The Pound Sterling rises at the start of the week before an EU-UK trade summit in London. The possible trade deal could boost ties since Brexit, potentially benefiting UK industries like defence, agriculture, and energy.

UK arms suppliers could tap into business worth 150 billion Euros with a defence pact. Recent data showed the UK economy expanded by 0.7% in the first quarter, boosting the currency.

Upcoming UK Economic Indicators

UK Consumer Price Index data due Wednesday could influence Bank of England’s policy outlook. Core CPI is anticipated to rise to 3.6% from 3.4%, as of the last report.

The Pound climbs near 1.3400 against the US Dollar, which falls after a Moody’s Rating downgrade of the US Sovereign Credit Rating. Despite the downgrade, confidence in US frameworks remains stable.

The US Dollar Index decreases to 100.40. A potential US-China trade deal is spurred by President Trump’s plans to visit China for direct talks with President Xi Jinping.

Fed’s monetary policy affects the Dollar’s value, with inflation expectations rising due to tariffs. Consumer Inflation Expectations increased to 7.3% from 6.5%, potentially deterring rate cuts.

Pound Sterling Market Dynamics

The Pound trades positively with a bullish short-term trend, driven by near-term technical indicators. A breakthrough above 1.3445 would face resistance, with 1.3000 as key support.

While the Pound Sterling’s movement higher offers a short-term signal of strength, the drivers behind this shift deserve careful consideration for those focused on leveraged exposure. The upcoming EU-UK trade summit has added speculative momentum, built on hopes of closer alignment post-Brexit. Should even partial agreements emerge covering defence or agriculture, it could recalibrate certain existing risk models across related UK sectors.

For example, the referenced potential for British defence suppliers to access €150 billion worth of opportunities is not mere noise—it indicates a real policy path that may materially benefit large contractors previously constrained by diplomatic friction. That shift would ripple across related equities, driving inflows to indexes influenced by aerospace and security portfolios. Timing entries in these subsets ahead of policy announcements may prove advantageous, especially if commitments are codified.

Separately, the domestic boost from 0.7% GDP growth during the first quarter strengthens the argument in favour of staying long on the Pound—at least, in the interim. That figure didn’t just beat consensus, it challenged recent pessimism surrounding the UK’s mid-term output trajectory. What’s less certain, however, is how this data point, when paired with this week’s Consumer Price Index release, might steer the Bank of England.

Core consumer inflation reaching 3.6%, if met or exceeded, would narrow any space for near-term easing. Should that occur, the market may reflexively price in a longer hold on interest rates and reinforce Sterling further. Volatility around Wednesday’s release will likely spike, especially on short-dated interest rate products. Overnight volatility skews could widen if the surprise to the upside feeds into forward guidance and stops are triggered.

Across the Atlantic, the US Dollar has softened—not because of a change in macro strength, but rather from reputational risk cascading out from a Moody’s downgrade. This tension builds a contrasting narrative: while institutional confidence remains intact, the downgrade has dampened dollar outlooks, pulling the Dollar Index toward 100.40. For us, this move shifts spot USD dynamics in pairs where the sensitivity to sentiment fluctuations is elevated, including USD/GBP and USD/JPY.

Add to that a new round of political risk priced into US-China trading expectations. With direct talks between Washington and Beijing back on the calendar, an entire suite of tariff-sensitive instruments becomes more reactive. If de-escalation leads to fiscal recalibration, long USD positions may see tightening ranges—especially as commodity-linked currencies realign.

We’ve also taken note of inflation expectations jumping sharply to 7.3% from 6.5%. This isn’t just a headline—it undermines the Fed’s ability to justify accommodation, and strengthens arguments for policy conservatism. Cutting rates becomes that much harder. This matters enormously for those managing directional exposure to Treasuries or those looking for yield compression trades across curves.

Technically, Sterling exhibits bullish characteristics in the near-term supported by momentum signals. However, the resistance ceiling at 1.3445 will likely hold without further catalyst. We consider the 1.3000 level not just psychological, but an area of anchored demand. Momentum traders may enjoy entries on breakout attempts above 1.3450, but should remain wary of false breaks, especially with Wednesday’s CPI lurking. We are watching the gamma exposure level carefully—it may trigger delta hedging flows if the options market becomes lopsided near term.

The broader strategy here involves recognising when policy, macro data, and sentiment shift from parallel to convergent. When they do, positioning ahead of such alignment typically carries outsized reward. But only if the risk parameters are adjusted in sync.

