Although US Commerce Secretary Lutnick described recent trade discussions with China as “a handshake for a framework” and Chinese Vice Commerce Minister Li Chenggang called the talks rational and candid, optimism over a US-China trade deal has faded recently. This shift is mainly due to US Treasury Secretary Bessent returning to Washington, leaving Lutnick and the US Trade Representative to continue the talks on their own. As a result, despite the absence of risk-negative trade developments, the lack of strongly positive news, particularly from London, has weighed on overall risk sentiment.
Adding to concerns, the World Bank cut its 2025 global growth forecast by 0.4 percentage points, reduced its US growth forecast by 0.9 percentage points to 1.4%, and lowered its 2026 US outlook by 0.4 percentage points. The Bank also noted that its forecasts have been lowered for 70% of the world’s economies. These downward revisions are seen as discouraging, with the World Bank warning that a 10% US tariff could significantly slow growth in the second half of the year.
Meanwhile, reports suggest the US and Mexico are close to reaching a deal on 50% US steel tariffs, and the US appeals court has allowed Trump-era tariffs to remain in place during ongoing legal proceedings. These developments delivered mixed signals to the market and attracted limited attention.
Updates from Iran, Ukraine, and the broader Middle East were scarce, and the economic calendar was relatively light. However, notable data included a disappointing UK jobs report and an upbeat US NFIB Small Business Optimism Index. A separate survey revealed that over half of the 105 economists polled expect the Federal Reserve to cut interest rates in the next quarter, likely in September.
In Asia, Japan’s Producer Price Index (PPI) softened, and OPEC Secretary General Haitham Al Ghais denied rumors that global oil demand growth is nearing its end. At the same time, the US Energy Information Administration (EIA) lowered its oil production forecast for 2026, slightly adjusted down its 2025 demand expectations, and projected a further decline in Brent crude oil prices.
Against this backdrop, the US Dollar Index (DXY) managed to hold onto Tuesday’s gains despite lacking momentum. The euro (EURUSD) and British pound (GBPUSD) remained under pressure, while the Japanese yen (USDJPY) edged higher. The Australian and New Zealand dollars (AUDUSD and NZDUSD) paused their two-day winning streaks, but the Canadian dollar (USDCAD) remained weak near weekly lows amid rising optimism over a potential US-Canada trade agreement ahead of the G7 summit.
Gold prices saw a recovery, while crude oil struggled after pulling back from a two-month high. Cryptocurrencies also retreated after hitting multi-month peaks earlier in the week. Equities traded mixed, despite a strong Wall Street close, and bond yields remained directionless.
The US Dollar’s rebound, combined with cautious comments from the ECB’s Vujcic and a downbeat Eurozone growth forecast by the World Bank, pressured EURUSD after its two-day winning streak. Additional weight came from the ongoing deadlock in EU-China and EU-US trade talks, along with renewed concerns over the bloc’s economic outlook, especially in light of US tariffs. The lack of key domestic data—aside from speeches by lower-tier ECB officials—has left the euro vulnerable. As a result, EURUSD traders are now fully focused on the upcoming US May CPI, Federal Reserve commentary, and US-China trade developments for clearer direction.
Tuesday’s weak UK BRC Total Retail Sales and disappointing employment data have raised fresh doubts about the Bank of England’s economic optimism, putting pressure on GBPUSD. As a result, the pair remains under pressure after posting its biggest daily loss in two weeks. Although there are hopes for the UK to secure positive trade deals with the US, EU, and China, these are being tested by the latest downbeat British data, challenging sentiment around the Pound.
Meanwhile, Japan’s softer May PPI and weak bond demand have boosted USDJPY for a second straight day, especially with a stronger US Dollar. Adding support to the pair, despite limited momentum, are concerns that the Bank of Japan could struggle with further rate hikes and face challenges in securing a favorable trade deal with the US. Overall optimism about a US-China trade deal, despite some recent doubts, also underpins the bullish outlook for USDJPY.
Renewed doubts over a US-China trade deal and a rebound in the US Dollar have triggered the first daily loss in three sessions for both AUDUSD and NZDUSD, despite no major domestic data or events. Meanwhile, USDCAD remains on the defensive after ending a three-day uptrend and recording its biggest drop in a week. This comes despite a decline in crude oil prices—Canada’s key export—amid growing optimism over a potential US-Canada trade deal ahead of the G7 summit in Ottawa. The trade hopes gained traction after Canadian Prime Minister Mark Carney took indirect steps seen as aligning with previous US demands, signaling progress toward an agreement.
Fresh doubts about any meaningful declaration from the US-China trade talks in London joined a cautious mood ahead of the US Consumer Price Index (CPI) data for May and the World Bank’s dismal growth forecasts to underpin the Gold price recovery after a dismal day. In doing so, the bullion ignores firmer US Dollar and mixed yields/equities.
Meanwhile, there was a few energy news but nothing could inspire the Crude Oil traders early Wednesday, after the WTI crude oil posted a volatile day that initially refreshed a two-month high before closing in the red. Among them, the OPEC Secretary’s rejection of depleting oil demand and EIA’s projection of a steady 2025 outlook and expecting a cut in output in 2026, as well as a slight fall in the oil demand for 2025, gained attention. Additionally, a private survey of the Oil inventories, per the American Petroleum Institute (API), marked slower depletion in inventories than the last week but defied market consensus of witnessing an addition to the stockpiles.
Widespread market uncertainty, along with the US SEC’s recent DeFi announcements, has put crypto market optimism to the test. Bitcoin (BTCUSD) faced pressure, while Ethereum (ETHUSD) climbed to a 3.5-month high before pulling back due to technical resistance.
The US May CPI is expected to show strong results, which could boost the US Dollar, especially with market uncertainty and fading expectations of a dovish Fed. However, a surprise drop in inflation could halt the Dollar’s rebound and drive Gold prices higher. In that case, EUR/USD might resume its earlier two-day uptrend, and GBP/USD could recover some of its weekly losses. Still, USD/JPY remains less likely to fall, while AUD/USD and NZD/USD are expected to stay under pressure. USD/CAD may attract sellers ahead of the upcoming G7 summit. Meanwhile, cryptocurrencies could see mixed movements, equities may edge higher if US-China relations improve, but bond yields are likely to stay directionless amid a broadly pessimistic global economic outlook.
Besides the US inflation data, traders may also watch the weekly official US oil inventory report and Canada’s April Building Permits, though these are unlikely to draw major attention. Similarly, updates on Ukraine-Russia peace efforts, US-Iran nuclear deal talks, and tensions in Gaza could influence sentiment but are not expected to be market drivers for now.
May the trading luck be with you!
