There does not appear to be materially new developments from the Middle East today. While some US officials seem optimistic that progress has been made, it is not clear that an agreement is at hand. Still, oil prices are more than a dollar lower and equities are mostly firmer. The dollar is mixed against the G10 currencies and mostly in narrow ranges. The New Zealand dollar, which jumped yesterday on the back of a hawkish hold by the central bank, is the strongest of the G10 currencies. It is up nearly 2% this week. Sterling and the Japanese yen are the only two G10 currencies that have fallen against the dollar this week.
Japanese real sector data, including retail sales and industrial output were stronger than expected, while the Tokyo CPI fell and the core rate is at a four-year low. Official Japanese data showed JPY11.7 trillion (~$73.5 bln) in intervention since late April, which is a little more than expected. Still, the dollar remains within striking distance of the JPY160 threshold. The BOJ is seen as most likely (~80%) to raise rates next month. Mostly firmer eurozone member May CPI favors an ECB hike next month (~90% chance discounted in the swaps market).
Prices
G10
• The euro’s recovery in North America from a marginal new five-session low yesterday was aided by reports that suggested a 60-day ceasefire extension had been agreed upon but for President Trump’s approval. Although oil recouped its initial losses, perhaps as many realized that the US president’s approval is the only thing missing for weeks, the euro held on to the lion’s share of its gains, which carried it briefly slightly above $1.1660. With the apparent lack of further progress, and the US approval still awaited, the euro is consolidating in about a third of a cent range above $1.1625. Recall that the euro settled near $1.1730 at the end of April. We think it looks constructive next month and expect the ECB to deliver a quarter-point hike.
• The dollar posted an ostensibly bearish outside down day against the yen yesterday. It traded on both sides of Wednesday’s range and settled below its low. Yet, it has gone practically nowhere today. It is almost a 20-tick range above JPY159.20. Stronger than expected April industrial production and retail sales offset the softer Tokyo May CPI to underpin expectations of a BOJ rate hike next month. The dollar finished April near JPY156.60.
• Sterling recovered from an eight-session low (slightly below $1.3370) yesterday to reach $1.3450 in the risk-on, weaker dollar environment after new hopes were fanned about a Middle East ceasefire. A close above $1.3455 would have made for a stronger technical case. It has pulled back slightly below $1.3410 today but looks to be finding support in late European morning turnover.
• The Canadian dollar posted its most impressive session of the month yesterday. It reversed higher after setting a new low since April 10 and posted the highest close in a week. The greenback reached CAD1.3870 and was making new lows in late North American dealings to CAD1.3775. The month-long US dollar rally looks over with the key downside reversal yesterday. However, there was no follow-through today and the greenback is consolidating in a narrow range (~CAD1.3780-CAD1.3810).
• The Australian dollar staged a strong recovery yesterday, too. It had briefly slipped below $0.7100 for the first time in almost a week-and-a-half in response to the softer than expected April CPI. It recovered on the back of the broader retreat of the US dollar and reached $0.7170 and stopped slightly short of this week’s high. It is trading quietly between about $0.7150 and $0.7165.
EM
• The dollar looked to be headed for a stronger advance against the Mexican peso. It reached its best level since May 5, near MXN17.44 before it was sold amid the risk-on mood and optimism about a possible extended ceasefire in the Middle East. The greenback fell to almost MXN17.30 before stabilizing. Wednesday’s low was closer to MXN17.2850. It is consolidating in the lower end of yesterday’s range, and so far, has held below MXN17.35.
• The greenback posted an outside down day against the offshore yuan yesterday. It traded on both sides of Wednesday’s range and settled below its low. Moreover, the dollar fell to a new three-year low near CNH6.77. It has extended its losses today to about CNH6.7660. The dollar settled last month near CNH6.8320. Against the onshore yuan, the dollar also recorded a new three-year low (~CNY6.7755) and has been sold to about CNY6.7670 today. Given the US dollar’s weakness, the PBOC seemed to have little choice but to set the dollar’s reference rate at a new low, as well. Today’s fix was at CNY6.8176 (CNY6.8240 yesterday and CNY6.8373 a week ago.
• As Indian markets re-opened after yesterday’s holiday, the Reserve Bank of India reportedly intervened in the offshore and onshore markets to push the rupee higher. The dollar closed Wednesday near INR95.6960 and fell to INR94.9625 with the help of intervention and the pullback in oil prices, though despite a 1.5%-1.7% drop in Indian equities. The dollar settled slightly above INR95.00 today, after finishing April at INR94.92.
