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After a long period of calm, volatility has returned to the silver market. Silver surged to a two-month high, rallying more than 20% from its May lows in just a week. However, concerns over tighter monetary policy and rising bond yields have since put pressure on prices.

Of course, the current fluctuations cannot be compared to what we saw in January, when a 35% drop occurred in a single day. Investors felt that the rally had gone too far. However, the situation does not yet look like a classic bubble burst, as silver prices are still 130% higher than a year ago, which is suppressing global demand. UBS estimates a 50 million-ounce decline this year, allowing the bank to lower its price forecast from $100 to $85 per ounce by the end of the second quarter.

High prices are forcing not only jewellers but also industrialists to seek alternatives for silver. There has been some success in replacing it with copper in the manufacture of solar panels. This sector accounts for a fifth of global supply. Due to the fall in global demand, the 46.3-million-ounce deficit forecast by the Silver Institute for 2026 may prove smaller, putting pressure on the price per ounce.

Silver is also facing weaker investment demand. Rising global bond yields and a stronger US dollar are putting pressure on the metal. UBS reports that speculative interest has fallen sharply, while silver ETF holdings have dropped by 70 million ounces since the start of the year, to 794 million ounces.

De-escalation in the Middle East could turn the tables. Oil, the US dollar and Treasury yields would fall, which would be positive for silver. However, as long as the Strait of Hormuz remains blocked, it remains under pressure.

The silver market is relatively small compared to gold, which makes it more vulnerable to speculative trading. This often leads to sharper price moves in both directions.

• Rumours of talks with Iran have caused the USD index to retreat.
• The pound has recouped some of its losses thanks to Labour’s intention to stick to the rules.

The US dollar has retreated following Donald Trump’s statement that he was postponing the resumption of bombing Iran. According to the US president, he was asked to do so by Qatar, Saudi Arabia and the UAE because negotiations with Tehran are underway. Markets have once again come to believe in a de-escalation of the conflict in the Middle East, which has led to a fall in oil prices and the USD index.

Despite the headlines, the US and Iran remain far apart on key issues. It is difficult to envisage the Strait of Hormuz reopening any time soon, and the longer the standoff persists, the stronger the tailwinds for Brent and the dollar. Even more so, the stock market has finally begun to consider the negative consequences of accelerating inflation and the attractiveness of rising Treasury yields. The S&P 500 has retreated from record highs, and the associated deterioration in global risk appetite has bolstered the greenback as a safe-haven asset.

The swearing-in ceremony for Kevin Warsh as the new Fed Chair will take place at the White House this Friday. No doubt, Donald Trump is sincerely hoping for a rate cut, despite the futures market suggesting a 50% probability of a rate hike in 2026 after actively repricing expectations in recent weeks.

The British pound has launched a counterattack thanks to a statement by Manchester Mayor Andy Burnham. The frontrunner to succeed Keir Starmer as Prime Minister has stated that he adheres to fiscal rules. Previously, investors had feared that the new head of government would turn to fiscal stimulus, which would conflict with the Bank of England’s monetary tightening. Bond selloffs paused, and GBPUSD rose from 1.33 to 1.34.

The pound was supported by the IMF, raising its forecast for UK GDP growth from 0.8% to 1% in 2026. The economy may be able to withstand two rounds of BoE rate hikes, as signalled by the futures market.

Japan’s 2.1% GDP growth in the first quarter did not deter the USDJPY bulls. Investors are cautiously awaiting the government’s use of a supplementary budget to finance the servicing costs of its growing debt.