Create your live VT Markets account and start trading now.

The USD/CHF pair trades at a 0.5% decline, reaching near 0.8330 as the US Dollar experiences widespread weakening. This drop is attributed to a downgrade in the United States Sovereign Credit Rating by Moody’s, from Aaa to Aa1, due to a $36 trillion debt increase.

The US Dollar Index (DXY) falls to about 100.30, reflecting the ongoing pressure on the currency. In response to the downgrade, 10-year US Treasury yields rise to approximately 4.52%, showing a 1.8% increase from its last close.

Trade Optimism from the White House

Trade optimism from the White House suggests potential benefits for the US Dollar. Kevin Hassett, an economic advisor, anticipates more trade deals. There is an increased confidence in a US-China trade deal, with President Trump expressing willingness for direct talks with President Xi Jinping.

In Switzerland, there are expectations of further interest rate cuts by the Swiss National Bank due to trade war risks. As a global currency, the US Dollar dominates foreign exchange, accounting for over 88% of worldwide transactions.

The Federal Reserve uses monetary policy, including interest rate adjustments and quantitative measures, to influence the USD’s value. While quantitative easing can weaken the dollar, quantitative tightening tends to strengthen it.

With the US dollar under pressure following Moody’s downgrade of its credit rating, we now see a broad devaluation across currency pairs—particularly against the Swiss franc. USD/CHF slipping by half a percent to around 0.8330 is more than just a reaction to headlines; it’s a readjustment of valuation as markets digest what a $36 trillion debt pile really means. While the absolute figures may seem abstract, the signal it sends to institutional investors is clear: holding onto dollar-based assets could carry heightened risk, especially if confidence in government solvency begins eroding.

The US Dollar Index (DXY) hovering near 100.30 underlines downward momentum. Even more telling, perhaps, is how yield markets are responding. The 10-year Treasury yield rising to 4.52%—a notable 1.8% daily move—is not being driven by optimism, but compensation for risk. Debt downgrades have a way of creeping into borrowing costs, and the bond market often adjusts faster than equities.

From a strategy view, implications are clear for anyone exposed to USD-denominated derivatives. Given the backdrop, adjustments in volatility metrics and implied rates are expected. We are already observing some upward drift in realised volatility across longer-dated FX options. Short-dated implied volatilities, while initially muted, are also showing signs of reacting as expected interest rate path variability increases.

Looking Beyond Trade Agreements

What makes this development even more layered is the political signal. Hassett’s remarks suggesting upcoming trade agreements introduce potential positive sentiment. But, sentiment alone won’t erase the fundamental debt overhang nor reverse rating agency action. A closer look shows that these statements are likely aimed more at bolstering confidence in the administration than reflecting advanced negotiations in play.

Trump expressing interest in direct talks with Xi Jinping adds further complexity. These types of announcements can move markets intraday, but over longer horizons, they require concrete developments to be priced in fully. Derivatives contracts with multi-week durations are likely to reflect this gap between sentiment and follow-through.

Switzerland’s relatively dovish posture, influenced by mounting trade risks, provides a counterbalance. Expectations of rate cuts by the Swiss National Bank temper franc strength despite global capital rotating into perceived havens. That said, even if Swiss rates trend lower, the scale and persistence of dollar selling could still push the USD/CHF pair further downward.

As always, the Federal Reserve will continue to exert influence through its policy tools. Their twin approach—adjusting rates and altering the scale of their balance sheet—remains a primary channel of FX volatility introduction. While tightening lends support to the dollar, a reduced appetite for risk among global investors could dilute its effect. In practical terms, this means pre-positioning ahead of FOMC releases and being agile on short gamma exposure.

Currently, with Treasury yields rising, traders could look to capitalise on spread opportunities between US and non-US bonds, but care must be taken around volatility bursts. Forward guidance remains soft, and one must read past the headline print to correctly price directional moves or range compression.

Based on what’s developing, it’s not just about where dollar strength is headed, but which instruments are most sensitive to unfolding shifts—both macroeconomic and political. Evaluation of tail risk hedges also becomes more relevant now, especially in FX vol markets where realised remains disconnected from implied bands for extended periods.

While geopolitical dialogue may temporarily buoy sentiment, we must not lose sight of core structural drivers: debt levels, credit perception, and monetary tools in play. Any opening positions must respect that hierarchy. A beneficial approach now would involve recalibrating delta exposure regularly and using calendar spreads for directional plays that align with scheduled economic and political events.

