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“Time to go back home”. US President Trump wrapped up his road trip through the Middle-East, sealing substantial business and defense contracts with Saudi Arabia, Qatar and the United Arab Emirates. Those agreements cover slightly over €1tn with (Qatari) plans to significantly increase them further. The investment deals helped lift spirits on (US) equity markets this week (perhaps also as his busy schedule kept him away from social media) with main indices on track to record a fourth consecutive weekly gain and pushing them above levels on the eve of “Liberation Day”. During his trip, Trump lauded his Secretary Treasury Bessent and his prominent role in trade talks. “When Bessent talks, markets listen”. They do not only listen, but also tend to rally unlike when trade czar Navarro or Commerce Secretary Lutnick enter the scene. Bessent’s Geneva talks with Chinese vice-premier He Lifeng led to a 90-day truce in the Sino-US trade war and kickstarted this week’s rally. The US trade team remains focused on Asian countries, but the likes of Japan indicated they aim for a good rather than a fast deal. People close to talks indicate that Japan targets a complete removal of tariffs on the key car sector, rather than falling back to Trump’s floor rate of 10%. Lacking the manpower and capacity to hold talks with all countries involved in the reciprocal tariff plan during the current 90-day pause, Trump said that other trading partners over the next two to three weeks will get letters to inform them of the tariffs they will pay to do business in the US. Ongoing discussions with the likes of South Korea and Japan also cover FX policy. The US believes that appreciating currencies from trading partners are part of the solution to shrink the trade deficit on the US goods balance. By stressing this part of the equation, the dollar’s recovery already showed signs of fatigue this week. Recent trade developments significantly reduced the tail risk of a severe global growth slowdown and a US recession. It put the fiscal story back on investors’ radar as the US House is wrapping up its Reconciliation Bill. Trump hopes to see that on his desk by Independence Day, in time to raise the US debt ceiling and in time to extend tax cuts from his first term. The US Committee for a Responsible Budget already warned for the devastating impact on public finances based on available information. They fear that the debt ratio could hit 125% or worst-case even 129% of GDP by 2034 (from 100% currently and vs baseline path of 117%). Annual budget deficits of 6.9%-7.8% would be the new standard with interest rate costs rising to up to 4.2%-4.4% of GDP by end 2034. The CFRB warning kicked in for US Treasuries with the 30-yr yield testing the psychologic 5% mark for already the third time this year. The test failed as the Big Beautiful Bill is still in its early stages of being marked up in various House Committees. The House hopes to pass it somewhere early June. That’s an eternity in Trump’s high-speed world. US eco data helped creating a more stable market setting towards the end of the week as well. Activity data point to a slowdown in the chaotic month of April, but disinflationary CPI/PPI data and improving sentiment indicators for May keep the goldilocks dream (avoiding recession and keeping disinflation on track) alive for now. Next week’s eco calendar is light on data with May global PMI’s (Thursday) and EMU Q1 wage growth numbers (Friday) exception to the rule.

News & Views

The Central Bank of Romania (CBR) kept its policy rate unchanged at 6.5%. The decision came in a context of elevated political uncertainty that caused the CB to allow the leu to depreciate within its managed floating regime before stabilizing it via interventions at a weaker level (EUR/RON 5.1055 currently). This leu weakening might complicate the disinflation process. In its policy statement, the CBR assessed that inflation in Q1 declined less than anticipated to 4.86% in March from (5.14% in December) as decreases of fuel and tobacco prices, alongside non-food sub-components of core inflation, were partly countered by the swifter increase in energy prices, administered prices and processed food prices. Details of a new inflation report will be published on Tuesday. The CBR indicates that Y/Y inflation will fluctuate until 2025 Q3. It is expected to decrease later but on a significantly higher path than in the previous forecast, falling no sooner than in 2026 Q1 and only to marginally below the upper bound of the target band (1.5%-3.5%). On Sunday a second round of the presidential election takes place between far right candidate George Simion who won the first round and the Mayor of Bucharest, Nicusor Bank, who has a more centrist profile.

US consumer sentiment deteriorated again in early May, with University of Michigan’s index falling from 52.2 to 50.8, its lowest level since mid-2022 and well below expectations of 53.0.

The decline was broad-based, with Current Economic Conditions Index slipping from 59.8 to 57.6 and Expectations Index easing from 47.3 to 46.5. Since the start of 2025, overall sentiment has plunged nearly 30%.

The report also highlighted a surge in inflation fears, with year-ahead inflation expectations jumping from 6.5% to 7.3%.

According to the survey, nearly three-quarters of respondents spontaneously mentioned tariffs, a notable increase from April’s 60%.

Interviews for the survey were conducted between April 22 and May 13, capturing only limited responses after the May 12 announcement of a partial tariff pause on Chinese goods. The final May release may reveal whether that move tempers consumer concerns.

