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US headline CPI rose just 0.2% mom, below the expected 0.3% mom. Core CPI, excluding food and energy, also increased by 0.2%, undershooting forecasts of 0.3% mom.

On an annual basis, headline inflation eased to 2.3% yoy from 2.4% yoy, the lowest rate since April 2021. Core inflation held steady at 2.8% yoy, in line with expectations.

Shelter remained the key driver of monthly inflation, rising 0.3% mom and accounting for over half of the total increase.

Energy prices also ticked higher by 0.7% mom, while food prices declined slightly by -0.1% mom. On a year-over-year basis, energy costs dropped by -3.7%, helping to keep overall inflation in check, while food prices rose 2.8%.

Full US CPI release here.

EUR/USD dropped to 1.1110 on Tuesday, with the US dollar surging by over 1% in the previous trading session. The rally was driven by market reactions to news of a provisional agreement between China and the US to reduce tariffs, which helped alleviate global recession fears.

Key factors driving EUR/USD movement

Washington and Beijing have agreed to cut tariffs to 30% and 10%, respectively, for 90 days.

Meanwhile, US Treasury Secretary Scott Bessent confirmed plans to meet with Chinese representatives again in the coming weeks to begin negotiations on a broader trade deal.

The tariff reductions boosted market sentiment towards the dollar, which had previously faced pressure over concerns that President Donald Trump’s trade policies were diminishing the appeal of US assets. However, market nervousness is likely to persist until the White House establishes stable trade terms with all key partners.

Attention now turns to the latest US inflation report, which may show how the new tariff policy affects prices.

Technical analysis: EUR/USD

On the H4 chart, EUR/USD broke below 1.1190, completing the third wave of decline towards 1.1065. Today, we anticipate a corrective wave retesting 1.1190 (from below). Once this correction concludes, a new downward wave towards 1.1040 is expected. This scenario is technically confirmed by the MACD indicator, with its signal line below zero and pointing decisively downward.

On the H1 chart, the market has achieved the local downside target at 1.1065. Today, a potential rebound to 1.1126 is in focus. If this level is breached upwards, a further correction towards 1.1190 may follow. Subsequently, the downward trend could resume, targeting 1.1040. This outlook is supported by the Stochastic oscillator, whose signal line is above 80 but poised to decline towards 20.

Conclusion

The US dollar’s resurgence reflects improved risk sentiment following the US-China tariff truce, though uncertainty lingers over long-term trade relations. Technically, EUR/USD remains under pressure, with further downside likely after a brief correction.

Speaking at a press conference today, BoE Chief Economist Huw Pill warned that returning inflation to the 2% target may prove more difficult than anticipated. Hence, Pill said the central bank may need to respond in a “somewhat more aggressive or more persistent” way to ensure inflation is brought under control within a reasonable time frame.

He raised concerns that recent shifts in wage and price-setting behavior might reflect a more "structural change", drawing parallels with inflation dynamics of the 1970s and 1980s.

Pill emphasized that investors should not interpret BoE's latest forecast, showing inflation returning to target by early 2027 based on market-implied rates, as a clear endorsement of future rate cuts.

Instead, he pointed to the Bank’s more inflationary risk scenario, which assumed persistently weak productivity and stronger wage pressures. These conditions, he said, echo past inflation crises, where elevated price levels triggered repeated and entrenched pay demands.

Last week, Pill voted against the BoE's quarter-point rate cut, aligning with fellow hawk Catherine Mann in preferring to keep rates unchanged.

Oil prices have been rising since the start of last week, up more than 12%. The growth comes on the back of positive news on China-US tariff negotiations. The decrease in geopolitical tensions in Russia-Ukraine and India-Pakistan relations in recent days has not had a significant impact on quotations. This may be due to a lack of confidence in progress in these areas or the concentration of market participants on positive news.

Weekly data from the US supports the optimistic approach. Over the past fortnight, the number of active oil drilling rigs has fallen to 474 from 483. This decline is due to oil producers reacting to the decline in oil prices to 4-year lows. This was also evidenced by a slight decline in production to 13.37 million bpd from 13.46 million bpd previously.

Meanwhile, commercial oil inventories have been falling by 2mbpd and 2.7mbpd in the last couple of weeks, which is the opposite of the seasonal trend of rising inventories. As a result, commercial inventory levels are now 4.6% lower than a year earlier.

Although daily timeframes show a bullish divergence (new price lows correspond to a higher RSI value), more emphasis is placed on the weekly charts. There is no similar divergence between them, and the price has yet to be tested for the April reversal area.

Only exceeding $67 per barrel of Brent and $64 for WTI will attempt to turn the rebound into growth. The final confirmation will be a strengthening of another $4 to $71 and $68, respectively. In this case, the price will recover above the former support level, which has become resistance. In addition, a recovery in this area would indicate a rise of more than 20% from the May lows, signalling the start of a bull market.

The British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 1.3218, up 0.34% on the day.

