6%, is yet another very encouraging sign of disinflation in action,” Villeroy stated.  

AUD/EUR is now trading near mid of 30-day trading range, with 50-day EMA of 0.5722 as the next key resistance level.

For EUR/SGD, it is still hovering around 25% of 30-day trading range, with 21-day EMA of 1.4627 as key resistance level.

Antipodeans down as all eyes on RBNZ today

Table: seven-day rolling currency trends and trading ranges  

Key global risk events

Calendar: 26 – 30 May

Have a question? [email protected]

*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 only constant in foreign exchange (FX) markets is that they are constantly moving, which means businesses operating across borders face a variety of significant risks from currency fluctuations. Market volatility can negatively impact cross-border payments, growth prospects, the costs of goods and labor and financial forecasting. One way to mitigate these risks is to leverage FX options, also known as currency options.

Currency hedging tools, such as options contracts, empower many multinational — and small or medium-sized — companies with the ability (but not necessarily the obligation) to buy or sell at a specified exchange rate in the future to limit downside exposure and benefit from favorable rate movements without the upfront cost. The strategy can be incredibly valuable for a multitude of cross-border industries, including travel, energy and manufacturing.

What is a vanilla currency option?

The simplest form of currency option is known as a vanilla option. It is a financial derivative contract that gives the buyer the right, but not the obligation, to trade one currency for another at a specified exchange rate at a predetermined expiration date, by paying a premium for the option. At that expiration date, the buyer of the vanilla option can choose to either exercise their option, thereby protecting against unfavorable movements in exchange rates, or let it lapse and instead trade in the open market if it is more advantageous to do so.

As an example, a U.S. company that manufactures its products in Germany would need to sell US dollars and buy euros to cover manufacturing costs. If the dollar were to weaken relative to the euro, those costs would be more expensive in dollar terms and the company’s profit margins would shrink. Conversely, a stronger dollar would reduce the effective cost of manufacture in euros and profits would increase. 

Using a vanilla option, however, could be a useful way to manage this risk. It gives the manufacturer the choice of whether to exercise its right sell dollars and buy euros at a specified exchange rate (called the protection rate) at the expiry date, if the dollar is weaker the company can exercise its right to trade at the protection rate and is protected against the unfavorable move.

Alternatively, if the spot rate is more favorable, the manufacturer can allow its option to expire and deal at the more advantageous spot rate. This right to choose is valuable, and as a result, requires the payment of a premium at the time of entering into the option, to the counterparty that sells the option, such as Convera.

“In today’s volatile financial market, vanilla options can be a valuable hedging tool,” says David Renta, Senior Director, Hedging, Convera. “As they confer the right, but no obligation to trade. During uncertain times like these, we tend to see more companies consider vanilla currency options as a way to simultaneously manage FX risk yet retain the potential to achieve better cash flows.”

Types of FX options

Currency options come in two main varieties. The simplest is called a vanilla option, which we outlined in the manufacturer example above. The second variety is called an exotic option and has more complex conditions than a vanilla option.

Exotic options offer customizable features such as triggers and different payoff conditions to match specific currency hedging strategies. Generally speaking, they offer protection that is contingent on given factors rather than being guaranteed, which means they command a lower premium than a vanilla option. As such, while they can be bought on a standalone basis, they are typically combined with vanilla, or other exotic options to create option structures designed to meet specific hedging objectives and market conditions.

Both vanilla and exotic options are described as ‘calls’ or ‘puts’ which illustrates which side of the market you are on. A call option gives the buyer the right to buy a currency pair at a specified exchange rate, known as the strike price, within a certain period. Cross-border businesses typically use call options when they expect the value of the currency pair to appreciate in the future.

Alternatively, a put option grants companies the right to sell a currency pair at a strike price (specified exchange rate) within a given time frame. A business typically leverages a put option when the currency pair is expected to depreciate.