Full Michigan consumer sentiment release here.

Daily Pivots: (S1) 1.1157; (P) 1.1192; (R1) 1.1220; More...

Intraday bias in EUR/USD remains neutral. On the upside, break of 1.1292 resistance will argue that correction from 1.1572 has completed after defending 38.2% retracement of 1.0176 to 1.1572 at 1.1039. Intraday bias will be back on the upside for retesting 1.1572. However, sustained break of 1.1039 will dampen this view and target 61.8% retracement at 1.0709 next.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0789) holds.

Daily Pivots: (S1) 0.8328; (P) 0.8377; (R1) 0.8409; More….

Intraday bias in USD/CHF stays neutral. On the downside, firm break of 0.8333 resistance turned support will argue that corrective rebound from 0.8038 has completed at 0.8475, after rejection by 38.2% retracement of 0.9200 to 0.8038 at 0.8482. Intraday bias will be back on the downside for 0.8184, and then retest of 0.8038 low. However, sustained trading above 0.8482 will dampen this bearish view and target 61.8% retracement at 0.8756 next.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8750) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Daily Pivots: (S1) 145.13; (P) 145.97; (R1) 146.53; More...

Intraday bias in USD/JPY stays neutral and further rally is expected as long as 144.02 resistance turned support holds. As noted before, fall from 158.86 could have completed 139.87 already. Above 148.64 will target 61.8% retracement of 158.86 to 139.87 at 151.60 next. However, firm break of 144.02 will bring retest of 139.87 low instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 1.3263; (P) 1.3292; (R1) 1.3331; More...

Intraday bias in GBP/USD remains neutral as range trading continues. On the upside, decisive break of 1.3433/42 key resistance zone will confirm larger up trend resumption. Nevertheless, below 1.3138 will resume the correction from 1.3442. But downside should be contained by 38.2% retracement of 1.2099 to 1.3442 at 1.2929 to bring rebound.

In the bigger picture, price actions from 1.3433 are seen as a corrective pattern to the up trend from 1.3051 (2022 low). Rise from 1.2099 could either be resuming the up trend, or the second leg of a consolidation pattern. Overall, GBP/USD should target 1.4248 key resistance (2021 high) on decisive break of 1.3433 at a later stage.

Market activity remains subdued ahead of the weekend, with major currency pairs and crosses locked within yesterday’s tight ranges. Earlier in the day, New Zealand Dollar received a brief lift from rise in inflation expectations, but the move lacked conviction and quickly faded. Similarly, Japan’s weaker-than-expected Q1 GDP figures failed to trigger much reaction, as traders largely shrugged off domestic data and remained directionless.

Broader risk sentiment is offering little help, with global equity markets also confined to narrow ranges. Investors are awaiting fresh cues, with some attention turning to the upcoming US University of Michigan Consumer Sentiment survey. While a bounce in sentiment is possible following the 90-day reciprocal tariff truce, lingering policy uncertainty may cap any gains. Of particular interest will be the inflation expectations component, as a notable uptick could reinforce concerns that tariffs are beginning to feed into price pressures.

For the week, Aussie is leading the pack, followed by Dollar and Sterling. On the weaker side, Swiss Franc is underperforming, trailed by Euro and Kiwi. Yen and Canadian Dollar are trading more neutrally.

In Europe, at the time of writing, FTSE is up 0.40%. DAX is up 0.45%. CAC is up 0.37%. UK 10-year yield is down -0.038 at 4.623. Germany 10-year yield is down -0.047 at 2.575. Earlier in Asia, Nikkei closed flat. Hong Kong HSI fell -0.46%. China Shanghai SSE fell -0.40%. Singapore Strait Times rose 0.15%. Japan 10-year JGB yield fell -0.024 at 1.455.

Fed’s Bostic sees only one rate cut in 2025, as uncertainty unlikely to resolve quickly

Atlanta Fed President Raphael Bostic reiterated his expectation for just one interest rate cut this year, citing persistent uncertainty surrounding global trade policy "is unlikely to resolve itself quickly.”

Speaking on Bloomberg’s Odd Lots podcast, Bostic pointed to the 90-day delay of reciprocal tariffs and the tentative nature of the recent US-China de-escalation, warning that the final outcomes of trade negotiations remain unclear.

Bostic emphasized that tariffs are expected to exert upward pressure on inflation, a view supported by the Atlanta Fed’s own analysis and echoed by many economists.

As a result, monetary policy may need to lean against those inflationary forces, limiting how far the Fed can ease. “Our policy is going to have to anticipate — and to some extent — potentially push against those inflationary forces,” he said.

