Financial markets were quiet early Thursday as traders waited for new US data and updates from talks between US President Donald Trump and Chinese President Xi Jinping. US stock index futures were moderately higher in the European session.
The US Dollar strengthened after US Producer Price Index inflation rose to 6% in April from 4.3% in March, above the 4.9% forecast. The USD Index marked a second straight daily rise, then held near 98.50 as focus turned to April Import and Export Price Indices, Retail Sales, and weekly Initial Jobless Claims.
China’s Xinhua said Trump was told that mishandling the Taiwan issue could lead to a clash or conflict and place relations in “a very dangerous place”. The agenda is expected to include the US conflict with Iran, trade, the Ukraine crisis, and the Korean peninsula.
In the UK, GDP grew 1.1% year-on-year in Q1 versus a 0.8% estimate; March Industrial Production fell 0.2% while Manufacturing Production rose 1.2%. GBP/USD stayed above 1.3500 with little change.
USD/JPY was near 158.00 after three daily gains, while Japan weighed extra fiscal 2026 budget to offset higher oil prices. EUR/USD held near 1.1700 as ECB’s Martins Kazaks said rate rises were possible if oil prices lift inflation expectations.
Gold moved sideways near $4,700 after small losses on Wednesday.
We remember this time last year, in May 2025, when producer inflation surprised everyone by hitting 6%, pushing the Dollar Index toward 98.50. Now, with the latest CPI data for April 2026 showing core inflation still stubbornly above 3.5%, the focus is on how long the Fed will hold rates at the current 5.50% level. This suggests continued demand for options protecting against USD strength, especially with the Dollar Index now trading consistently over 105.
The “very dangerous place” Xi warned Trump about regarding Taiwan in their May 2025 talks remains a key risk factor for markets. Over the past year, we have seen increased naval drills in the South China Sea, and US tariffs on Chinese electric vehicles have only heightened trade frictions. Volatility derivatives on Asian-exposed indices could be a prudent hedge against any sudden escalations in the coming weeks.
A year ago, the UK’s 1.1% Q1 2025 growth provided some temporary optimism for the Pound, which was trading above 1.3500. Today, with the Bank of England still hesitant to cut rates amid persistent services inflation, the picture is much different as GBP/USD struggles to hold 1.25. Traders should watch for any dovish signals from the MPC, as this could trigger a move to test lower levels.
The hawkish talk from the ECB we heard last year, when EUR/USD was near 1.1700, has completely reversed. Now, with Eurozone inflation having fallen to 2.5% and a rate cut expected next month, the policy divergence with the US Fed is stark. This explains why the pair is struggling below 1.08, and any rallies are being viewed as opportunities to position for further downside.
The concerns about high oil prices and a weak Yen that prompted talk of an extra budget in May 2025 are still very much with us. With USD/JPY having tested the 160 level several times this year, we have already seen direct intervention from the Ministry of Finance to support the currency. The market is now pricing in the risk of further surprise actions, making long-dated yen call options an interesting play on potential policy shifts.
While gold’s sideways grind near a lofty $4,700 in May 2025 reflected extreme market anxiety, prices have since settled into a more sustainable range. Currently trading around $2,350, gold remains sensitive to real interest rates and geopolitical flare-ups. Given the persistent global tensions, call spreads could offer a cost-effective way to gain upside exposure while capping risk.