How FX options work

To mitigate currency risk, buyers pay a premium to the seller for the right to trade a currency pair, locking in the maximum loss that the buyer can face if the market moves unfavorably. The contract acts as a type of insurance against adverse exchange rate movements, without taking on the same risk as directly trading the underlying currency pairs.

While the buyer has the option to exercise the contract based on market conditions, the seller is obligated to fulfill the buyer’s decision.

Determining the cost of currency options

To mitigate currency risk, buyers pay a premium to the seller for the right to trade a currency pair, locking in the maximum loss that the buyer can face if the market moves unfavorably. The contract acts as a type of insurance against adverse exchange rate movements, without taking on the same risk as directly trading the underlying currency pairs.

While the buyer has the option to exercise the contract based on market conditions, the seller is obligated to fulfill the buyer’s decision.

Determining the cost of currency options

FX options are purchased with a premium that is typically paid upfront. The premium consists of the intrinsic value and the time value.

The option’s intrinsic value is the difference between the amounts converted using the strike rate and the forward rate, assuming the option is exercised immediately.

Time, or extrinsic, value is the difference between the option premium and its intrinsic value. It represents the value of the optionality – the right to choose – and is greater the further into the future that right extends, the more volatile the underlying market and the more uncertain the potential outcome is.

The break-even spot rate is the exchange rate at which the buyer will break even, accounting for the premium paid. If the market moves favorably, the buyer can exercise the option, but if it moves unfavorably, they can let the option expire, limiting their loss to the premium.

To put it simply, the premium is calculated by determining how likely it is that the buyer of the option will want to exercise their right to deal at expiry. The more likely this outcome, the more expensive the premium.

“This means buyers should expect to pay more if their option is due to expire around a significant market event, such as an election or an interest rate decision,” explains David. “Events of this nature can cause a short-term spike in volatility making the optionality more valuable. Similarly, as uncertainty increases over time, a longer-term option is more expensive than a shorter-term one.”

Key factors that affect FX options

Defining FX risk is incredibly valuable in the ever-changing world of global currencies. Consider several key factors:

• Exchange rates: The biggest factor affecting the value of an FX option is the price of the underlying currency pair. If the spot exchange rate moves in favor of the buyer’s option, the value of the option increases.
• Interest rates: Differences in interest rates between two countries can impact exchange rates and, subsequently, the value of currency options. Higher interest rates generally attract capital inflows, strengthening the currency, while lower interest rates tend to weaken the currency.
• Economic indicators and inflation: Key economic data, such as GDP growth, employment figures and inflation, can influence currency values. A country with strong economic performance and low inflation tends to have a stronger currency.
• Strike price, premium and expiration: The agreed-upon exchange rate, the cost of the option and the predetermined time frame play significant roles in the pricing of currency options. The closer the option is to expiration and the further the strike price is from the premium, the less likely the option will be exercised.
• Market sentiment: General market sentiment, geopolitical risks and speculative pressures can drive currency volatility, impacting currency options.

“The financial outcome of entering any type of currency option contract or structured option is dependent on a wide variety of factors, from the impact of market events on currencies, through to the amount of time the contract remains active. It’s important that companies work with a risk management specialist to ensure they understand all the potential outcomes,” said David.

Benefits of FX options

Currency options offer a range of benefits for organizations across industries. A primary advantage is the ability for companies to hedge against currency risk, helping protect themselves against potential losses due to fluctuations in exchange rates while remaining within their budget. This strategy can be particularly useful for businesses that operate in multiple currencies or for companies that hold assets denominated in foreign currencies.

Another benefit of options contracts is the ability to lock in a budgeted rate while retaining the ability to participate in favorable rate movements.

FX options offer flexibility and customization. Businesses can choose from a range of strike prices, expiration dates and contract sizes to suit their specific needs, tailoring their trading strategy to their goals and risk tolerance.