Other Markets
• New record highs for the S&P 500 and Nasdaq yesterday appeared to help equities stabilize in the Asia Pacific and Europe today after yesterday’s pullback. Most large bourses in the Asia Pacific region rallied today but China and India. The Nikkei advanced 2.5%, as did Taiwan’s Taiex, with South Korea’s Kospi leading the way with a nearly 3.6% advance. Europe’s Stoxx 600 was nearly flat for the week coming into today and is up about 0.6% through midday. US index futures are trading with a slightly firmer bias.
• Benchmark 10-year yields in Europe eased yesterday and unwound initial gains. Rates were mostly off 2-3 bp though Gilts outperformed with the 10-year yield off nearly 4.5 bp. Today, they are mostly a little softer today. The 10-year US Treasury yield fell almost three basis points to approach 4.45%. It was the sixth consecutive decline, the longest pullback since April 2025. During this run, the yield has fallen by a little more than 20 bp. In the same six sessions, the implied year-end Fed funds rate has fallen by about six basis points. The 10-year Treasury yield is flat near 4.45% now.
• Gold recovered alongside risk assets amid the hopes of an extended ceasefire in the Middle East. The yellow metal had been sold through the 200-day moving average yesterday (~$4399 today) for the first time in two years. Yet, it recovered to almost Wednesday’s high (~$4528). It is trading higher today and reached almost $4540. Regaining a foothold above $4580-90 would lift the technical tone. Silver recovered from its dip below $72 yesterday and reached $76 before stalling. Resistance is seen in the $78-$79 area. It is trading a little softer today after reaching almost $76.50.
• Hopes of the Middle East settlement helped push July WTI to almost a three-week low yesterday, a little above $87. It snapped back within around two hours after setting the low to poke above $90. It spent the NY afternoon consolidating between roughly $88 and $90. Despite the lack of new Middle East developments, July WTI is weaker near $87.50 before the North American open. Last week it settled at $96.60 and almost $99.15 at the end of April.
Data
• The US reports April’s goods trade and inventories. MNI publishes the May Chicago PMI. The US recorded almost a $252 bln goods deficit in Q1 26. Comparisons are difficult because the nearly $464 bln shortfall in Q1 25 was distorted by efforts to beat the US tariff increases. In Q1 26, nominal exports rose about 17% while imports rose by 7.5%. Separately, US inventories contributed about 0.4 percentage points to Q1 26 2.0% annualized growth. Restocking of wholesale and retail inventories appear to have spilled over into Q2. Looking ahead, the early projections for next Friday’s May jobs report is for a little less than 100k increase in nonfarm payrolls (average of 150k increase in March and April, the best two months since the end of 2024.
• Canada reports March and Q1 26 GDP. The economy looks to have recovered from the 0.6% annualized contraction in Q4 25. The median forecast in Bloomberg’s survey is for a 1.5% expansion.
• The Big Four eurozone members have reported the preliminary May CPI before the aggregate figure is released next week. All six German states that reported showed a decline month-over-month. The harmonized national estimate is due shortly and the year-over-year rate may have ticked lower to 2.8% from 2.9%. France’s CPI rose to 2.8% from 2.5%. Spain’s CPI edged up to 3.6% from 3.5% and Italy’s CPI stands at 3.3%, up from 2.8%. In other data, Germany’s May unemployment softened to 6.3% from 6.4%. French consumer spending fell by 0.5% (after rising 0.9% in March). However, Q1 GDP was revised to -0.1% from flat. On the other hand, Italy’s Q1 GDP was revised to 0.3% from 0.2% and the April unemployment rate slipped to 5.1% from 5.2%.
• Tokyo reported a softer than expected May CPI and the Japan reported stronger than expected April jobs, industrial output and retail sales. Headline Tokyo CPI ticked down to 1.4% from1.5%, The core rate was fell to 1.3% at 1.5%, the sixth consecutive monthly decline and a four-year low. It is the fourth consecutive month below 2%. Also released earlier today was the April jobs report (unemployment fell to 2.5% from 2.7%), retail sales jumped 1.3% compared with expectations for a 0.4% increase (though March’s gain was previously trimmed to 1.0% from 1.3% initially. The median forecast in Bloomberg’s survey anticipated the third consecutive decline in industrial output (-0.6%) but instead rose by 0.8%.
Reviewed by Marc Chandler
on
May 29, 2026
Rating:
