Markets remain cautious early Thursday as a mix of trade tensions, geopolitical risks, and weak US data clouds sentiment. The US-China trade outlook remains shaky, with jitters persisting ahead of a possible, though unconfirmed, meeting between Presidents Trump and Xi this weekend.
Geopolitical concerns surrounding Ukraine, Iran, and Gaza also weigh heavily. Adding to the uncertain mood are downbeat US economic indicators, including the ISM Services PMI, ADP Employment Change, and the Fed’s Beige Book, all of which point to a slowdown in economic activity.
Political tensions rise as criticism grows over Trump’s proposed immigration bill. In Asia, China’s restrictions on rare earth metal exports are starting to impact US and Japanese automakers, prompting calls for action as Beijing continues to dominate the global rare earth supply.
Meanwhile, President Putin expressed skepticism to Trump over a ceasefire in Ukraine following recent drone strikes by Kyiv. Progress on the US-Iran nuclear deal is evident, but remains fragile due to concerns over uranium enrichment.
Trade talks with Europe, China, Japan, and India continue to stall, further dampening market optimism, especially as recent global PMIs reflect weakening economic activity. Adding to the pressure, traders are on edge ahead of the European Central Bank's policy decision and key US data releases, including weekly jobless claims, nonfarm productivity, and unit labor costs.
Against this backdrop, the US Dollar Index struggles to recover after a soft performance, heading toward a weekly loss. This, in turn, supports EURUSD despite dovish expectations around the ECB.
GBPUSD pulls back as the dollar stages a corrective bounce, while USDJPY gains on weak Japanese wage data and disappointing demand for Japanese Government Bonds. AUDUSD and NZDUSD turn cautious after recent gains, whereas USDCAD rebounds from an eight-month low set after the Bank of Canada's policy decision, aided by weaker oil prices and uncertainty about the central bank's rate path.
Meanwhile, gold holds steady within its weekly range despite a strong showing the previous day. In the crypto space, Bitcoin slides for the third straight session, while Ethereum lacks follow-through after a modestly positive close.
Softer EU and German Manufacturing PMIs, combined with recent cautious remarks from ECB officials and ongoing Eurozone trade tensions with the US and China, continue to pressure EUR/USD bulls. However, weak US data and a softer dollar have helped the pair hold its ground ahead of today’s expected 25 basis point rate cut by the ECB. Still, the likely dovish tone from ECB President Christine Lagarde, along with mounting economic and political challenges across the Eurozone, keeps the outlook uncertain for the Euro, even as the pair heads for a weekly gain.
The US Dollar’s corrective rebound, along with mixed UK PMIs for May, is weighing on GBPUSD buyers despite the pair’s attempt to secure a weekly gain. Concerns over the UK’s economic transition and doubts about its ability to negotiate and implement effective trade deals also limit the Pound Sterling’s upside. Still, the softer US Dollar, a generally trade-positive market tone, and optimism from the Bank of England provide some support for GBP.
Meanwhile, USDJPY holds modest gains, trimming its weekly loss as Japan’s real wages decline for a fourth straight month, even though base pay saw its strongest rise in four months. Weighing further on the yen are weak results from a 30-year Japanese government bond auction, marking the lowest demand ratio since 2023. While recent Japanese data has been largely disappointing despite signs of firming inflation, the Bank of Japan still faces challenges in moving toward rate hikes. Trade tensions between Tokyo and Washington also support USDJPY. However, the yen’s safe-haven appeal and lingering hawkish expectations for the BoJ continue to exert downside pressure on the pair, especially amid a weaker US Dollar.
AUDUSD and NZDUSD remain on the back foot after a strong previous session, weighed down by a softer Australian trade balance and mixed signals from China’s PMIs, despite upbeat New Zealand ANZ Commodity Prices. Ongoing US-China trade tensions, fresh stimulus announcements from Beijing, and dovish tones from both the Reserve Bank of Australia and the Reserve Bank of New Zealand continue to challenge upside momentum for the Aussie and Kiwi. Even so, the US Dollar’s broader weakness supports the Antipodean currencies on a weekly basis.
Meanwhile, USDCAD rebounds from an eight-month low as crude oil prices—Canada’s key export—retreat. Although the Bank of Canada held rates steady as expected, its cautious tone and falling oil prices prompted a corrective move in the Loonie pair.
Crude oil prices remain under pressure as Saudi Arabia pushes for increased output and a potential US-Iran nuclear deal raises the prospect of Tehran ramping up oil exports after months of sanctions. This comes after oil retreated from a two-week high, with WTI crude ignoring the prior day’s unexpected draw in US weekly inventories.
Meanwhile, gold edges lower as the US Dollar’s rebound and ongoing US-China trade tensions challenge buyers. However, safe-haven demand and mixed geopolitical developments continue to offer some support to the precious metal.
Bitcoin (BTCUSD) bears the burden of ETF outflows and receding optimism surrounding Trump’s industry favors. Even so, Ethereum (ETHUSD) remains sturdy due to its comparatively lower prices, wide acceptance, and sustained ETF inflows.
The ECB is widely expected to cut its benchmark interest rate by 0.25%, which could weigh on EUR/USD, especially if President Christine Lagarde highlights trade tensions with the US and maintains a cautious economic outlook. Additional pressure on the euro may come from potential improvements in US Weekly Jobless Claims, Unit Labor Costs, and Nonfarm Productivity data.
However, the spotlight remains on trade and political developments, along with Friday’s key US employment report. If US jobs data continues to show weakness, the dollar may give up its recent gains, boosting safe-haven assets like gold, the Japanese yen, and the Swiss franc. In such a scenario, EURUSD, GBPUSD, and commodity-linked currencies could also benefit. Meanwhile, cryptocurrencies and equities may see mixed trading, though stocks could trend higher.
May the trading luck be with you!