Create your live VT Markets account and start trading now.

Silver prices have seen a slight increase, trading above $32.00 on Monday, aided by the weakening US Dollar. This shift follows the downgrade of the US sovereign credit rating by Moody’s, which has spurred concerns regarding fiscal sustainability.

Currently, Silver is valued around $32.30, up 0.05% on the day, attempting to surpass the 50-day Simple Moving Average at $32.75. The market remains cautious, especially post the Moody’s downgrade that highlights concerns over US debt levels and economic growth prospects.

The US Dollar index has experienced renewed pressure, influencing the status of the US Dollar in global markets. Silver’s appeal has been enhanced as a result, with geopolitical tensions and trade issues adding to the uncertainties in the market.

Technical analysis shows Silver trading within a tight range, with resistance near $33.23 and support around $31.96. The Relative Strength Index remains neutral, with analysts watching closely for market shifts that could influence Silver’s trajectory.

Silver prices can be influenced by various factors such as geopolitical instability, industrial demand, and the US Dollar’s performance. Comparisons to Gold also play a role, with the Gold/Silver ratio being an indicator of their relative valuation.

What we’re seeing here is a steady, modest lift in silver, pushing just slightly over $32.00 as of Monday, brought about in part by a weaker US Dollar. That dip in the Dollar’s strength seems to have been prompted by a downgrade in US creditworthiness by Moody’s, raising fresh worries about America’s ability to manage growing fiscal deficits. Not only did that shake confidence in the US economy’s medium-term prospects, but it also shifted some support towards precious metals.

Now silver is hovering at around $32.30, essentially flat with just a 0.05% daily gain. However, it’s pressing against a technical hurdle — the 50-day Simple Moving Average pegged at $32.75. The broader market mood remains on edge, largely due to lingering debt concerns and perceptions that US growth may be slower going forward. Weakness in the US Dollar index is lending some weight to this rally in silver, as the weakening greenback makes USD-priced metals cheaper for overseas buyers.

We’ve seen that geopolitical risks, particularly those flaring up in key commodity-producing regions, and rising tensions in trade agreements, are helping to sustain interest in safe-haven assets like silver. It’s a defensive play in times like these. That said, the metal’s movement has been mostly restrained, sticking between $31.96 on the lower end and $33.23 on the upside — a compressed, narrow band that’s likely the result of short-term indecision among participants waiting for clearer signals.

The Relative Strength Index is not tipping its hand either, sitting in a neutral zone. Indicators aren’t leaning decisively bullish or bearish, which means traders looking for directional confirmation might need to exercise patience — or keep positions nimble. For now, silver doesn’t look to be overbought or oversold, merely balanced at this stage.

It’s worth noting how gold is used in comparison here — particularly through the Gold/Silver ratio. That ratio gives us useful clues about relative value, especially in times when industrial demand for silver and monetary demand for gold diverge. When silver lags in pace to gold’s move, it often points to underlying investor hesitance toward growth-sensitive assets.

From where we stand, technical support stands firm near the $31.96 line. Any decisive break below that could signal a broader retracement, particularly if risk appetite returns or if US Dollar strength rebounds. Meanwhile, a breakout beyond $33.23 resistance would likely trigger a cascade of stop orders or fresh interest from trend-following strategies.

The current environment suggests that sensitivity to fiscal policy developments and US macro data will continue to affect the metal’s short-term trajectory. Traders measuring relative movement should closely monitor US inflation prints, central bank commentary, and new Treasury issuance projections. All of these help set the tone for near-term positioning.

Overall, the market remains responsive to external economic indicators — and for traders, these next sessions could bring setups worth watching.

Shares in Rithm Capital Corp. have climbed 12.2% since announcing first-quarter 2025 earnings on April 25. The earnings exceeded expectations with adjusted earnings per share of 52 cents, a 15.6% beat on estimates, and an 8.3% increase from the previous year.

Revenues for the quarter were nearly $768.4 million, marking a 39% decline from the previous year and falling short of expectations by 31.8%. Net servicing revenues dropped to $28.9 million, far below forecasts due to changes in MSR portfolio fair value, despite a 1.5% year-over-year growth in interest income.

Pre Tax Income And Segment Performance

Pre-tax income dropped to $56.8 million from $380.9 million the previous year. In its segments, investment portfolio revenues fell to $105.1 million, with pre-tax income decreasing to $18 million. Asset management revenues climbed to $97.1 million, yet faced a pre-tax loss of $19.8 million.