For example, zero-cost options are tailored to the buyer’s needs and requirements as well as market conditions. Generally, they involve the simultaneous purchase and sale of two or more options. The business buys the protection that they require with one option and, instead of paying a premium, they sell another option with an equivalent value to the other party.

FX options also come with associated risks

It’s important that businesses understand that currency hedging tools are derivative financial instruments that may expose them to risk, should the underlying exposure they are hedging cease to exist. FX options may be suitable for your business objectives, if you have a high level of understanding and accept the risks associated with derivative financial instruments that involve foreign exchange and related markets.

If you are not confident about your understanding of derivative financial instruments, or foreign exchange and related markets, it is strongly suggested you seek independent advice before deciding to use these instruments.

Industries that can benefit from currency options

A range of industries could benefit from FX options, especially those that are heavily involved in international trade and operations. Some examples include:

• Manufacturers sourcing materials or selling products internationally can use currency options to hedge against fluctuations in the value of foreign currencies.
• Travel companies can help protect themselves from changes in foreign exchange rates that could affect their pricing structures and cash flows.
• Energy companies with cross-border contracts can mitigate currency risk when dealing with revenues or expenses denominated in foreign currencies.

FX options vs. FX forwards

While companies use both currency options and forward contracts to manage currency risk, these financial instruments have key differences.

A forward contract doesn’t have an upfront cost, but it obligates both parties to buy or sell a currency at a specified exchange rate on a specific future date. Unlike options, forward contracts don’t provide the flexibility to opt out, and they require the full settlement of the contract at maturity. If the market moves in the buyer’s favor, they cannot benefit from the market movement.

In contrast, currency options offer the right — but not the obligation — to buy or sell a currency pair at a specified exchange rate. The buyer has the flexibility to choose whether or not to exercise the option, limiting the downside risk to the premium paid.

Companies looking for flexibility may find currency options to be a more suitable choice than forward contracts that lock them into a fixed commitment.

Those looking for a combination of zero cost protection and some degree of participation, on the other hand, could consider structured or zero cost options.

Other use cases for currency options

While FX options can be used to hedge against price fluctuations, they can also be useful when the underlying cash flow itself is uncertain.

A company tendering for a contract that generates significant exposure to foreign currencies might use a vanilla option to protect itself from potential losses due to exchange rate fluctuations whilst retaining the ability to let the contract lapse if they don’t win the tender and therefore don’t have the currency exposure.

Currency options are therefore also a way of retaining flexibility. By locking in favorable exchange rates while retaining the ability to benefit if the market moves in its favor, businesses have more paths to better cash flows than simply paying or receiving money at the relative values of each currency on a given day.

Boost your cross-border cash flows

Understanding how currency options work and how to trade them can help mitigate currency risk and improve financial stability for companies operating in global markets. However, it is important to understand how these tools work and the risks associated with their use, by working with a specialist provider.

To explore more about how currency options can benefit your cross-border business growth, Convera, a commercial payments company, offers tailored risk management solutions that help you navigate the complexities of foreign exchange markets.

Contact our FX risk management experts today and start taking control of your currency exposures.

Convera’s hedging products are derivative financial instruments which may expose you to risk should the underlying exposure you are hedging cease to exist. They may be suitable if you have a high level of understanding and accept the risks associated with derivative financial instruments that involve foreign exchange and related markets. If you are not confident about your understanding of derivative financial instruments, or foreign exchange and related markets, we strongly suggest you seek independent advice before making the decision to use these instruments.

Want more insights on the topics shaping the future of cross-border payments? Tune in to Converge, with new episodes every Wednesday.

Plus, register for the Daily Market Update to get the latest currency news and FX analysis from our experts directly to your inbox.

Written by the Market Insights Team

Dollar struggles amid fiscal concerns and trade tensions

George Vessey – Lead FX & Macro Strategist

The US dollar index remains near 3-year lows, following its worst week in six, as fiscal uncertainty and shifting trade policies weigh on investor confidence. A bear steepening in the bond market – where long-term yields rise more than short-term yields – has further pressured the dollar.

