Topic: Weekly FX Report

Europe faces a challenging week as rising US bond yields increase market volatility. The Stoxx 600 fell for a second week, pressured by these yields. Meanwhile, the EU must decide on imposing tariffs on Chinese electric vehicles, adding to geopolitical tensions.

The US dollar rebounded from six-week lows with strong economic data. The British pound rose after UK PM Rishi Sunak called a snap election. NZD/USD spiked briefly on RBNZ’s rate hike signal.

US consumer prices fell unexpectedly in April, while import prices surged by 0.9%. Retail sales and industrial production stagnated, signaling a slower Q2 start. German investor sentiment hit a high, and China’s recovery remains manufacturing-driven. The US dollar weakened despite hawkish Fed comments.

A strong earnings season and soft US data, supporting the case for interest rate cuts, gave investors the green light to switch into a risk-on mode. Pro-cyclical currencies cheered.

In a tumultuous week, the yen surged with suspected Japanese intervention, while the US dollar faltered on a dovish Fed and a colder-than-expected US jobs report. Rate cut speculation returns ahead of the upcoming Bank of England meeting.

The conclusion of the week has been that US inflation remains sticky while US exceptionalism on the growth side is waning. Markets were mixed though, with equities rising, yields stamping new 5-month highs but the US dollar sliding against most peers.