Retail sales in the United States fell from 5.2% last month to 3.3% in May, indicating a slowdown in consumer spending. The EUR/USD exchange rate also dropped due to rising tensions in the Middle East and comments from US President Donald Trump. This helped the US Dollar strengthen, putting pressure on the Euro.

GBP/USD Nears Important Level

GBP/USD dropped close to the 1.3400 mark as investors grew cautious due to geopolitical worries. This situation is particularly tense ahead of upcoming decisions from the Federal Reserve and the Bank of England. Gold prices experienced small changes, staying below $3,400 as traders hesitated to make moves before the Federal Reserve’s policy announcements. Meanwhile, news about the Iran-Israel situation continued to impact market behavior. Bitcoin’s value decreased slightly to around $106,000, reversing earlier gains after Trump left the G7 summit early to discuss security related to the Iran-Israel conflict.

Mixed Economic Signals from China

China’s economic data shows mixed results. Retail sales are strong, but fixed-asset investments and property prices are weaker. Despite these varied signals, China seems likely to meet its growth target for the first half of 2025. Overall, we can observe growing differences in economic confidence worldwide, each affecting the financial system in unique ways. The drop in US retail sales growth—from 5.2% to 3.3% year-on-year—indicates that consumer activity is slowing down. Since consumer spending makes up a large part of GDP, this decline suggests that households might be adjusting due to tighter financial conditions or pausing after a period of high inflation. This doesn’t mean growth has completely stalled, but the mood has changed significantly. Markets are likely adjusting their expectations for interest rate policies and profit forecasts as a result. Currencies reacted strongly. The Euro weakened against the US Dollar due to rising geopolitical tensions and Trump’s comments, which shifted market sentiment. The Dollar’s strength is not driven by optimism, but rather its status as a safe haven during uncertain times. This shift put pressure on other currencies and increased risks in the EUR/USD pair. Traders, already adjusting to differing economic paths for the two monetary regimes, are now also navigating additional geopolitical tensions. The Pound also fell against the Dollar, nearing the 1.3400 level amid risk-averse behavior. This movement reflects where investors seek safety rather than just domestic economic data. With speculation around interest rates from both the Bank of England and the Federal Reserve, it has become trickier to position investments. The British economy has not entered a recession, but uncertainty about the central bank’s possible actions has caused volatility. McAllister from the BOE indicated caution earlier this month, yet this isn’t a universally accepted view. Gold prices are holding steady below the $3,400 mark, a sign of caution among traders. Many are waiting for the Fed’s upcoming policy updates before making any moves. No one wants to hold leveraged exposure to gold if a key announcement could dramatically change yields. Ironically, the geopolitical issues keeping participants cautious could also lead to increased investment in gold soon. We expect trading volume to rise if the bond markets react negatively after the Fed’s announcement. Bitcoin dipped slightly to around $106,000 after Trump’s early exit from the G7 summit garnered attention, bringing focus back to the Iran-Israel tensions. This situation is unusual, as cryptocurrencies are rarely affected by traditional geopolitical issues. It’s unclear if this reaction is justified, but any sign of capital moving away from riskier assets is likely more connected to interest rates than to Middle Eastern conflicts. In the short term, Bitcoin probably won’t detach itself from these rate expectations. In China, the situation is not as straightforward. The country reports healthy retail figures, which remain strong compared to other nations, but fixed-asset investments are lagging, and property prices are under stress. While China might reach its growth targets for the first half of next year, the sources of this growth are shifting. This is crucial because the global economic outlook often depends on whether Asia’s growth stems from inside or relies heavily on policy support. For those trading derivatives in the weeks ahead, it’s important to closely watch policy events. Traders with short positions should reconsider their risk if volatility decreases around announcements. Those with long positions need to be flexible, especially if liquidity dries up after unexpected news. Keep a close eye on Delta and Vega and avoid overcommitting before unscheduled announcements. When data seems inconsistent, like with the Chinese indicators, it’s wise to wait for confirmation instead of chasing momentum. Create your live VT Markets account and start trading now.

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