Trade tensions remain front and centre after President Trump delayed 50% tariffs on EU imports to July 9, just days after setting a June 1 start date. His swift reversal, following a call with EU Commission President von der Leyen, suggests the tariff threat was a negotiation tactic. However, Trump’s sharp rhetoric and unresolved trade grievances with the EU signal further escalations remain possible.

This week, attention shifts to Senate debates on Trump’s tax and spending package, which could significantly expand the federal deficit. The Congressional Budget Office estimates the plan may add $3.8 trillion to US debt over the next decade, exacerbating fiscal concerns. With debt servicing now consuming 4.5% of GDP, the highest in the G10, fiscal policy clarity remains critical. If long-term yield uncertainty eases, market concerns may subside, but until then, fiscal risks stay in focus as investors weigh the implications for growth and stability.

The USD’s correlation with US term premia has reversed, meaning higher term premia now aligns with a weaker dollar. This shift suggests markets are reassessing the dollar’s safe-haven appeal, trading it based on US policy concerns rather than traditional risk dynamics. As US fiscal uncertainty grows, investors appear less inclined to seek refuge in the dollar, signalling a notable change in market behaviour.

Meanwhile, investors are also watching key US economic data due today, including durable goods, housing, and consumer confidence. Markets will also closely follow Fed officials Kashkari and Williams, as their comments could offer insights into future monetary policy moves.

Loonie holds at 1.37

Kevin Ford – FX & Macro Strategist

Persistent doubts over US policy have kept the dollar hovering near its 2025 lows, fueling a fourth consecutive monthly gain for the Canadian dollar against the USD. Despite this upward momentum, the CAD remains the weakest performer year-to-date among G10 currencies.

At the start of the week, CAD found support at the 1.37 level, halting its five-session winning streak from last week. This price level aligns with a year-long support line dating back to June 2021, reinforcing a strong uptrend at 1.37, as observed on the daily chart. Additionally, the Relative Strength Index (RSI) signals an oversold condition.

From a technical standpoint, the 60-day simple moving average (SMA) is nearing a crossover below the 200-day SMA, potentially establishing a key resistance zone at 1.40.

Examining monthly and weekly candles, if the Loonie ends the month below its 100-week SMA at 1.375, it could indicate a move toward 1.35 as we enter the end of Q2. A monthly close beneath 1.381 would mark four consecutive months of decline, something not seen since February to May 2021.

As market positioning shifts bullish on CAD, any retracements approaching short-term moving averages present USD sell opportunities.

Euro flirting with 1-month high

George Vessey – Lead FX & Macro Strategist

The euro hit a one-month high against the dollar, fuelled by the delay in 50% tariffs on Europe, though it’s losing momentum near $1.14. Despite this, the pair is up almost 10% year-to-date and FX options traders remain highly bullish on the euro’s longer-term prospects.

If the tariffs were enforced, EU growth could suffer, pushing the ECB toward more accommodative policy, weighing on the euro. Meanwhile, the Japanese yen may benefit if a US-Japan trade deal includes a JPY appreciation component. Still, ECB President Christine Lagarde raised the stakes, suggesting Trump’s policies could actually create a “global euro moment,” potentially positioning the euro as a co-reserve currency alongside the dollar. At the same time, China continues efforts to boost the yuan’s global role.

Currency traders remain skewed toward euro strength, with one-year EUR/USD risk-reversals hitting their highest level since 2003 (excluding March 2020). However, as well as greater clarity on trade developments, further euro upside would require stronger domestic economic momentum, rather than relying on continued USD weakness to drive gains.

Pound poised for further gains

George Vessey – Lead FX & Macro Strategist

The pound looks poised for further gains, supported by UK economic resilience and hawkish BoE policy, setting it apart from its G10 counterparts. The UK-US trade framework and a recalibrated UK-EU relationship add further tailwinds, reinforcing sterling’s recent outperformance. With solid fundamentals and yield support from the BoE, the pound’s bullish momentum could extend, though market sentiment shifts remain a key factor to watch.