Markets

The US 30-yr yield today broke key resistance at 5.15%/5.17% (respective tops of 2025 and 2023) to currently trade at the highest level since 2007. The 5.5% area is the next technical reference on the chart. It’s where the top levels of 2003, 2004 and 2007 all collide. The US 10-yr yield moves past the May2025 top at 4.62% with the 2025 top (4.81%) and 2023 (5.02%) tops being the remainder hurdles before joining the 30-yr yield to highest levels since 2007. This set-up immediately presents Kevin Warsh with a formidable challenge after he’s sworn in as next Fed chair on Friday. In the past, Warsh has consistently been critical on the (size of the) Fed’s balance sheet. He repeatedly argued to shrink it further, enabling a return to short-term interest rates as the central bank’s prime tool. He believes that the Fed played an outsized role via its asset purchases and argues for a much smaller (market) footprint. Question is of course how feasible these ideas are at current interest rate levels and with the US government running budget deficits to the tune of 8% of GDP. Warsh will have to walk a tightrope balancing what will probably still be his structural view without discomforting markets when it comes to size or speed for any such potential execution of his plans. Simultaneously, inflation risks stemming from the ongoing stalemate between the US and Iran are throwing a spanner in his preference to complement a tighter liquidity policy with a looser interest rate stance. The US 2-yr yield holds firmly above 4% as markets err on the side of a rate hike rather than a rate cut as the Fed’s next move, with recent eco data and labour market proving solid. A sticky oil price is the needle in the compass. Brent crude trades around $110/b with markets less willing to anticipate any breakthrough. The lacklustre reaction to yesterday’s (US) announcement that an imminent attack against Iran (today) has been postponed serves as a point in case. With commercial oil reserves depleting at stealth pace, the clock is ticking towards a significant binary risk. It’s unclear when the alarm goes off. Depending on the source/analyst, it could come as soon as end May/early June. A new upleg beyond the $120/b-top without roadmap to a reopening of Hormuz or a return towards the $100/b in anticipation of final agreements? Time will tell. Renewed pressure on US Treasuries today hurts risk sentiment again with key US indices losing more than 0.5% at the start of dealings. They might be exposed to a more pronounced correction once earnings/AI-support falters after Nvidia earnings. The US dollar gains the upper hand on FX markets in this bearish market with EUR/USD testing 1.16 for the first time since the start of the initial cease-fire between the US and Iran.

News & Views

The Brazilian real opened a tad weaker today with USD/BRL bouncing back above the 5 barrier. It followed an election poll that showed president Lula da Silva reclaiming the lead over Bolsonaro with 49% against 42%. Bolsonaro’s momentum grew shortly after his December announcement that he would challenge Lula in the October 4 presidential elections, putting him virtually on par in with the incumbent president ever since. A recent banking fraud scandal however has weighed on Bolsonaro’s popularity and that’s now beginning to show up in the polls. Former-president Bolsonaro for financial markets is the preferred pick over Lula, which is seen wavering on fiscal discipline through, amongst others, a series of stimulative measures taken in recent weeks.

Canadian April inflation came in at the low end of expectations. The headline number printed 0.4% m/m vs 0.7% expected and down from the 0.9% seen in March. The annual figure still quickened from 2.4% to a two-year high of 2.8% but remained below the 3.1% bar. Core gauges at 2% (trimmed) and 2.1% (median) similarly undershot the 2.2% and 2.3% consensus view. Energy prices rose a sharp 5.7% m/m, down from March’s 13.1% as the Middle East impact continues to linger. The annual reading was further amplified through base effects (the removal of a carbon levy in April 2025), lifting it to 19.2%. Fuel oil and other fuels shot up 41.3% y/y, Statistics Canada said. Inflation stagnated when excluding energy on a monthly basis to be up 1.8% year-over-year. Stripping out food prices on top of that leaves CPI at 1.5%, the slowest since March 2021. Services inflation meanwhile fell by 0.3% m/m to 1.7% y/y. Canadian swap yields drop up to 3.5 bps at the front end of the curve with Canadian money markets pushing back slightly on central bank tightening bets. The Loonie loses ground to USD/CAD 1.376, matching mid-April levels.

Headline CPI inflation jumped up to 2.8% year-on-year (y/y) in April, from 2.4% in March, slightly below consensus expectations. Higher gasoline prices were a big part of the story, with inflation ex-gasoline up a more modest 2.0% y/y.

Prices at the pump were up 28.6% y/y in April. Energy prices as a whole were 19.2% higher versus a year ago, the fastest pace since 2022. Surprisingly, food inflation cooled to 3.5% y/y in April, down from 4% y/y in March.