EU exports jump 15.% yoy in March on strong US shipments

Eurozone trade data showed a strong performance in March, with exports rising 13.7% yoy to EUR 279.8B and imports up 8.8% yoy to EUR 243.0B, resulting in a solid trade surplus of EUR 36.8B. Intra-eurozone trade also rose 1.7% yoy to EUR 226.0B, indicating modest growth in internal demand.

For the broader European Union, the trade picture was similarly positive. Exports jumped 15.2% yoy to EUR 254.8B, while imports increased by 10.4% yoy to EUR 219.5B, yielding a EUR 35.3B surplus.

The standout development came from transatlantic trade: EU exports to the United States surged 59.5% yoy to EUR 71.4B, far outpacing the 15.8% yoy rise in imports from the U.S.

Meanwhile, trade with the UK also showed moderate growth, with exports rising 4.8% yoy and imports increasing 5.4% yoy. In contrast, trade with China as a weak spot. EU exports to China fell sharply by -10.1% yoy to EUR 17.9B, while imports surged 15.8% yoy to EUR 48.6B.

ECB’s Kazaks: Interest rates near terminal level of easing cycle

Latvian ECB Governing Council member Martins Kazaks indicated market pricing of a 25bps cut at the June 5 meeting is “relatively appropriate”.

Nevertheless, speaking to CNBC, Kazaks added that inflation developments are "by and large within the baseline scenario". Thus, ECB is “relatively close to the terminal rate” of its easing cycle.

Kazaks' comments argue that ECB may enter a phase of pause after the June rate cut.

Meanwhile, French Governing Council member Francois Villeroy de Galhau, in an interview with a regional French newspapers, acknowledged the risk of a trade war but dismissed the notion that central banks are currently engaged in a currency war.

Villeroy defined a currency war as using interest rates competitively to gain economic advantage. Instead, he said recent currency movements are more reflective of "revisions to economic forecasts."

BoJ’s Nakamura urges caution on rate hikes as economy faces mounting downward pressure

BoJ board member Toyoaki Nakamura, known for his dovish stance, warned that Japan’s economy is under “mounting downward pressure” and cautioned against "rushing" to interest rate hikes.

Speaking today, Nakamura highlighted the risks of tightening policy while growth slows, noting that higher rates could "curb consumption and investment with a lag".

Nakamura also pointed to growing uncertainty stemming from US tariff policy, which he said is already causing Japanese firms to delay or scale back capital spending plans.

He warned that escalating trade tensions could spark a “vicious cycle of lower demand and prices,” undermining both growth and inflation.

Japan’s GDP contracts -0.2% qoq in Q1, export drag offsets capex gains

Japan’s economy shrank by -0.2% qoq in Q1, marking its first contraction in a year and falling short of the -0.1% qoq consensus. On an annualized basis, GDP contracted by -0.7%, a sharp disappointment compared to expectations for -0.2%.

The weakness was largely driven by external demand, which subtracted -0.8 percentage points from growth as exports declined -0.6% qoq while imports jumped 2.9% qoq.

Domestically, the picture was mixed. Private consumption, comprising more than half of Japan’s output, was flat on the quarter. However, capital expenditure provided some support, rising by a solid 1.4% qoq.

Meanwhile, inflation pressures showed no sign of easing, with the GDP deflator accelerating from 2.9% yoy to 3.3% yoy, above expectations of 3.2% yoy.

RBNZ inflation expectations rise to 2.41%, further easing seen ahead

RBNZ’s latest Survey of Expectations for May revealed a notable uptick in inflation forecasts across all time horizons.

One-year-ahead inflation expectations climbed from 2.15% to 2.41%, while two-year expectations rose from 2.06% to 2.29%. Even long-term projections edged higher, with five- and ten-year-ahead expectations increasing to 2.18% and 2.15% respectively.

Despite the upward revisions in inflation outlook, expectations for monetary policy point clearly toward easing.

With the Official Cash Rate currently at 3.50%, most respondents anticipate a 25 bps cut by the end of Q2. Looking further ahead, the one-year-ahead OCR expectation also declined from 3.23% to 2.91%.

NZ BNZ manufacturing rises to 53.9, recovery gains ground

New Zealand’s BusinessNZ Performance of Manufacturing Index edged up from 53.2 to 53.9 in April. The gain was driven by improvements in employment and new orders, up to 55.0 and 51.4 respectively, with employment reaching its highest level since July 2021. However, production eased slightly to 53.8.

BNZ Senior Economist Doug Steel noted that while the sector isn’t booming, the recovery is clear, with the PMI rebounding sharply from a low of 41.4 last June.

Still, he cautioned, "there remain questions around how sustainable it is given uncertainty stemming from offshore”.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3263; (P) 1.3292; (R1) 1.3331; More...

Intraday bias in GBP/USD remains neutral as range trading continues. On the upside, decisive break of 1.3433/42 key resistance zone will confirm larger up trend resumption. Nevertheless, below 1.3138 will resume the correction from 1.3442. But downside should be contained by 38.2% retracement of 1.2099 to 1.3442 at 1.2929 to bring rebound.