UK employment, wages cool

Uncertainty over the global economy, particularly US tariff policy, weighed on the UK employment report. The economy added 112 thousand jobs in the three months ending in March, down sharply from 206 thousand a month earlier and shy of the market estimate of 120 thousand. It was the weakest job growth in three months.

The unemployment rate inched up to 4.5% from 4.4%, in line with expectations and its highest level since August 2021. Wage growth including bonuses eased to 5.5% from a revised 5.7%, above the market estimate of 5.2%.

The Bank of England cut rates by a quarter-point to 4.25% last week but remains in a bind. The cooling job market should push inflation lower but wage growth remains stubbornly high and is an upside risk to inflation. The BoE will have to carve out a rate path that balances a weaker labor market with high wage growth - this could mean a delay in further rate cuts until late in the year. The BoE meets next on June 19.

US CPI expected to rise in April

The US releases the April inflation report later today. Headline CPI is expected to rise to 0.3% m/m, up from -0.1% in March, which marked the first decline since June 2024. Annually, headline CPI is expected to remain unchanged at 2.4%. Core CPI is also expected to climb to 0.3% from 0.1%. Annually, core CPI is projected to remain at 2.8%.

The escalating trade tensions due to US tariffs have raised concerns that US growth will fall and inflation will decline, even resulting in a recession in the US. The US-China agreement to slash tariffs, which will be in effect for 90 days, is an important de-escalation in the trade war and should curtail inflation and reduce the risk of a recession.

GBP/USD Technical

• GBP/USD is testing resistance at 1.3205. Above, there is resistance at 1.3271
• 1.3112 and 1.3046 are the next support levels

GBPUSD 1-Day Chart, May 13, 2025

Investor sentiment in Germany and the wider Eurozone improved sharply in May, with ZEW Economic Sentiment Index for Germany jumping from -14.0 to 25.2, well above the expected 9.8. Eurozone sentiment followed suit, rising from -18.5 to 11.6, also beating expectations.

According to ZEW President Achim Wambach, the rebound reflects growing optimism tied to easing trade tensions, a new German government, and stabilizing inflation, helping to offset last month’s sharp deterioration.

However, views on current conditions remain deeply negative. Germany’s Current Situation Index edged down further from -81.2 to -82.0, missing forecasts. Eurozone’s improved modestly but still stood at -42.2. This divergence suggests that while expectations for the months ahead are improving, near-term economic conditions remain fragile, particularly in Germany.

Full German ZEW release here.

Market Picture

The Crypto market cap has fallen 1.7% in the last 24 hours to $3.29 trillion, despite continued positive traction in the equity market. The strengthening dollar on news of tariffs has been a natural drag on cryptos. This is doubly true due to Bitcoin’s proximity to the highs, reinforcing the pull for short-term profit taking after rallying in just over a month.

The sentiment index is stuck at 70 for a fourth day, indicating investors continued healthy greed despite the intraday pullback.

Bitcoin showed its unpredictable nature on Monday, dropping to $100.5k at one point, contrary to the impressive rally in other markets. But it was clearly profit taking followed by buying that brought the price back to $102.7k. With the positivity remaining, it is worth paying attention to the price dynamics near $105k. Will we see an acceleration or a new failure? The answer will allow for the prediction of the dynamics of the next days.

News Background

According to CoinShares, global investments in crypto funds rose by $882 million last week, with significant inflows for the third week in a row. Bitcoin investments increased by $867 million, Ethereum by $1.5 million, XRP by $1.4 million, and Sui by $12 million. Investments in Solana decreased by $3.4 million.

Coinshares suggests that the growth of investments was due to a combination of factors: the global growth of the M2 money supply, risks of stagflation in the US, and the approval of bitcoin as a strategic reserve asset by several US states.

HTX Research believes that Bitcoin’s current growth is being fuelled by institutional investors, including Abu Dhabi’s sovereign wealth fund and BlackRock’s increasing position in the BTC-ETF.

Presto Research noted that Bitcoin’s dominance has reached levels last seen before the 2021 bull market, and capital is starting to flow into altcoins.

Nakamoto Holdings will be the first publicly traded conglomerate to integrate cryptocurrency into traditional financial structures. It aims to raise $710 million to create a Bitcoin reserve.

Options on Solana (SOL) recorded large call option purchases with a 27 June maturity and a $200 strike, Amberdata notes. If SOL crosses the $200 mark, volatility may increase sharply.

Yesterday, Hong Kong’s Hang Seng Index (Hong Kong 50 on FXOpen) climbed above the 23,600 mark, supported by progress made during US–China tariff negotiations.

However, today the Hang Seng Index (HSI) has dropped towards the 23,100 level, which may be explained by fading optimism that dominated the market a day earlier.

According to Reuters, Christopher Hodge, Chief Economist at investment bank Natixis, stated that “these talks will yield nothing of long-term value. Ultimately, tariffs will still be significantly higher and will weigh on US economic growth.”

Technical Analysis of the Hang Seng Index (HSI) Chart

Price movements are forming an upward trend channel (marked in blue), with the following features:

→ The price is situated in the upper half of the channel (a sign of demand), and the upper boundary appears to act clearly as resistance;

→ Yesterday’s reversal suggests that bears became active above the former support area near the 23,385 level.