Rithm Capital exited the first quarter with $1.5 billion in cash, up 2.4% from the end of 2024, and total assets of $45.3 billion. The company maintained its equity near $7.9 billion since the end of 2024 and distributed $132.5 million in dividends without repurchasing shares.

Elsewhere, Root Inc., EverQuote Inc., and Heritage Insurance Holdings have exhibited strong performance, all holding the highest stock ranking. Each company has surpassed earnings estimates consistently, showing projected revenue growth for the current year.

The share price movement in recent weeks can be explained by the higher-than-anticipated earnings per share, despite a steep year-on-year decrease in revenue. What we’re seeing is a tug between improved income metrics in specific areas and mounting pressure elsewhere on operations.

Rithm’s 12.2% share lift since late April has been driven by pure earnings surprise. Adjusted EPS beat by over 15%, and even when compared to last year, grew by more than 8%. That suggests stronger operational efficiency or gains, even while top-line numbers moved sharply downward. The entire revenue line coming in nearly 32% lower than forecast paints a weaker overall picture around scalability, not necessarily performance.

Market Confidence And Future Implications

Markets appeared to reward the earnings beat while looking through the 39% fall in total revenue. That’s telling. It implies some confidence in internal management strategies or perhaps expectations of margin resilience. However, traders will want to tread carefully because the drop in pre-tax income—from nearly $381 million last year to just under $57 million—points to persistent structural challenges.

On a segment level, it’s telling that revenues tied directly to investments fell, and while this unit remained profitable, it generated just $18 million in pre-tax profit. On the other hand, asset management revenue increased; however, it couldn’t translate into profitability, closing the quarter with a near $20 million pre-tax loss. We read this as ongoing pain when scaling fee-driven business—there is still a mismatch between revenue growth and operating cost discipline.

The servicing unit’s net revenue plunged, heavily impacted by volatility in mortgage servicing right valuations. Despite interest income showing some modest growth, limited returns from servicing won’t help build a cushion if rates don’t play along. It also suggests poor rebalancing protection during duration shifts in the MSR book.

Static shareholder equity and a marginal rise in cash reserves tell us that while liquidity is not under threat, there’s a lack of active capital deployment. The $132.5 million in dividend payments, without any share buybacks, signals a conservative tilt rather than growth aggression. This inaction doesn’t hurt sentiment immediately but puts the onus on future quarters to justify continued capital distributions.

Looking outside the firm, a host of comparables have notched up higher stock rankings recently, thanks to well-above-estimate performance. Root, EverQuote, and Heritage have each pushed through expectations repeatedly. More importantly, they also show a clear path of revenue expansion. While each firm operates in its distinct niche, traders have been marking up those firms showing clearer earnings progression, even with risk.

This tells us that in the weeks ahead, attention needs to sharpen not just on earnings beats alone but where revenue profiles are shifting meaningfully. Reaction to Rithm suggests a tolerance for mixed signals, but that will likely fade if revenue and pre-tax profits don’t revert. Markets won’t hand out repeated rewards for one-off earnings optics if fundamentals stay this split.

We will continue to follow how margin management develops, especially where revenue consistency cannot be assured. The next move will depend heavily on whether fixed income market conditions shift or volatility persists in key valuation inputs like MSRs. There’s little patience for broad-based declines in top-line metrics unless clearly matched by improved efficiency or asset positioning.

Create your live VT Markets account and start trading now.

The growth outlook for the euro area suggests potential weakening despite a strong start in Q1. The growth forecast for 2025 remains at 0.8%, with heightened recession risks due to trade uncertainties, affecting even the 2026 and 2027 projections.

The euro area’s near-term growth could slow due to US tariffs impacting demand for exports. The tariff situation between the US and EU may lead to varying rates, affecting economic growth further. Despite potential hurdles, expanded trade elsewhere is expected to mitigate tariff impacts in the longer term.

Revised Growth Forecasts

A revised growth forecast for 2026 has been set at 1.0%, down from the previous 1.2%. This adjustment is due to the lingering effects of trade issues. Conversely, growth for 2027 is projected to increase to 1.6% from an earlier 1.1%, driven by fiscal boosts and defence spending, particularly in Germany.

These forecasts account for ongoing uncertainties and suggest that while the short-term may see challenges, there is potential for recovery in the following years. Strategic trade adjustments and increased fiscal expenditures are anticipated to foster a more positive growth trajectory by 2027.