Inflation for various categories was a mixed bag. Shelter inflation picked up slightly, rising 1.8% y/y in April up from 1.7% y/y in March. However, this was driven by rising utility costs: water, fuel and electricity rose 5.5% y/y, up from basically flat prior to the oil shock. Overall services inflation cooled further to 1.7% y/y down from 2.6% y/y in March. Core goods inflation picked up to 1.6% y/y from 0.9% y/y in April. Clothing inflation picked up in April, rising 2% y/y from being down 0.4% y/y in March.

Higher energy costs have not yet filtered through to core inflation. In fact, core inflation cooled in April! The Bank of Canada's official core inflation metrics (median and trim), averaged 2.1% y/y in April, down from 2.3% in March.

Key Implications

As expected, higher oil prices lifted Canadian inflation in April, but we are not yet seeing much of a knock-on effect to non-energy related goods or services. Core inflation pressures were actually softer than expected in April. There is little argument yet for Bank of Canada rate hikes here, and market pricing for rate hikes this year has come down a bit this morning.

Oil prices have remained high in May, so energy prices are likely to keep headline inflation elevated for some time. Given a generally soft economic backdrop in Canada, we expect the effect on core prices should be more modest. Core inflation is expected to stay reasonably close to the 2% target on a year-on-year basis this year (see details in today's report).

The sharp rise in US Treasury yields remains one of the dominant macro themes in global markets this week, with the 10-year yield climbing back to 4.62% after only a brief pullback yesterday, near its highest level in more than a year. While markets continue focusing on inflation concerns and expectations for prolonged restrictive Federal Reserve policy, a second and increasingly important driver is emerging beneath the surface: forced liquidation of Treasuries by foreign central banks facing mounting pressure from the global energy shock.

According to reports, foreign governments sharply reduced Treasury holdings in March as the Middle East conflict forced central banks to defend weakening local currencies against surging energy prices. China cut its holdings to USD 652.3B, the lowest level since September 2008, while Japan — the largest foreign holder of US debt — reduced holdings by roughly USD 47B to USD 1.191T. Overall foreign holdings declined from USD 9.49T in February to USD 9.25T in March. The liquidation created a significant supply-demand imbalance in the Treasury market, directly contributing to rising yields.

The mechanics of the move are creating what resembles a vicious feedback loop. Central banks sell Treasuries to raise Dollars and stabilize domestic currencies weakened by the oil shock. But higher Treasury yields simultaneously strengthen the Dollar further, increasing depreciation pressure on those same currencies and potentially forcing additional reserve liquidation. In effect, the Treasury market is no longer reacting solely to inflation expectations or Fed policy. It is increasingly reflecting global liquidity stress and balance sheet pressures across the international financial system.

Meanwhile, oil prices remain elevated despite temporary diplomatic relief headlines. Brent crude briefly pulled back after US President Donald Trump announced he was postponing a planned strike on Iran at the request of Gulf allies including Saudi Arabia, the UAE, and Qatar. However, the decline proved shallow because the underlying drivers keeping energy markets tight remain firmly in place. The Strait of Hormuz remains effectively blocked, commercial inventories are critically low, and the broader geopolitical standoff continues unresolved.

Reports also suggest the latest Iranian proposal sent to Washington through Pakistan did little to alter the underlying impasse. Iran reportedly focused its framework on separating the war and maritime blockade issues from the nuclear negotiations, prioritizing immediate economic and military relief while delaying the core nuclear questions. For Trump and his national security team, including Defense Secretary Pete Hegseth, sidelining the nuclear issue appears unacceptable, reinforcing market expectations that tensions may persist rather than de-escalate meaningfully.

In currency markets, Dollar is the strongest major currency of the day so far, supported by rising yields and persistent global uncertainty. Sterling and Yen also outperformed, while Aussie and Kiwi lagged amid weaker risk sentiment and renewed concerns about China’s slowdown. Swiss Franc underperformed as higher global yields reduced demand for low-yielding safe havens, while Euro and Canadian Dollar traded more neutrally in the middle of the pack.

