The market has taken the increase in Middle East hostilities in stride. The response in the capital markets has been fairly restrained, though risk appetites have been pulled back, reflected in the losses in equities. The dollar is also firmer against most currencies, though the yen has recovered from the lowest level of the month. Crude oil is firmer, but the front month contracts for both WTI and Brent are within yesterday’s ranges.
It appears that many investors can recognize the fragility of the ceasefire while at the same time being hopeful that an end to the conflict may still be near. The latest reports suggest control of the Strait of Hormuz remains a key issue. Although neither Iran nor the United States have ratified the UN Law of the Seas, both seem to be claiming its authority. The strait is a natural waterway but at the same time, at the narrowest part (21 miles wide), it is within what the UN law regards as territories waters.
Prices
G10
• The euro’s narrow range of about a quarter-of-a cent that prevailed before the North American session yesterday was extended marginally in both directions. The euro initially rose to a six-session high, slightly above $1.1660 before it reversed lower and slipped below $1.1625. New hostilities in the Middle East saw the euro drop to a new low for the week, near $1.1585. It recovered but stalled near $1.1620 in the European morning. It still looks vulnerable.
• The dollar edged above JPY159.50 in North American turnover yesterday. This represents a new high for the month against the yen, and it came despite the fifth consecutive session that the US 10-year yield eased. It reached JPY159.65 today in the local session before being sold to almost JPY159.35 in Europe. It did not trade below JPY159.20 yesterday. Japanese officials have been notably quiet as the yen returns to within striking distance of the JPY160 level. The Ministry of Finance will release the official figures tomorrow on the intervention over the past month.
• Sterling reached a seven-session high on Monday (~$1.3510), which was a little shy of the retracement objective around $1.3520. It retreated to $1.3435 on Tuesday and nearly $1.3415 yesterday. It was sold today and briefly traded below $1.3380 support in Asia. It recovered to around $1.3410 before stalling. It looks vulnerable unless it can re-establish a foothold above $1.3420-35.
• The Canadian dollar continues to trade heavily. It reached a new low since April 13 today. The greenback rose a little above CAD1.3870 today. While CAD1.3900 offers nearby resistance, a move above it could spur a move toward CAD1.3950. Of the 20 sessions this month, the Canadian dollar has fallen in all but three. The Canadian dollar’s roughly 2.1% loss this month edges out the Japanese yen to be the weakest in the G10.
• The Australian dollar was unable to recover from the selling that took place in response to yesterday’s softer than expected April CPI, especially in the context of the hawkish hold by the Reserve Bank of New Zealand. The Aussie’s 0.5% loss put it at the bottom of the G10 yesterday, while the Kiwi rose almost 1%, the most in the pack. The Australian dollar is trading heavily today and briefly traded slightly below $0.7100. Initial risk extends to last week’s low near $0.7080. Options for about A$545 mln at $0.7115 expire today.
EM
• The Mexican peso eased to a five-day low yesterday but remained mired in a two-week consolidation. It is fraying the upper end of its recent range today as it pushed to nearly MXN17.44. Today’s peso weakness appears to reflect the risk-off mood. Nearly all the emerging market currencies are weaker today. The market showed little reaction to the central bank’s inflation report in which it cut this year’s growth forecast to 1.1% from 1.6% and raised next year’s projection to 2.1% from 2.0%. The central bank tweaked its inflation forecast for Q2 (4.1% vs. 3.8%) and Q3 (3.8% vs. 3.5%) but kept the CPI forecast for Q4 26 onwards unchanged, with the middle of the 2%-4% inflation target being reached in Q2 27.
• The offshore yuan reached a new three-year high yesterday. The dollar traded to almost CNH6.7755. It is the second strongest Asian currency this month, slightly behind the Taiwanese dollar, which has gained about 0.89%. Through yesterday, the onshore yuan is up almost 3.1% this year, which is more than most emerging market and G10 currencies. Of course, it is not fast enough for Chinese critics or significant enough to reduce make Chinese exports less attractive. The price gap between Chinese products and others seems much wider, especially for some key goods, like auto, electronics, and batteries than a 20% revaluation of the yuan, which some have argued is necessary. The PBOC set the dollar’s reference rate at CNY6.8240, a new three-year low.