Given the revised projections, it’s now becoming clear that the near-term economic momentum within the euro area is facing pressure—not from internal weaknesses, but rather from external disruptions rooted in global trading tensions. A sturdy showing early in the year was not enough to offset increasing concerns that a deceleration is already underway. Forecasts staying flat at 0.8% for 2025 highlight diminished confidence, particularly with recession indicators blinking due to altering trade dynamics.

2026 and 2027 Economic Shift

The updated forecast for 2026—marked down to 1.0%—directly reflects the knock-on effects from shifting US tariff policy. We’re not only seeing lowered expectations for export demand; there’s also an indirect cooling effect on business investment. Currency positions will need to adjust accordingly. For holders of longer-dated positions, reduced optimism in output growth could affect euro-based yield curves, possibly creating subtle dislocations in risk pricing.

Looking a bit further ahead, however, there’s a notable pivot. The reassessment for 2027, now pointing to 1.6% growth, suggests that fiscal actions—especially in defence allocations in Germany—might start offsetting the prior drag caused by trade disruptions. It is, essentially, a delayed response mechanism—where public budgets are filling gaps left by softer private sector trade activity. This change should not be interpreted lightly. There’s a time gap between appropriation and spending impacts, which introduces a pacing element that could influence rates volatility.

Importantly, this longer-term upside is conditional—not just on domestic measures but on the assumption that other global tensions don’t resurface with fresh intensity. If further protectionism creeps in or if external markets fail to expand as expected, then upside bets could unwind rapidly. We’ve modelled similar scenarios before; the memory of mid-2010s underperformance lingers for a reason.

Short-term exposure should continue to reflect a cautious tilt. Any strategies banking on rate shifts or inflation convergence across the bloc should consider layering hedges, particularly when divergences between member states—both fiscally and politically—remain unresolved. Moving in and out of convexity carries risks not yet fully priced by the market. We notice that lagging indicators, including PMI composites and export orders, haven’t steeply turned yet. Watching their direction beyond the summer will be vital.

On duration, there may be a case for slight rebalancing towards the long-end as 2027 expectations begin to firm. However, that window is narrow and would require conviction that fiscal delivery, especially in Germany, materialises on schedule. For now, spreads remain mostly orderly, with implied risk premium fairly stable. This helps, but doesn’t remove potential volatility under compression stress.

The key message here is that correlation assumptions among contributing sectors may not hold in the short run. We are not in a cyclical upswing across the region. Cross-asset positioning should reflect a broader range of outcomes—possibly tail risks stemming from slower-than-priced fiscal implementation. Traders who lack exposure to these forward scenarios—positively or negatively—may find themselves caught off-balance in monthly positioning adjusts.

Create your live VT Markets account and start trading now.

Federal Reserve Vice Chairman Philip Jefferson discussed the risks to jobs and inflation, emphasising the uncertainty in making rate decisions. He mentioned the potential for a one-time increase in prices due to tariffs and stressed the need to prevent sustained inflation.

Jefferson noted the resilience of the labour market, stating it was uncertain how it might respond to administrative policies. The Fed plans to keep inflation expectations anchored and has no discussions about changing the ample reserve operating framework.

US Dollar Index Reaction

Following Jefferson’s remarks, the US Dollar Index showed a 0.7% decline, standing at 100.26. The Federal Reserve’s monetary policy influences the US Dollar by adjusting interest rates to achieve price stability and full employment.

The Fed typically meets eight times a year, with the Federal Open Market Committee making monetary policy decisions. In extreme circumstances, the Fed may implement Quantitative Easing, which can weaken the US Dollar, while Quantitative Tightening usually strengthens it.

Jefferson’s comments reflect a carefully weighted approach from the Federal Reserve, highlighting just how delicate the present stance on interest rates truly is. On one hand, he acknowledged that the job market has absorbed recent changes rather well. On the other, it remains unclear how future policy shifts—particularly those aimed at trade or tariffs—will ripple through employment and prices. This makes forecasting the next step for rate adjustments particularly tricky. The Fed is clearly navigating through data that’s sending mixed messages.

He made a point of distinguishing between one-off shifts in prices, such as those caused by trade duties, and persistent inflation that snowballs through wages or rent increases. From our standpoint, that difference matters a lot. Short-lived price increases from policy changes don’t necessarily justify an interest rate hike. What the committee is likely watching for are signs that these price rises start feeding into consumer and business expectations—something that hasn’t shown up convincingly in the data they’ve outlined.