Attention now turns to whether equity markets can continue absorbing the rise in global yields without a broader risk-off break. Ultimately, the next major move in stocks may depend more on geopolitics directly and less on whether corporate earnings can continue justifying valuations in a world where Treasury yields are rapidly moving back toward cycle highs.

Canada CPI Misses Forecasts at 2.8% in April, Core Inflation Pressures Ease

Canada’s inflation rate accelerated to 2.8% in April as gasoline prices surged nearly 29%, but softer core inflation measures suggest underlying price pressures remain more contained than headline data imply. Read More.

EUR/GBP: Weak UK Jobs Data Pushes BoE Toward Patience, but CPI Holds Key to Breakout

Sterling softened slighlty after payrolls fell sharply and unemployment rose to 5.0%, reinforcing case for BoE patience. But with oil prices climbing again, tomorrow’s UK inflation data could quickly reshape the outlook. Read More.

Eurozone Trade Surplus Shrinks Sharply to EUR 7.8B as Exports to US Collapse

The Eurozone’s trade surplus narrowed sharply in March as exports to the US collapsed and imports continued rising, reinforcing concerns that weakening global demand and higher energy costs are increasingly weighing on Europe’s economy. Read More.

UK Unemployment Rate Rises to 5.0% as Payroll Employment Continues to Decline

UK payroll employment fell again in April while unemployment rose to 5.0% in the three months to March, signaling softer labor market conditions. However, wage growth remained firm enough to keep inflation concerns alive for the Bank of England. Read More.

Japan Q1 GDP Beats Forecasts, Economy Entered Iran Conflict on Solid Footing

Japan’s economy expanded faster than expected in Q1, with exports, consumer spending, and business investment all contributing to stronger growth before the Middle East energy shock intensified. The data suggest Japan entered the Iran conflict period with some economic buffers already in place. Read More.

AUD/CAD Reverses Lower as China Slowdown, RBA Pause, and Oil Surge Shift Momentum to Loonie

AUD/CAD reversed lower this week as weak Chinese data, renewed risk-off sentiment, and fading expectations for a fourth straight RBA rate hike undermined Aussie, while rising oil prices continued boosting Canadian Dollar. Technical signals now suggest a possible medium-term top may already be forming near parity. Read More.

RBA’s Hunter Warns Existing Inflation Pressures Could Amplify Oil Shock Across Economy

RBA Chief Economist Sarah Hunter warned that the oil shock is hitting an economy already strained by elevated inflation pressures, raising the risk that higher fuel costs spread more rapidly across businesses and consumers. The RBA is increasingly concerned inflation expectations could become embedded. Read More.

RBA Minutes: Tactical Wait-and-See, Not End of Tightening Bias Yet

RBA minutes showed policymakers are shifting into a tactical wait-and-see phase after concluding rates are now likely restrictive, but the Board made clear the tightening bias has not been abandoned as inflation risks remain elevated. Read More.

Australian Westpac Consumer Confidence Ticks Higher, but Energy and RBA Rate Fears Still Dominate

Australian consumer sentiment recovered slightly in April after fuel prices eased, but households remained deeply pessimistic as higher interest rates and Strait of Hormuz-related energy risks continued weighing on confidence. Westpac expects the RBA to pause in June, though further rate hikes may still follow later this year. Read More.

USD/CAD Daily Outlook

Intraday bias in USD/CAD stays mildly on the upside as rebound from 1.3549 is in progress. This rise is seen as the third leg of the corrective pattern from 1.3480. Further rise would be seen towards 1.3965 resistance. On the downside, below 1.3729 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 1.4791 are seen as a corrective pattern to the whole up trend from 1.2005 (2021 low). Deeper fall could be seen, as the pattern extends, to 61.8% retracement of 1.2005 to 1.4791 at 1.3069. However, decisive break of 38.2% retracement of 1.4791 to 1.3480 at 1.3981 will argue that the correction has completed with three waves down to 1.3480 already.