• Indian markets are closed today for the Bakri Id holiday.
Other Markets
• US equities did not generate a clear signal for today. The S&P 500 and NASDAQ continued to hover near the record-highs reached on Tuesday. Dow Industrials set a record yesterday by a few cents. However, the combination of the hawkish hold by South Korea and the Middle East hostilities weighed on sentiment today. Nearly all the Asia Pacific bourses but China fell, and Europe’s Stoxx 600 is off by nearly 0.50%. US index futures have a heavier bias.
• The US 10-year yield fell for the fifth consecutive session yesterday. It is the longest decline since last November. The yield has fallen almost 20 bp in the run. That streak is at risk today. The yield is slightly firmer as it approaches 4.50%. Benchmark 10-year yields are up mostly 1-2 bp firmer in the Europe, though the UK Gilt continues to trade well and the yield is off a basis point.
• Gold was turned back from around $4580 on Monday and Tuesday and was sold to almost $4400 yesterday, its lowest level since March 27. The 200-day moving average is a little below $4395 which was penetrated today. Gold was sold little below $4367 today. The yellow metal has not settled below the 200-day moving average since February 2022. For its part, silver set a five-session low near $73.45 yesterday and today’s low (~$71.80) is a new low for the month. April’s low was a little below $70.
• Despite comments from President Trump that he is still not content with Iran’s offers, July WTI extended its losses yesterday to almost $87.75. It recovered to around $92.50 today but is now back below $90.50. It settled last week at $96.60. This month’s low was near $86.15. August Brent approached $91.75 yesterday, its lowest level since April 23. It is trading within yesterday’s range and held below $96.
Data
• The US economic diary is busy today. April personal income, consumptions deflators, and durable goods orders will draw the attention while initial jobless claims, another look at Q1 GDP and new home sales may be of secondary interest. For the third consecutive month, consumption is likely to have risen faster than income. The CPI and PPI remove much of the element of surprise for today’s deflators. The headline is seen rising to 3.8% from 3.5% and the core rate may edge up to 3.3% from 3.2%. April durable goods orders will be flattered by the surge in Boeing orders (135 planes, the most in 12 years). Without the commercial plane orders and defense orders, the median forecast in Bloomberg’s survey is for a minor 0.4% increase, which would be the weakest since January’s 0.3% decline.
• Canada runs a small current account deficit. It has been below 1% of GDP for the last four years. Canada reports the Q1 balance today, ahead of tomorrow’s Q1 GDP. The deficit is seen widening slightly from the C$3.4 bln shortfall in Q1 25. Canada publishes its March establishment survey for payrolls. It tends not to draw much attention and does not line up well with the monthly labor report. In the first two months of the year, the establishment survey saw a loss of about 16k jobs, while the monthly change in the labor force employment fell by 108k jobs. In March, the monthly change in the labor force employment rose by 14k. The swaps market reflects expectations that the Bank of Canada is on hold until at least the end of Q3, where nearly a 50% chance of a hike is discounted.
• After easing in February and March, Mexico’s unemployment rate is expected to bounce back to 2.70 in April, the January level and the highest since last September, when the 2.98% rate was the recorded. It was the highest since August 2024.
• EMU May confidence readings showed a little improvement sequentially. They tend not to be market movers. Economic confidence peaked in January at 98.9, the highest since April 2023. It fell for three months to 93.0 in April and edged up to 93.5 in May.
• Australia reported an unexpected surge of 6.5% in private capital expenditure in Q1 (0.7% in Q4 25). The median forecast in Bloomberg’s survey was for a 1% rise. Household spending, which the central bank identified a threat to price stability, fell for the first time this year. The 1.1% pullback in April, twice what was expected, followed a dramatic 1.6% rise in March, which matched the strongest monthly rise since July 2022.
• Japan reports Tokyo’s May CPI tomorrow. It offers insight into the national figures that will not be released for a few weeks. The core rate is expected to be steady at 1.5% after five months of easing. It will be the fourth consecutive month below 2%. Also on tap for tomorrow are April jobs report (unemployment seen steady at 2.7%), retail sales (0.4% after a revised 1.0% rise in March, from 1.3% initially), and industrial output, which is expected to have fallen for the third consecutive month.
Reviewed by Marc Chandler
on
May 28, 2026
Rating:
