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The Budget Committee voted against Trump’s tax proposal, raising concerns about the rising US deficit.
The Budget Committee voted 16-21, which means the proposal did not pass. This outcome could lead to a potential increase in the US deficit by 1 to 1.5 percentage points, pushing it above 7% of GDP.
Experts expect that efforts will continue to pass the proposal eventually. Right now, the main topic of discussion is cutting Medicaid spending.
There won’t be any more votes on Capitol Hill today.
With the committee vote setback, we now have to consider that budget imbalances might cause more pressure, especially if future negotiations stall. The rejected proposal directly impacts the deficit, as a projected rise to 7% of GDP could affect government bond yields and financial forecasts. Markets generally dislike uncertainty in national accounts, and failing to make budget cuts might restrict future policy options.
Lawmakers are now focusing on saving costs in healthcare, particularly through Medicaid. This is a politically sensitive issue. We’ve seen that deadlocks can lead to temporary delays, but if this situation goes on, macroeconomic expectations may react not just to policy changes but also to ongoing dysfunction.
While there were no new votes today, there is still hope for new versions of the bill or amendments that could gain wider support. This creates a short-term narrative of stop-start activity, where both fiscal and political developments need careful attention. Fixed income markets might struggle to adjust if borrowing increases without corresponding spending cuts.
Looking ahead, we should view upcoming moves in the context of these emerging fiscal risks. We will be monitoring rising volatility around government auction announcements, shifts in health sector stocks, and any signs of deadlock or agreement from leaders. There may also be re-evaluations in parts of the yield curve sensitive to debt situations, particularly those extending two years and beyond.
The timing of actions is crucial now. Historical patterns show that trading volumes may shrink during periods of gridlock, and wider bid-ask spreads could return if political momentum doesn’t pick up soon.
Overall, today’s lack of voting, despite earlier optimism, indicates that reaching a consensus isn’t just delayed—it may still be elusive.
The EUR/CHF pair shows caution, hovering around the 0.94 level with minor increases.
The EUR/CHF pair stayed around 0.94 on Friday, showing slight gains but still following a downward trend. Important support is just below 0.9350, while there’s resistance near 0.9360. Even with a small recovery, the overall technical view suggests downward pressure due to ongoing selling, keeping the pair within a narrow range.
The alignment of the 20, 100, and 200-day Simple Moving Averages (SMAs) suggests continued downward pressure, confirming the overall selling trend. The Relative Strength Index (RSI) is in the 40s, indicating neutral market conditions. Meanwhile, the Moving Average Convergence Divergence (MACD) shows slight buying momentum, which contrasts with the overall bearish sentiment.
The Momentum (10) indicator is around 0, showing mild buying interest. Both the Ultimate Oscillator (7, 14, 28) and Stochastic %K (14, 3, 3) are in the 50s, indicating a largely neutral position. Traders are unsure as they weigh potential rebounds against the prevailing downtrend.
Immediate support is expected at 0.9353, followed by 0.9341 and 0.9334. Resistance may form at 0.9362, then 0.9363 and 0.9364, which could limit short-term recovery efforts.
Although the pair rose slightly around the 0.94 mark last Friday, the general behavior of the chart hasn’t shifted much from its longer-term trend. Price movements remain tightly constrained, showing a lack of strong conviction on either side. While a bounce was noted, it lacks depth, matching the behavior of other technical tools.
With the short and medium-term SMAs above the price and the 200-day average continuing to fall, the overall downtrend is intact. This setup suggests that when buyers do enter, their efforts are quickly met with stronger selling above.
The RSI, hovering around mid-40s, reflects this uncertainty—sufficient support to avoid a sharp decline but not strong enough to indicate a solid upswing. The MACD shows a weak attempt by buyers to gain momentum, ticking upward slightly without any significant divergence.
Momentum indicators like the 10-period reading show little directional movement. They remain in neutral territory without a clear breakout. Similarly, the Ultimate Oscillator and Stochastic %K are also in the middle range, confirming a lack of strong direction. This consolidation indicates a market waiting for clearer signals, with neither side willing to commit fully.