Canada’s inflation rate accelerated in April as rising gasoline prices pushed headline CPI higher, but softer core inflation measures suggest underlying price pressures remain more contained than feared. CPI rose 0.4% mom in April, below expectations of 0.7% mom, while annual inflation increased from 2.4% yoy to 2.8% yoy, undershooting the expected 3.1% yoy.

Energy prices were once again the dominant driver. Energy inflation surged from 3.9% yoy to 19.2% yoy, while gasoline prices accelerated sharply from 5.9% yoy to 28.6% yoy. Statistics Canada said part of the jump reflected the removal of the consumer carbon levy in April last year dropping out of annual comparisons, creating additional upward pressure on headline CPI. However, excluding gasoline, inflation actually cooled from 2.2% yoy to 2.0% yoy, pointing to easing price momentum across much of the broader economy.

The softer underlying trend was reinforced by Canada’s key core inflation measures, all of which slowed more than expected. CPI common eased to 2.5% yoy, CPI median fell to 2.1% yoy, and CPI trimmed slowed to 2.0% yoy. The data are likely to strengthen the Bank of Canada’s argument that the current inflation spike is largely an externally driven energy shock rather than a sign of renewed domestic inflation overheating, supporting expectations that policymakers will stay patient while assessing how persistent the oil-driven pressures ultimately become.

Full Canada's CPI release here.

Intraday bias in EUR/USD remains neutral as consolidations continue above 1.1607 temporary low. Risk will stay on the downside as long as 55 4H EMA (now at 1.1686) holds. Rebound from 1.1408 could have completed as a corrective three-wave move. Break of 1.1607 will bring deeper fall to retest 1.1408 low. However, sustained break of the EMA will dampen this bearish view and bring stronger rise back to retest 1.1848 instead.

In the bigger picture, the strong support from 38.2% retracement of 1.0176 to 1.2081 at 1.1353 suggests that the pullback from 1.2081 is more likely a corrective move. Strong support was also found in 55 W EMA (now at 1.1542). Focus is back on 1.2 key cluster resistance level. Decisive break there will carry long term bullish implications. Nevertheless, break of 1.1408 support will revive the case of medium term bearish trend reversal.

No change in USD/JPY's outlook as rise from 155.01 is in progress to retest 160.71 high Strong resistance is expected from there to start the third leg of the near term corrective pattern. On the downside, break of 158.28 minor support will turn intraday bias neutral again first.

In the bigger picture, for now, corrective pattern from 161.94 (2024 high) is still seen as completed at 139.87. Rise from there is seen as resuming the long term up trend. So, break of 161.94 is expected at a later stage to resume the long term up trend. However, sustained break of 55 W EMA (now at 154.36) will dampen this view and bring deeper fall back towards 139.87 to extend the pattern from 161.94.

Intraday bias in GBP/USD remains neutral for the moment and some consolidations would be seen above 1.330. Further fall is expected as long as 55 4H EMA (now at 1.3469) holds. Below 1.3300 will target a retest on 1.3158 support first. However, sustained break of the EMA will dampen the bearish case and turn bias back to the upside for 1.3657 resistance instead.

In the bigger picture, current development suggests that price actions from 1.3867 are merely a corrective pattern within the broader up trend from 1.0351 (2022 low). With 1.3008 support intact, medium term bullishness is maintained and break of 1.3867 is in favor for a later stage, towards 1.4248 key resistance (2021 high). However, firm break of 1.3008 will at least bring deeper fall to 38.2% retracement of 1.0351 to 1.3867 at 1.2524, with increased risk of bearish reversal.

USD/CHF's rebound from 0.7760 is trying to resume after brief retreat. Intraday bias is back on the upside for 0.7923 resistance. Firm break there will argue that fall from 0.8041 has completed as a three wave correction, and bring further rise to retest this high. On the downside, below 0.7837 minor support will turn intraday bias neutral again.

In the bigger picture, as long as 55 W EMA (now at 0.8035) holds, fall from 0.9200 is expected to continue, as part of the larger down trend. Firm break of 0.7603 will target 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382.