Reserve Framework Stability

What’s also worth noting is that Jefferson didn’t give any indication of altering the current reserve framework. That tells us the current structure, which allows plenty of liquidity in the banking system, remains a foundation they’re not interested in shaking—at least not for now.

Market reaction to his speech saw a weakening in the dollar. The index fell 0.7%, slipping to 100.26. This softening reflects market bets that the Fed might take longer than expected before moving forward with tighter policy. Traders interpreted his talk as hinting towards patience rather than urgency. That makes the next economic prints all the more important, especially wage growth and core consumer prices, which tend to have a more persistent influence on policy decisions.

Interest rate speculators are unlikely to get clear direction from the Fed before the next meeting, but trading conditions may turn more reactive to data surprises. One thing came through crisply—there’s no appetite within the committee right now to start a pivot in either direction without firm evidence. They’re not pre-committing, and they don’t need to. For us, that opens up a period where volatility might spike around employment data or price indicators, especially if revisions to past figures skew sentiment.

What remains key is anchoring inflation expectations, something Jefferson reinforced without ambiguity. As long as those remain in check, disinflationary trends are likely to keep dominating decisions more than any immediate wage spike or headline inflation jump. If that view holds, aggressive tightening appears unlikely in the near term.

We’ve also seen many FX desks start reassessing their dollar outlooks. Traders leaning long on the currency may need to consider how likely the Fed truly is to push rates higher than they currently sit, especially with recent comments downplaying systemic inflation risks.

Going into upcoming sessions, much will hinge on whether any anomalies in official statistics begin creeping in. Watch for downside surprises in employment or consumer spending. These could reignite talk of rate cuts far sooner than later, despite the Fed’s reticence to go there just yet. One-off price shocks, especially from geopolitical triggers or supply pressures, will likely be downplayed unless they touch broader pricing channels.

Create your live VT Markets account and start trading now.

The New Zealand Dollar (NZD) is showing strength, trading above 0.5900 against the US Dollar (USD), reaching around 0.5910 with a rise of nearly 0.50%. This movement is prompted by the US Dollar’s decreased value after Moody’s credit rating downgrade for the US.

New Zealand’s services sector continues to shrink, as seen in the Business NZ Performance of Services Index (PSI), which fell to 48.5 from 49.1, the lowest since November. Rising input prices increased by 2.9% quarterly, while output prices climbed by 2.1%, marking the strongest rises since the second quarter of 2022.

Economic Events in New Zealand

Key economic events in New Zealand this week include trade balance figures, the government’s budget release with potential spending cuts, and the first-quarter Retail Sales report. These data releases may influence the New Zealand Dollar’s valuation and perceptions of future Reserve Bank of New Zealand (RBNZ) policies.

Globally, the US Dollar Index (DXY) remains under strain following Moody’s downgrade. Upcoming speeches by Federal Reserve officials will be closely watched for insights on potential monetary policy shifts, impacting the USD’s performance.

Despite domestic economic data showing continued softness, the New Zealand Dollar has managed to push through resistance levels, now trading above 0.5900 against the US Dollar. A decent bump, nearly half a percent, has taken it to around 0.5910. While this rise coincides with local price pressure indicators firming slightly, it appears more likely that weakness in the US Dollar itself has opened the door for such gains. Moody’s decision to alter the US credit outlook appears to have shaken market confidence. That shift in sentiment might remain relevant longer than some anticipate.

With New Zealand’s services sector still contracting — the PSI dropping further to 48.5 — concerns around domestic demand aren’t going away. What complicates this is evidence of cost pressures building again. Input prices jumped 2.9% for the quarter, output prices not far behind at 2.1%. It’s the largest quarterly increase since mid-2022. That doesn’t scream growth, but it does leave room for monetary authorities to think twice about easing.

From a tactical point of view, we’re watching three domestic data releases in particular. The trade balance update has potential to rekindle conversation around external-imposed movement in the NZD, should it surprise. The government’s budget, too, could matter more than usual — not because of the deficit or debt levels themselves, but if the expected fiscal tightening is sharper than forecast. Budgets often lay the groundwork for monetary responses, so it can’t be ignored. Finally, retail sales for the first quarter will offer clarity on private consumption; flat-to-weak numbers would confirm the caution already visible in services.

Global Economic Focus

Now, globally, the focus remains on the US Dollar. The DXY’s weakness, for now at least, hasn’t reversed. Moody’s move wasn’t a direct downgrade, but a change in the outlook is enough to inject uncertainty. Tensions around US fiscal sustainability are resurfacing, and the markets are responding. Adding to that are a slate of speeches from Federal Reserve representatives. When central bank tone shifts, even subtly, asset prices follow quickly.

In light of this, what we’ve seen in the NZD so far might extend — but not necessarily for reasons at home. Traders, especially those operating through options or futures, may want to monitor pricing structures for volatility expectations in both the local and US markets. Gaps like this, between domestic weakness and currency resilience, often don’t persist without clarification. Whether that clarification points to a broader USD retracement or a correction in the NZD remains to be seen.

We’ll also be watching US inflation-adjusted spending metrics, as they feed directly into the Fed’s core inflation assessments. A hint from any Fed speaker about concern, either about growth or stickier prices, could carry impact into the next cycle of interest rate speculation. Given how tightly the NZD and AUD can sometimes track shifts in global yield expectations, even data out of Washington can move the dial locally.

In the short term, price action around 0.5910 may be tested. Whether it holds, or slips on fresh news, will offer further clues. In the meantime, attention on options skew and term structure could highlight shifts in bias that don’t show up in spot rates.

Create your live VT Markets account and start trading now.

Gold prices rose over 1%, reaching $3,240, following a credit downgrade by Moody’s, which increased yields. As tensions in the Middle East rise and US sovereign debt rating changes, impacts could affect US yields, with higher rates possibly required for US debt.

Successive administrations’ failures to manage deficits and interest costs have led to the downgrade, creating potential repercussions for the Federal Reserve. Concerns about declining fiscal metrics were acknowledged in Moody’s statement.

Gold Facing Resistance Levels

Gold faced resistance levels at $3,245 and was tested on the support side around $3,200. Further movement could depend on breaking past these thresholds or holding above key support areas.

The March 2023 Banking Crisis highlighted vulnerabilities in US banks and altered further interest rate expectations. It sparked a run on Silicon Valley Bank and affected Credit Suisse, altering perceptions of future interest rate paths.

The crisis led to expectations that US interest rates might be paused, allowing gold, a safe-haven asset, to rise. Additionally, the subsequent weakening of the US Dollar further bolstered gold prices. High interest rates traditionally support the US Dollar, but the crisis altered these dynamics.

The recent climb in gold prices—to just over $3,240—comes in direct reaction to Moody’s decision to revise the credit outlook for US debt. Typically, when creditworthiness is called into question, demand shifts toward more dependable assets. Gold, which has maintained its reputation in that regard, sees renewed attention. Market yields increased as investors adjusted to the idea that higher returns may be demanded from US-issued debt to justify its perceived risk. That, in turn, aligns with views that borrowing costs could remain elevated for longer.

When yields rise sharply, it’s often a sign that bond investors are demanding greater compensation for risk. Following Moody’s downgrade rationale—which rests on persistent fiscal shortfalls and the burden of debt servicing—it becomes clear we are beginning to reckon with the long-term impacts of loose fiscal policy.

Fiscal Responsibility Concerns

We’ve also witnessed how declining confidence in fiscal responsibility, particularly during periods of political gridlock, has added weight to these concerns. Moody’s pinpointed those issues precisely: declining fiscal metrics, rising debt-to-GDP, and limited progress towards stabilisation. That message doesn’t just float above markets—it filters down into every component, from rates futures to options pricing.

Technically, gold has responded sharply but not recklessly. It pressed against resistance near $3,245 and was tested lower towards $3,200—levels that have now established a workable range. These numbers are more than just lines on a chart; they reflect actual trader positioning and sentiment. A break above the resistance might indicate a new momentum trend, while a hold above support suggests buyers remain committed at those levels.

We’re treating this range with discipline. Pricing in either direction that pushes past thresholds may not just be a reaction—it could develop into a short-term trend supported by flow and positioning. Preserving agility while still having a bias informed by macro drivers remains critical. For now, the bias appears to reflect caution, tied to yield expectations and political instability.

Rewind to the March 2023 banking event—it still casts a shadow. That crisis was sharp and abrupt, not systemic in the traditional sense, yet it managed to shift assumptions around Central Bank tightening virtually overnight. Institutions like Silicon Valley Bank and Credit Suisse didn’t just experience liquidity concerns. Their difficulties exposed structural overextensions—especially highly leveraged balance sheets unprepared for aggressive rate hikes.

At that time, we observed a dramatic shift in forward rate pricing. Traders pivoted from hawkish expectations to anticipating a possible hold—if not outright cuts. Even without immediate easing, the perception of a more patient Federal Reserve became dominant. That perception directly benefited gold, which thrives when real rates fall or are expected to fall.