GBP/USD has extended gains for a third session, hovering near a 39-month high just shy of $1.36 as dollar weakness intensifies amid US fiscal concerns and erratic trade policy. In fact, for the first time since the global financial crisis, options traders are no longer bearish on sterling’s long-term outlook versus the US dollar. Meanwhile, although EUR/USD’s strength has limited sterling’s gains against the euro, the pound has still climbed over 3% since last month’s selloff as it attempts to overturn the key 200-day moving average located at €1.1933.

It’s quiet on the domestic UK data docket this week, so external developments will be a key driver of sterling price action. Indeed, sterling’s high-beta nature means a sudden shift in risk sentiment poses the biggest threat to further gains, keeping investors on watch for potential volatility ahead.

US Dollar DXY Index holds at 99

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: May 26-30

All times are in ET

Have a question? [email protected]

*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 the Market Insights Team

Dollar struggles amid fiscal concerns and trade tensions

George Vessey – Lead FX & Macro Strategist

The US dollar index remains near 3-year lows, following its worst week in six, as fiscal uncertainty and shifting trade policies weigh on investor confidence. A bear steepening in the bond market – where long-term yields rise more than short-term yields – has further pressured the dollar.

Trade tensions remain front and centre after President Trump delayed 50% tariffs on EU imports to July 9, just days after setting a June 1 start date. His swift reversal, following a call with EU Commission President von der Leyen, suggests the tariff threat was a negotiation tactic. However, Trump’s sharp rhetoric and unresolved trade grievances with the EU signal further escalations remain possible.

This week, attention shifts to Senate debates on Trump’s tax and spending package, which could significantly expand the federal deficit. The Congressional Budget Office estimates the plan may add $3.8 trillion to US debt over the next decade, exacerbating fiscal concerns. With debt servicing now consuming 4.5% of GDP, the highest in the G10, fiscal policy clarity remains critical. If long-term yield uncertainty eases, market concerns may subside, but until then, fiscal risks stay in focus as investors weigh the implications for growth and stability.

The USD’s correlation with US term premia has reversed, meaning higher term premia now aligns with a weaker dollar. This shift suggests markets are reassessing the dollar’s safe-haven appeal, trading it based on US policy concerns rather than traditional risk dynamics. As US fiscal uncertainty grows, investors appear less inclined to seek refuge in the dollar, signalling a notable change in market behaviour.

Meanwhile, investors are also watching key US economic data due today, including durable goods, housing, and consumer confidence. Markets will also closely follow Fed officials Kashkari and Williams, as their comments could offer insights into future monetary policy moves.

Euro flirting with 1-month high

George Vessey – Lead FX & Macro Strategist

The euro hit a one-month high against the dollar, fuelled by the delay in 50% tariffs on Europe, though it’s losing momentum near $1.14. Despite this, the pair is up almost 10% year-to-date and FX options traders remain highly bullish on the euro’s longer-term prospects.

If the tariffs were enforced, EU growth could suffer, pushing the ECB toward more accommodative policy, weighing on the euro. Meanwhile, the Japanese yen may benefit if a US-Japan trade deal includes a JPY appreciation component. Still, ECB President Christine Lagarde raised the stakes, suggesting Trump’s policies could actually create a “global euro moment,” potentially positioning the euro as a co-reserve currency alongside the dollar. At the same time, China continues efforts to boost the yuan’s global role.

Currency traders remain skewed toward euro strength, with one-year EUR/USD risk-reversals hitting their highest level since 2003 (excluding March 2020). However, as well as greater clarity on trade developments, further euro upside would require stronger domestic economic momentum, rather than relying on continued USD weakness to drive gains.

Pound poised for further gains

George Vessey – Lead FX & Macro Strategist

The pound looks poised for further gains, supported by UK economic resilience and hawkish BoE policy, setting it apart from its G10 counterparts. The UK-US trade framework and a recalibrated UK-EU relationship add further tailwinds, reinforcing sterling’s recent outperformance. With solid fundamentals and yield support from the BoE, the pound’s bullish momentum could extend—though market sentiment shifts remain a key factor to watch.

GBP/USD has extended gains for a third session, hovering near a 39-month high just shy of $1.36 as dollar weakness intensifies amid US fiscal concerns and erratic trade policy. In fact, for the first time since the global financial crisis, options traders are no longer bearish on sterling’s long-term outlook versus the US dollar. Meanwhile, although EUR/USD’s strength has limited sterling’s gains against the euro, the pound has still climbed over 3% since last month’s selloff as it attempt to overturn the key 200-day moving average located at €1.1933.

It’s quiet on the domestic UK data docket this week, so external developments will be a key driver of sterling price action this week. Indeed, sterling’s high-beta nature means a sudden shift in risk sentiment poses the biggest threat to further gains, keeping investors on watch for potential volatility ahead.

GBP/USD up 1.3% in seven days

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: May 26-30

All times are in BST

Have a question? [email protected]

*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

Trade tensions ease as Trump delays tariff threat

Trump agreed to delay his 50% tariff threat to July 9 from June 1 after a call with EC President von der Leyen. A European Commission spokesperson said they both agreed to “fast track the trade negotiations”.

US/Japan talks appear to be progressing, with Tokyo saying they will “accelerate efforts” towards an agreement with the G7 meeting in mid-June a likely target.

EUR/USD failed to break 1.14 as markets await inflation data. The French inflation print due Tuesday 16:45 AEDT will be an important gauge of the strength of the reversal of the April “late Easter effect” in May.

The PBoC has asked major banks to increase the floor ratio for RMB-denominated trade transactions to 40% from 25% as part of the Macro Prudential Assessment. This suggests more Yuan will move from onshore to offshore. USDCNH trades at 7.1784 as of this writing.

In Asia, USD/SGD and USD/CNH were both flat on the day.

The Aussie was also flat while Kiwi eke out 0.2% gains.

RBNZ Preview: Another 25bps cut

On May 28, the RBNZ is anticipated to make another 25 basis point cut, bringing its cash rate down to 3.25%.

When the RBNZ last met on April 9, it had already adopted a highly cautious global outlook amid significant tariff uncertainty and related market volatility, and recent local activity and inflation statistics had typically been a little stronger than it had predicted.

We believe that this should reduce the possibility of any additional downgrades to its forecast, in contrast to the RBA. However, given significant spare capacity, broadly targeted inflation, and a restrained fiscal policy, we see room for more mild easing.

NZD/USD looks for RBNZ for guidance as it trades at key psychological level of 0.6000 at the time of writing.

Next key support lies at 21-day EMA of 0.5930.

SoftBank’s founder talks about the potential for a US-Japan Sovereign Wealth Fund

Masayoshi Son, the founder of SoftBank, has suggested creating a US-Japan sovereign wealth fund to finance significant investments in infrastructure and technology.

Although the concept hasn’t been properly proposed yet, Son spoke with US Treasury Secretary Scott Bessent about it.

According to media sources, the US Treasury and Japan’s finance ministry would jointly own and manage the fund, with both retaining a significant stake.

Retail investors in the US and Japan might be able to participate if the fund were made available to limited partner investors.  

From the technical lens, USD/JPY is now trading at the low end of 30-day trading range.

The next short term key resistance levels for the pair are at the 21-day EMA of 144.35 and 50-day EMA of 145.62.

Antipodeans scale back from top end of the range

Table: seven-day rolling currency trends and trading ranges  

Key global risk events

Calendar: 26 – 30 May

Have a question? [email protected]

*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.