In the bigger picture, price actions from 1.3433 are seen as a corrective pattern to the up trend from 1.3051 (2022 low). Rise from 1.2099 could either be resuming the up trend, or the second leg of a consolidation pattern. Overall, GBP/USD should target 1.4248 key resistance (2021 high) on decisive break of 1.3433 at a later stage.

Atlanta Fed President Raphael Bostic reiterated his expectation for just one interest rate cut this year, citing persistent uncertainty surrounding global trade policy "is unlikely to resolve itself quickly.”

Speaking on Bloomberg’s Odd Lots podcast, Bostic pointed to the 90-day delay of reciprocal tariffs and the tentative nature of the recent US-China de-escalation, warning that the final outcomes of trade negotiations remain unclear.

Bostic emphasized that tariffs are expected to exert upward pressure on inflation, a view supported by the Atlanta Fed’s own analysis and echoed by many economists.

As a result, monetary policy may need to lean against those inflationary forces, limiting how far the Fed can ease. “Our policy is going to have to anticipate — and to some extent — potentially push against those inflationary forces,” he said.

The Japanese yen is steady on Friday, after gaining 2% over the past three days. In the European session, USD/JPY is trading at 145.52, down 0.09% on the day.

Japan's economy shrinks for first time in a year

Japan's GDP report was a major disappointment, as the economy contracted for the first time in a year. The economy declined by 0.7% in the first quarter, a sharp reversal from the upwardly revised 2.4% gain in Q4 2024. This was below the -0.2% market estimate. Quarterly, GDP declined 0.2%, down from 0.6% in the fourth quarter and weaker than the market estimate of -0.1%.

The weak GDP report preceded the US tariffs which took effect in April. The tariffs will be felt in the second quarter and will likely dampen growth. Japan's export sector is under pressure due to escalating trade tensions and domestic consumption has been weak. This had led to calls from some lawmakers to increase fiscal spending to cushion the expected blow from the the tariffs.

The Bank of Japan can't be pleased with the soft GDP numbers. The Bank is looking for stronger consumption and higher wage growth before it raises interest rates. The uncertainty over Trump's trade policy has forced the BoJ into a wait-and-see stance, hoping that US tariff policy will become more clear in the following months.

The US releases UoM consumer sentiment and inflation expectations for May later today. Consumer sentiment is expected to improve to 53.4 from an upwardly revised 52.2. Inflation expectations surged in April to 6.5% from 4.7% and are projected to rise to 6.6%, as consumers remain anxious about inflation.

USD/JPY Technical

• USD/JPY is testing support at 145.51. Below, there is support at 145.22
• 145.72 and 146.01 are the next resistance lines

USDJPY 1-Day Chart, May 16, 2025

The New Zealand dollar is in positive territory on Friday. In the European session, NZD/USD is trading at 0.5906, up 0.54% on the day.

New Zealand inflation expectations rise

New Zealand's two-year inflation expectations climbed to 2.29% in the second quarter, up from 2.06% in Q1, its highest level since last May. The survey also predicted that one-year inflation expectations would rise to 2.41% in Q2, up from 2.15% in the first quarter, also the highest since last May.

The rise in inflation expectations can be viewed as a "Trump bump" as consumers are concerned that US tariffs will lead to higher inflation. For the Reserve Bank of New Zealand, the increase is a reminder of the upside risks for inflation, but at the same time inflation and inflation expectations are within the Reserve Bank's target range of 1%-3%.

Will RBNZ cut in May?

With inflation largely contained, the RBNZ is looking to continue lowering interest rates in order to boost the economy. The RBNZ cut rates last month to 3.5% from 3.75% and is expected to cut rates again at the May 28 meeting.

The problem for Bank policymakers is the uncertainty over President Trump's erratic trade policy, which has made it tricky to make growth and inflation forecasts. The US and China engaged in a tit-for-tat tariff war which resulted in massive tariffs, only to suddenly reach a temporary agreement to slash tariffs. Will this lead to a permanent agreement or will the US and China resume their damaging trade war? It's unclear what happens next, especially given the unpredictability of Donald Trump.

The US wraps up the week with UoM consumer sentiment and inflation expectations for May. Consumer sentiment is expected to improve to 53.4 from an upwardly revised 52.2. Inflation expectations surged in April to 6.5% from 4.7% and are projected to rise to 6.6%, as consumers remain anxious about inflation.

NZD/USD Technical

• NZD/USD has pushed above resistance at 0.58 an85d is testing resistance at 0.5909 Above, there is resistance at 0.5940
• 0.5854 and 0.5830 are the next support levels

NZDUSD 1-Day Chart, May 16, 2025