May 28, 2025

“A rebound in optimism among US consumers and in markets has returned some calm to FX and lifted the dollar over the last day. The next focus will be on the Fed rate path with the FOMC minutes this evening.”

Sam Cornford – Head of Trading

USD

Market narratives do not last for long these days, and the dollar is back on the rebound after touching one-month lows earlier in the week. Concerns about fiscal recklessness and Trump’s aggressive tariff strategy have dropped out of focus for now, after May’s consumer confidence figure jumped from 86 to 98 and the EU agreed to ‘fast-track’ its trade negotiations with the US. The hope from these now is that the economic damage to the US might not be so bad. The main event today is the release of the minutes from the May Fed decision, and of course the focus will be on officials’ attitudes towards the likely path of inflation and how they might respond. The market has taken on the message so far that further cuts will come slowly and that policymakers are in wait-and-see mode for now – only two are priced in for the entire year, with the first in September or October.

GBP

Sterling has eased around 0.7% since hitting a three-year peak against the dollar on Monday, slipping below the 1.35 handle this morning. It remains on an uptrend versus the euro, however, and is trading at its highest level since the ‘liberation day’ chaos that favoured the single currency as a safe haven. An IMF report released yesterday suggested that the Chancellor could refine her fiscal rules, or at least limit the number of OBR forecast events to one per year, to reduce the short-term policy volatility that has plagued her tenure so far. Squeezing out the OBR sounds like a bad idea for sterling on the surface – just ask Liz Truss – but the extra stability in the public finances might be better for gilts. It is quiet today for the UK, except for a speech by the BoE’s Pill this afternoon.

EUR

EUR/USD is back trading close to the 1.13 level after venturing above 1.14 in the past couple of days. It is still primarily dollar-driven, but the euro has broadly outperformed on the crosses as markets have become more hopeful about a trade deal between the US and the EU. It might also be well paced to move higher if the dollar selloff returns. The data today includes the ECB’s inflation expectations survey and some unemployment data in Germany. If consumer expectations for CPI cool further, the market might become even more certain about rates going down to 1.75% by the end of the year.

Markets

US stocks surged yesterday as optimism rebounded about US-EU trade talks and the fiscal anxiety waned somewhat. Both the S&P 500 and the Nasdaq gained more than 2% – taking both into the green for 2025 again – while most major European indexes moved around 0.5%. Nvidia earnings after the bell tonight will be a significant gauge of the AI story in markets, with the consensus looking for a 66% jump in Q1 revenue to $43bn.

Main Economic Events (All Times CET)

4:00am: Reserve Bank of New Zealand Rate Decision
9:55am: German Unemployment Change
8:00pm: Federal Reserve Meeting Minutes

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