From recent price movements, key levels indicate where interest may arise. The 0.9353 level is the first support, though weaker buyers gave way easily last week. Below this are 0.9341 and 0.9334, where new order flow appeared in previous declines. On the upside, resistance clusters between 0.9362 and 0.9364, where supply has typically emerged.
For those trading options or taking short-term positions related to this pair, the cluster of resistance suggests any upward attempts may be brief without broader support. It might be worth considering higher short-strike positions if there’s confirmation through momentum data. Conversely, a decisive break below 0.9330, especially with increased volume, could allow sellers to target lower levels.
Currently, the data indicates that without a new catalyst or reversal signal, the pair remains open to renewed selling below the 0.9350 area. Positions should be flexible; we want to align with price movements while being ready for false moves in either direction. Narrow trading ranges do not last indefinitely, but until they break, caution is needed when managing premiums.
European equities rise as Italy, Spain, and Germany hit record closing highs amid trade tensions
European stocks closed positively, marking the fifth consecutive week of growth. On this day, the German DAX rose by 0.2%, France’s CAC by 0.3%, and the UK’s FTSE 100 gained 0.6%. Spain’s Ibex increased by 0.8%, while Italy’s FTSE MIB went up by 0.4%.
For the week, Germany’s DAX climbed by 1.1%, France’s CAC advanced by 1.7%, and the UK’s FTSE 100 rose by 1.5%. Spain’s Ibex saw a substantial increase of 3.6%, and Italy’s FTSE MIB also grew by 3.1%.
Trade Negotiations Challenge
These gains nearly balanced the losses seen on Liberation Day, with Italy, Spain, and Germany achieving new closing highs. However, challenges lie ahead regarding trade negotiations between the EU and US, with no easy solution in sight. In summary, European markets showed steady growth over the past week, marking their fifth week of gains. This achievement is significant, signaling that investors are relatively confident in the region’s economies. The DAX in Germany, CAC in France, and FTSE 100 in the UK gained ground both daily and weekly. The Ibex and FTSE MIB saw even higher percentage increases. Despite earlier dips around Liberation Day, which usually lead to lower activity and direction, the markets have largely recovered and exceeded previous highs in several instances. This upward trend, especially with multiple countries reaching new highs, reflects strong underlying momentum. It indicates that investors are dismissing recent setbacks and preparing for future macro events. However, there’s more to consider. While stocks rise, unresolved discussions between major trading blocs may pose risks. Upcoming meetings and policy changes from both Brussels and Washington could create tension, shaping the headlines that matter. It’s not just about index numbers but how these expectations impact more sensitive sectors and long-term strategies.Implied Volatility Shifts
The combination of gains and record closes shows a strong willingness to invest in riskier sectors responsive to external sentiment. This is promising, as it suggests volatility remains mostly controlled. However, this sentiment could change quickly. Traders might view a rally as stretched if negotiations falter, especially if words become sharper. At this point, it’s crucial to monitor implied volatility shifts as we approach trade discussions. The past week likely pulled greeks—like gamma and vega—into tighter zones across major indices. We may see positioning around shorter-dated contracts tighten. Current premiums suggest a low appetite for protection, but that could change. In such times, historical trends are helpful. Data shows that after five or six weeks of growth, European indices typically flatten or pull back slightly before policymakers spark new momentum. It’s wise to examine volatility in sectors like autos and industrials, where links to global trade discussions are strong and variability is low, for potential sharp movements. Traders should consider both exposure and market liquidity across maturities, particularly where market makers are adjusting to changes in hedging demand. The focus should shift from making directional bets to exploring opportunities in delta-neutral strategies where risks can be managed. While recent flows have propelled broader markets higher, future movements depend on how economic disputes evolve. Current premiums, narrow put-call spreads, and lean upside interest should be viewed carefully—not as a signal to follow trends blindly but as a reminder to be cautious, especially when trading volume is increasing without strong depth. In weeks like this, layered risks become clearer, and patience, often overlooked, can yield rewards. Create your live VT Markets account and start trading now.The Swiss Franc may decline as the US Dollar strengthens in changing market conditions
The USD/CHF currency pair is currently facing resistance at the 0.8540 level. This level is key in deciding if the pair can move higher. If it doesn’t break through this resistance, the pair may continue its downward trend.
The US Dollar has strengthened against the Swiss Franc, thanks to talks about tariffs, interest rates, and overall market sentiment. The pair is testing a resistance level at 0.838, showing a daily increase of 0.28%.
Fibonacci Retracement Levels
USD/CHF found support recently at 0.8040, its lowest point since 2015, leading to a recovery. This rebound is getting close to an important Fibonacci retracement level at 0.8320, which has marked previous turning points. The resistance at 0.8540 coincides with the 23.6% Fibonacci retracement and past long-term support. If the pair manages to close above this level for the month, it could signal a change in market sentiment. However, failing to do so could keep the downtrend alive, possibly pushing the pair down to 0.7770 or 0.7070. A recent recovery is evident in the weekly time frame, but the Relative Strength Index (RSI) is still below neutral. On the daily chart, momentum is struggling just below 0.8536, and corrections could occur if this resistance isn’t surpassed. Currently, the US Dollar shows mixed changes against other major currencies, but it is performing strongly against the Swiss Franc.Technical Resistance Observations
The current situation with USD/CHF is a technical matter, focusing on key levels that traders are monitoring, especially those using directional strategies. While factors like trade policy and interest rates have boosted the US Dollar, the next focus is how the pair acts around the stubborn 0.8540 level. This zone is not just a price point; it represents where market sentiment and positions can shift. So far, the recovery from 0.8040 — a low not seen in about nine years — has given the pair some room to move. However, the response near 0.8320, where the 38.2% retracement halted further gains, raises questions about the strength behind the bounce. Resistance has appeared right where buyers would typically assert themselves, but there has been hesitation. The 0.8540 level hasn’t been strongly tested; the price is stalling below it, and volume is not compelling enough to push through. Across multiple time frames, the RSI indicates a slight downside bias. Weekly indicators have not strengthened enough to provide confirmation, and the daily chart shows a slowdown in momentum rather than a build-up. If the price fails to break above 0.8540 again — and close above it monthly — we must consider that the recent stability may be mere noise rather than a trend shift. There’s a significant risk of a decline, likely to the range between 0.7770 and 0.7070, levels that were critical during the pair’s long-term consolidation in the early 2010s. Those weren’t random levels; they were tested, and a return to them will attract considerable attention. From a positioning perspective, we’ve seen options activity reflecting this uncertainty. Implied volatility is low, but premiums are leaning towards protection against downside risks, indicating that others notice the diminishing upward pressure as well. Some may see this as anticipating a catalyst, but we view it as a sign of failed upward momentum. With USD strength uneven across currencies — strong against some but weaker against others — this adds complexity. However, regardless of external factors, how the pair resolves around 0.8540 will determine short-term strategies. For now, risk management should reflect the potential for rejection at this tested level. We will keep a close eye on momentum indicators, particularly if the RSI begins to consistently rise above 50. Until then, the preference is clear. Create your live VT Markets account and start trading now.BofA recommends staying pessimistic about the USD due to ongoing uncertainties and upcoming economic challenges
Bank of America has a negative view on the dollar, even with a temporary peace between the U.S. and China. The recent rise in the dollar is seen as a short-term adjustment, not a sign of lasting improvement, as many challenges remain for the currency.
Policy uncertainty continues, and the easing of trade tensions is expected to be brief. Unpredictable policies could create more volatility as deadlines and tariff suspensions approach.
The U.S. economy is growing more slowly than before the trade war, mainly due to delayed investments and a drop in business confidence, which is hurting the economy.
The U.S. current account surplus is getting smaller, leading to fewer investment inflows and weakening support for the dollar. Institutional investors are reconsidering their investments in U.S. assets, which may result in continued capital outflows.
Fiscal uncertainty poses risks for long-term Treasury issuance and inflation expectations. The Trump administration’s preference for low interest rates and a weaker dollar continues to put downward pressure on the dollar over time.