In this context, it is reasonable to assume that the Hang Seng Index (Hong Kong 50 on FXOpen) may test the support zone formed by the psychological level of 23,000 and the median line of the ascending channel. If the fundamental backdrop gives markets more reasons for caution, a deeper correction towards the lower boundary of the blue channel cannot be ruled out.

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Markets

Substantial progress in the trade negotiations with China this weekend in Switzerland as touted by the US administration triggered an impressive reflationary move of global markets. Both US and most other core bond yields jumped sharply higher in an impressive bear steepening move. US yields rose between 11.9 bps (2-y) and 7.1 bps (30-y). Markets scaled back expectations on Fed easing this year from 75 bps last week tot about to 50 bps eoy. A first rate cut also is pushed to the September meeting rather than July as expected before last week’s Fed meeting. Fed Chair Powell at least can consider his reactive rather than a proactive approach fully validated by the administration U-turn on tariffs. With the Trump administration still working on deregulation and tax cuts, the case for a higher-for-long approach is strengthened even further. Of course, further down the road, the Fed still might come in a position to ease policy as the impact of current uncertainty on growth at some point still might filter through. However, the timing probably will be later rather than sooner and isn’t the focus of the market momentum at this stage. European/German bonds even slightly underperformed especially at the short end of the curve, with German yields adding between 12.8 bps (2-y) and 6.2 bps (30-y), safe haven bunds understandably underperforming swaps. Of late, the impact of the trade war on Europe was assessed as outright deflationary by at least part the ECB MPC members. In case of a further de-escalation and/or progress in EU-US trade talks, this argument might lose some weight, too. ECB hawks recently at least become a bit more vocal with Isabel Schnabel this weekend and Buba president Nagel but also Spanish Member Escriva to some extent joining the idea that current volatile environment might be a good reason not to overreact to short term developments. European markets reversed recent bets for the ECB to cut rates below 1.75%. Especially US equity markets reacted euphorically with the Nasdaq (+4.35%) more than reversing the post-Liberation Day sell-off. The Eurostoxx 50 even is nearing the cycle top reached early March. On FX markets, the dollar now is the preferred risk currency. DXY came with reach of the 102 barrier. EUR/USD briefly dropped below 1.11 (close 1.1086). USD/JPY (164.6 close) is nearing the 164.9/166.7 range top).

Markets today might gradually look for a new equilibrium after yesterday’s sharp repositioning. US equity futures, US yields and the dollar this morning are ceding marginal ground. Regarding the data, ZEW economic sentiment deserves some attention. In the US, we look for the NFIB small business sentiment and even more for the US April CPI. Markets will look whether some tariffs related prices rises already are filtering through. Consensus expects 0.3% M/M both for headline (2.4%Y/Y ) and core inflation (2.8% Y/Y). An upward surprise might only reinforce Powell’s reactive approach. Such a scenario might support the rise in yields, but probably won’t be good news for the risk rally. The impact on the dollar also might be more mixed. However, it’s too early to anticipate on a genuine trend reversal on yesterday’s repositioning.

News & Views

UK retail sales rose by 6.8% Y/Y in April, rising from 0.9% in March and beating consensus estimates (2.3%). The British Retail Consortium pointed out that Easter falling in April rather than March artificially lifted sales (and weighed on growth in March). The sunniest April on record also provided a boost to sales. Food sales increased 8.2% Y/Y while non-food revenues rose by 6.1% Y/Y. BRC CEO Dickinson nevertheless warned for clouds on the horizon as “new costs begin to bite”. She refers to an estimated £7bn of costs to the industry coming from higher Employer National Insurance Contributions, the higher National Living Wage and a new packaging tax.

Bulgarian President Radev filed a request to parliament to organize a referendum on euro adoption. The proposed referendum question "Do you agree to have Bulgaria adopt the single European currency euro in 2026?" will test the democracy and provide an opportunity to hear all the arguments for and against the monetary policy move. The politically loaded push comes as the country waits the June 4 publication of convergence reports by the EC and the ECB and against the background of a divided political and societal landscape. A similar request for euro referendum was filed by the far-right pro-Russian Revival party and eventually rejected by the country’s constitutional court. Interior minister Mitov called the referendum “a clear act of sabotage against the introduction of the euro in Bulgaria” with PM Zhelyazkov urging lawmakers to ignore the President’s request.

Daily Pivots: (S1) 194.22; (P) 195.02; (R1) 196.40; More...

Intraday bias in GBP/JPY remains on the upside for the moment. Current rise from 184.35 is in progress and break of 195.95 resistance will suggest that whole choppy decline from 199.79 has completed. On the downside, below 193.48 minor support will turn intraday bias neutral again first.

In the bigger picture, price actions from 208.09 are seen as a correction to rally from 123.94 (2020 low). Strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. However, sustained break of 175.94 will bring deeper fall even still as a correction.