The University of Michigan reported that expectations for US consumer inflation over the next five years rose from 4.4% to 4.6% in May. This increase has supported the US Dollar, even as some economic indices showed weakening. The EUR/USD pair dropped to a three-day low of around 1.1130, as the euro struggled against the stronger USD. The rise in US consumer inflation expectations contributed to this downward pressure.

Forex Market Movements

In the forex market, the GBP/USD fell to 1.3250 as traders resumed buying the USD. The strength of the US Dollar reflects rising consumer inflation expectations based on the recent University of Michigan data. Gold prices fell below $3,200 on Friday, reversing the previous day’s gains. This drop was influenced by a stronger US Dollar and lower geopolitical tensions, which decreased demand for gold. Ethereum’s price continued to rise, staying above $2,500 after nearly doubling since early April. The recent ETH Pectra upgrade has brought in over 11,000 EIP-7702 authorizations, showing strong support among wallets and decentralized applications (dApps). Former President Donald Trump’s upcoming visit to the Middle East in May 2025 is expected to lead to significant business deals. These deals aim to enhance US trade relationships and strengthen leadership in defense and technology exports.

Market Recalibration

These recent changes indicate a market adjustment where inflation expectations are becoming more important than immediate economic data. The revision of the 5-year consumer inflation expectations from 4.4% to 4.6% signals that inflation is not declining quickly. Even though stock indices have not performed well, the US Dollar has increased, boosted by concerns about ongoing price pressures. When the Dollar rises, it makes an impact. The EUR/USD pair, for example, hit a three-day low around 1.1130. The euro is facing pressure not from new weakness in the eurozone, but because traders believe the Federal Reserve may keep rates high for a longer period. This change in assumption shifts demand away from the euro and increases interest in USD assets. The GBP/USD has also softened to 1.3250, showing how quickly optimism about UK data can fade when the Dollar draws new investments. The Dollar’s rise isn’t based on strong employment or consumption data; it’s more about the likelihood that inflation will stay high, which means tighter conditions won’t ease soon. Gold’s drop below $3,200 is significant. When the Dollar gains and worries about global conflicts decrease, traditional safe havens like gold lose their appeal. Traders pulled back from gold, not due to macroeconomic troubles, but because the need for safe assets is less urgent and the opportunity cost of holding non-earning assets like gold rises. Ethereum’s rise past $2,500 fits into this broader narrative. Its price is not just influenced by risk appetite; the recent EIP-7702 upgrade has seen rapid adoption, with over 11,000 authorizations from wallets and dApps. This kind of traction suggests increasing integration rather than mere speculation, potentially attracting further investment if technical indicators align. While geopolitical tensions have eased recently, they may flare up again. Discussions around Trump’s 2025 visit to the Middle East are already happening, particularly among companies interested in aerospace, defense, and security contracts. The focus on trade and technology cooperation may benefit specific sectors, even as details are still being finalized. Moving forward, it’s essential to monitor interest rate expectations more closely than just calendar data. Market reactions in FX, commodities, and digital assets are adjusting faster to changing inflation sentiments than earlier in the year. In derivatives, be ready for more significant fluctuations tied to what data implies for central bank strategies, not just data outcomes themselves. Short-term setups may outperform medium-duration positioning if interest rate outlooks differ between major economies. Keep a lookout for inflation readings and also for forward-looking measures from consumer surveys, as even softer indicators can trigger currency realignments. Create your live VT Markets account and start trading now.

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