Bank of America believes these ongoing issues, such as low capital inflows and uncertain policies, will keep pushing the dollar down in the medium term.
Looking at recent events, it’s clear that monetary positioning is changing. The dollar’s recent strength seems more like a temporary blip rather than a lasting trend. The short-term rise appears driven by fleeting optimism around trade talks, not a strong foundation for a turnaround.
While the temporary ceasefire on tariffs has eased some worries, the broader reality remains one of hesitation. Traders focused on the long term are likely to stay cautious. Without clear resolutions and with deadlines approaching, instability could return quickly. We are far from resolution.
In terms of macro conditions, economic momentum is weak. Business growth has slowed—companies are holding onto cash, investments are low, and hiring is on hold. This suggests that global uncertainties are affecting business sentiment. Prolonged caution like this can create ripple effects in the market, making it challenging to take clear positions.
External balances also matter. With the current account decreasing, there is less demand for dollars, which means weaker structural support. If global investors look for better returns elsewhere, the dynamics of asset flows could push prices down more than expected.
The fiscal situation carries potential risks too. Ongoing discussions about the amount of Treasury issuance needed to cover growing deficits raise questions about yields. If interest rates trend down, inflation protection will become increasingly important. This situation encourages caution for those managing investments across different securities. Demand for inflation protection is rising, implying skepticism about the disinflation narrative.
From the insights of Harris and his team, the general trend still leans toward dollar weakness. They’re focused on long-term imbalances, as we are. Capital tends to flee when there is uncertainty, especially if other options seem more stable or offer clearer political conditions.
The key takeaway? Don’t assume that recent stability means a shift in direction. Bid-ask spreads are tightening, but confidence among dollar bulls seems weak. Many traders are reacting to events rather than establishing long-term positions, and we believe this will persist until we have clearer information on spending plans, interest rate policies, and global central bank actions.
For now, we are concentrating on market levels, keeping our positions small, and avoiding excessive risk—particularly in pairs strongly influenced by U.S. fiscal or trade issues. The focus may shift toward short positions if data changes or if Treasury supply exceeds expectations. Keep an eye on those auction results.
US consumer sentiment declines as Pound Sterling falls below 1.33 against the Dollar
The GBP/USD pair has fallen below 1.33 as US consumer sentiment weakens, boosting the USD. The Pound Sterling is set to finish the week with a slight loss of over 0.24%, currently trading at 1.3276, which is down 0.39%. With no economic reports from the UK on Friday, attention shifted to US data, revealing a drop in consumer confidence regarding the economy.
Despite the decline in US Michigan sentiment data, the GBP/USD pair has lost its earlier gains and turned negative as the US Dollar rallied after the release of preliminary US Michigan Consumer Sentiment Index and Consumer Inflation Expectations data for May.
Earlier, the GBP/USD had climbed above 1.3300 due to a weaker US Dollar and favorable UK GDP data.
GBP/USD Performance
During Asian trading on Friday, the pair is around 1.3310, as unexpected US economic data raises hopes for future rate cuts by the Federal Reserve. Key upcoming releases include the preliminary University of Michigan Consumer Sentiment Index and US Building Permits and Housing Starts. This information is for educational purposes only and is not meant as a recommendation for buying or selling assets. Always do thorough research before making financial decisions, as there is a risk of loss involved in investing. The recent behavior of the GBP/USD pair highlights changing market sentiment over the week. Decreasing investor confidence in the US economy has increased expectations for monetary easing, tightly linked to consumer outlook rather than clear signals from the Fed. Although the Pound briefly exceeded 1.3300, that momentum faded when US data, especially from the University of Michigan, suggested a more negative view on inflation expectations. Consequently, the Dollar regained some strength, putting pressure on Sterling and pulling it back below 1.3280 by the trading day’s end. Looking beyond the immediate numbers, short-term shifts seem influenced more by emotions and reactions to unexpected data rather than a definite policy direction. The Dollar’s rise, despite falling sentiment figures, indicates that the market might be repositioning ahead of any formal rate announcements. Earlier in the week, UK economic activity bolstered the Pound, as GDP figures were more positive than many expected. However, with no new data from the UK on Friday, momentum shifted to US developments. This imbalance, along with weakening US consumer sentiment and a growing chance of Fed easing, led to the volatility observed late in the week.Market Sensitivity
For those closely watching contracts with expiration or short-term rate expectations, timing becomes crucial. Rapid changes driven by preliminary sentiment data and housing reports, instead of core inflation or employment figures, indicate that markets are highly sensitive to small indicators. Upcoming weeks may see quick swings, particularly around less significant US data releases that usually wouldn’t cause big changes. It’s important to note that the Dollar’s reactions this week haven’t been entirely consistent. Even though sentiment has declined, demand for the Greenback has returned, suggesting an ongoing interest in safe-haven assets as traders seek clarity on Federal Reserve policies. This suggests traders may shift their focus back to hedging short-term exposures. Looking ahead, reports related to housing and any new inflation surveys could intensify these fluctuations. This suggests assets tied to future inflation or interest rate changes may be vulnerable to unexpected Dollar strength that goes against traditional predictions. We currently face an environment where negative risks are not always directly linked to poor data. Short-term instruments may continue to be unstable until a clear rate schedule appears or sentiment indicators become more aligned with actual policy actions. We can no longer wait solely for major economic updates; weak housing data or revised sentiment figures may be enough to change rate outlooks, which is significant. Expectations may vary, but volatility is prevalent. Carefully monitoring weekly data, especially from the US, is essential. When sentiment drives direction, even minor indicators can introduce unexpected changes. Create your live VT Markets account and start trading now.Tech volatility continues, with significant variation across sectors as cautious optimism shapes investor strategies and sentiments.
Today’s stock market showed mixed results across different sectors. In Communication Services, Google increased by 1.98%, while Meta fell by 1.69%. In the Semiconductors sector, Nvidia rose slightly by 0.18%, but Broadcom dropped significantly by 1.99%.
In Healthcare, Eli Lilly gained 2.40%, thanks to good news about its drug pipeline. The Financials sector was varied, with Visa up 0.32% and JPMorgan Chase down 0.40%. In Industrials and Energy, both Exxon and Chevron lost nearly 1%, due to worries about energy demand and global political issues.
Market Sentiment
Today’s market sentiment is cautiously optimistic as investors consider growth and risk. Inflation concerns and global economic indicators continue to affect investment strategies. Tech stocks are volatile, while sectors like utilities and healthcare attract attention for their stability. Diversification could be helpful with today’s market shifts. Keeping an eye on economic data may help understand the effects of interest rates and sector movements. The healthcare sector, especially biotech, shows promising growth opportunities. Staying updated with market news is essential for both seasoned and new investors. Currently, the market is swinging between optimism and caution. Some sectors are rising, while others are falling, showing how sensitive investors are to news and numbers. Alphabet, for example, rose nearly 2%, indicating that traders are favoring certain big companies that still produce steady returns. This success stands in contrast to Meta, which saw a similar-sized decline. This difference shows selective confidence in advertising-based tech companies, particularly those with strong cash flow. Traders should focus not only on earnings reports but also on cost management and future guidance. Large-cap tech stocks are not moving together; they are evaluated individually. In the chip industry, Nvidia barely maintained its positive gains, while Broadcom lost almost 2%. This difference isn’t surprising given the rapid changes in semiconductors. We often see consolidation after steep rises, and this might be one of those times. Even small gains in a high-profile stock like Nvidia show that some confidence remains, but caution is growing—especially for overvalued stocks. During these periods, it’s wise to monitor options skews and implied volatility to spot any shifts in market direction.Healthcare and Financial Sectors
The Healthcare sector was strong, led by Eli Lilly, which jumped over 2%. This is a significant movement for such a large company. Investors likely responded to more than just headlines; there may be rising belief in the company’s revenue potential for the coming quarters. Defensive plays that also offer growth appeal remain active, suggesting interest in hedging strategies and directional positions. Watch the options chain for increased activity in mid-term calls, which could signal growing confidence beyond mere news reactions. In the Financial sector, Visa saw a small increase, while JPMorgan slightly fell. This split reflects the tight balance of expectations around interest rates. Companies tied to consumer spending may benefit from lower inflation, while lenders with rate-sensitive assets may face challenges. Pricing around banks displays a lack of consensus, further indicating uncertainty. There’s no need to form a bias when the volume doesn’t support it. Energy companies like Exxon and Chevron fell nearly 1%, amid rising concerns about fuel demand and international tensions. So far, price corrections have been orderly, but crude futures suggest traders aren’t expecting a quick recovery. Future movements may depend on inventory reports and currency trends. Tracking calendar spreads can help determine if this softness is temporary or part of a larger trend. Overall, today’s session showed some resilience, especially in healthcare and select tech stocks, although momentum has slowed in previously leading sectors. Utilities remain attractive for those seeking stability, though there hasn’t been strong enough flow to indicate a major shift. As options traders, when volatility is low in stocks with high earnings expectations or macro dependencies, selling premium through spreads or calendars might be more effective than chasing directional moves. In sectors like biotech, where price changes can be abrupt, tighter risk management is crucial. We may prefer defined-risk strategies over open-ended ones. It’s unwise to wait for the “perfect” moment; instead, prioritize clarity. We use economic data—like payroll and CPI reports—not just for short-term insights but also to recalibrate interest rate expectations. If traders start to anticipate a looser monetary policy, it will quickly affect rate-sensitive sectors. Today’s market actions might appear mixed at first glance, but every divergence tells a story. Currently, the focus is on quality, cash-generating companies that can weather economic challenges without sacrificing growth. This is where the data suggests investors should concentrate their positions. Create your live VT Markets account and start trading now.Mexican peso weakens against US dollar despite expected rate cut by Banxico
Federal Reserve Caution
The Federal Reserve is being careful due to mixed economic signals and supply uncertainties, as shown by April data. The Producer Price Index fell, and retail growth was minimal, indicating lower demand. Federal Reserve Chair Powell emphasized the uncertain economic environment. Mexico’s Banxico cut its interest rate by 50 basis points to 8.5%, hinting at more cuts ahead. Trade tensions threaten Mexico’s economy, which relies heavily on trade with the US. The US has imposed tariffs on some Mexican imports, leading Mexico’s Economy Minister to request an early review of USMCA agreements. In Q1, the US economy shrank by 0.3%, its first contraction since 2022, mainly due to a spike in imports before new tariffs. The USD/MXN currency pair is under pressure, trading near 19.50. It remains in a narrow range, and breaking below 19.11 could result in further declines for the peso.Market Action Dynamics
The US dollar is gaining strength against the Mexican peso, and the reasons are becoming clearer. After Banxico lowered its benchmark interest rate to 8.5%, Mexican assets became less attractive, causing more selling. This drop in rates raised concerns about potential capital outflow. Ortíz’s choice at the central bank responds to increasing economic weakness both at home and abroad. Meanwhile, Powell’s comments suggest different outcomes. US inflation expectations have risen, particularly the one-year forecast at 7.3%. This increase makes it less likely the Fed will cut rates soon, changing how attractive the dollar appears. April data from the US shows mixed signals. Lower retail growth and falling producer prices indicate softening demand, but inflation pressures persist. Fed officials are acting cautiously due to this uncertainty. Recent minutes and comments confirm that any further rate changes will be carefully considered. Moreover, international trade issues are impacting price movements as the US has introduced new tariffs on certain goods from Mexico. Buenrostro promptly called for a quicker reassessment of USMCA terms to protect domestic production and ease ongoing tensions. In another key point, the US economy unexpectedly contracted by 0.3% in the first quarter — the first decline since 2022 — due to a surge in imports just before the tariffs took effect. This event coincided with a strengthened dollar, which can put downward pressure on Emerging Market currencies, including the peso. From a market perspective, the USD/MXN exchange rate remains in a tight range above 19.50. This type of consolidation is typical during conflicting signals. However, we are closely monitoring the 19.11 level because a drop below that could signal increased risks for the peso. Current trading prices are hovering near the higher end of the range, prompting trading desks to consider directional strategies based on new data and central bank updates. In the coming weeks, the US will release more key data: CPI, jobless claims, and revised GDP figures. Each update could strengthen the dollar, especially if inflation or employment figures remain strong. This situation puts more pressure on USD/MXN, as the relative monetary policy remains fluid. Rates traders must adjust their strategies based on new forward guidance, but with volatility being relatively low, opportunities could arise from calendar spreads or delta hedges. Expectation levels may shift as we approach the next Banxico meeting, particularly if Ortíz continues to ease policy based on domestic indicators like inflation and retail sales. We will keep a close watch for any comments from officials on either side that could clarify or confuse rate expectations. Tensions in US-Mexico relations also pose a risk for unexpected currency movements, especially if USMCA negotiations face challenges. Until there is more clarity, focusing on strategies that protect against downward risk rather than aggressive bets may be wise. Create your live VT Markets account and start trading now.The euro weakens as the US dollar strengthens due to rising yields and inflation concerns.
The US dollar has strengthened as yields rise. Today, US 2-year yields went up from 3.92% to 3.96%.
Investors are becoming more cautious about expecting rate cuts after the University of Michigan’s consumer sentiment report. This report shows a rise in inflation expectations, with one-year inflation increasing to 7.3% from 6.5%.
These figures were mostly collected before changes in US-China tariff policies, which may affect future reports. Also, financial activity around the 4 pm London fix could lead to a turnaround in USD trends.
Traders have noticed a definite change in how rate expectations are influencing the overall currency landscape. With short-term yields rising and inflation expectations increasing, markets are reconsidering when policy might start to relax. The increase in two-year yields from 3.92% to 3.96% indicates a shift in confidence. This upward pressure shows that borrowing costs may remain high for longer than many expected just a few weeks ago.
The University of Michigan’s sentiment data, while reflective of the past, carries a significant message. The jump in one-year inflation forecasts from 6.5% to 7.3% can quickly change short-term strategies, especially for those using leverage. It’s important to remember these responses were gathered before any clarity regarding tariff changes between Washington and Beijing. This is a critical moment, as future surveys may be more impactful if price changes affect imported goods.
Leading up to the 4 pm London fix, trading volumes usually increase, and intraday movements can reverse. This period often reshapes currency trends, and we’ve seen this during times when the US dollar faced external challenges. Movements in this timeframe are not random; they result from traders aiming to gain momentum or adjust against benchmarks. Late-hour adjustments can lead to surprising reversals.
In the coming days, price action will likely be more responsive to short-term data and comments from US officials regarding policy and the economy. With yields rising, traders may need to rethink their assumptions about aggressive easing.
We are starting to adjust our strategies—seeking opportunities where pricing lags behind market sentiment and looking for investments that benefit if rates hold steady. It’s not just about watching the dollar increase; we need to consider what’s already priced in and what isn’t. Acting before the next major change can mean the difference between leading the market and falling behind.
Although volatility may not increase immediately, we should be careful not to misinterpret current stability as lasting. As the tariff situation develops and data shifts with new consumer expectations, reactions may come quickly. These slow builds can speed up when a trigger occurs—even something as standard as a speech on rates that shifts from a cautious tone. Those moments don’t often allow for do-overs.
Traders should stay proactive and avoid excessive risk, especially in futures where margin calls can happen unexpectedly. Longer-term options are now presenting better entry opportunities, and we are exploring setups that protect against significant USD declines. Ultimately, we must view recent movements not merely as trends but as signals: our assumptions are changing—and we need to adapt.
Pound weakens against US Dollar during North American session
The GBP/USD exchange rate fell below 1.33 after the University of Michigan released its Consumer Sentiment index, which dropped to 50.8, the lowest since July 2022. Additionally, inflation expectations for the next year rose from 6.5% to 7.3%, and expectations for the next five years increased from 4.4% to 4.6%.
This decline in consumer sentiment impacted US housing data. While housing starts rose in April, Building Permits fell to their lowest level in nearly two years. The British Pound ended the week slightly down by over 0.24%.