We also saw that the US Dollar, usually supported by high rates, lost traction as global participants reassessed exposure in light of the banking shocks. That currency weakness gave further lift to commodities priced in USD, reinforcing the tailwind for gold.

Looking at rate futures now, there’s still a split around trajectory. Fiscal pressures suggest higher for longer. On the other hand, fragile banking confidence and softer economic data in spots lend support to a more cautious stance by policymakers. That tension is where we find volatility.

Traders should be aware of where skew is building, particularly in short-dated rate derivatives and gold forwards. Options flows have leaned towards protection against tail events, aligning with a heightened alert environment rather than complacency.

In the coming sessions, watch how implied volatility adjusts—not just realised price moves. Risk appetite is highly reactive to both credit headlines and geopolitical noise, and options are likely to remain sensitive. Holding exposure that responds tactically could offer better reward than directional conviction alone.

Create your live VT Markets account and start trading now.

The GBP/USD pair saw an upward movement, gaining around 100 pips due to a weaker US Dollar prompted by a US credit rating downgrade and recent EU/UK defence agreement. The pair has approached key resistance at 1.3443/44 following a recovery from the correction low of 1.3139 on 12 May, having retraced 76.4% of a prior pullback.

The GBP/USD traded above 1.3350 during the European session, reaching its highest level in nearly two weeks, supported by broader US Dollar weakness. This rise comes as markets digest Moody’s downgrade of the US credit rating, suggesting that the pair has some upward potential before it becomes technically overbought.

Price Movements During The Week

During the week, the GBP/USD exhibited two-way price movements within a 150-pip range, closing in on higher levels as the US Dollar’s recovery momentum waned. Optimism surrounding the US-China trade truce’s impact diminished, helping the GBP regain ground after a difficult start to the week.

With the GBP/USD pair now nearing a long-term resistance zone around 1.3443/44, recent price dynamics suggest a technical overextension could soon follow if momentum carries through without a pause. The rise from 1.3139 has filled out most of the fib retracement model, breaching about 76% of the prior down leg. Typically, at such levels, profit-taking becomes more appealing, especially if the pair struggles to establish a clear break above the resistance band.

The advance has been fuelled largely by the Dollar’s own weakness, triggered in part by Moody’s downgrade of the US credit rating. That move sowed doubt over fiscal stability in the US, prompting fresh downward pressure on the currency. From our view, timing this sort of sentiment-driven retreat in the Dollar often carries short shelf-life unless reinforced by further data or structural signals, such as worsening macro indicators or risk-related tension in US equities.

Sterling, in contrast, has found a modest tailwind from defence-related diplomacy between the EU and UK—at least in terms of perception rather than economic substance. Traders have treated this reassurance as a nod to stability, giving Sterling space to move higher temporarily. Combine this with positioning that was already leaning short entering the week, and there was room for a squeeze. Smith highlighted earlier that without firm rate-supportive data from the UK, gains are liable to stutter above these technical thresholds. This is especially true if yield spreads begin to flatten again or US inflation data surprises to the upside.

Market Dynamics And Trader Sentiment

As always, we’re watching how markets are treating sentiment rather than just the numbers. Earlier in the week, price action moved in both directions within a confined 150-pip corridor. The lack of follow-through from either bulls or bears indicated that few were truly committed, and a directional decision was being deferred. Once the Dollar weakened midweek, the path of least resistance shifted upward, and the GBP/USD pair followed through.

What we’re closely monitoring now is the rhythm of intraday pullbacks. If these become shallower and find support quicker—say, above 1.3350—this would suggest buyers remain active. However, the likelihood that momentum fades as we approach stretched technical zones like 1.3443 increases. What matters over the next stretch is not just whether highs break, but whether follow-up volumes confirm the strength behind the move. Without that, we risk seeing a stall—or worse, a corrective slip back towards the 1.3250 area, where recent support held firm.

Derivative traders, therefore, may wish to be less aggressive chasing upward breaks and more attuned to mean-reversion opportunities or positioning for range-bound scenarios unless the Dollar deterioration accelerates further. With event risk on the calendar and broader risk appetite fluctuating, each temporary swing in USD sentiment may offer recalibration potential. Powell’s tone in any upcoming remarks will likely guide next steps.

Create your live VT Markets account and start trading now.

The US Dollar is weaker, and long-term yields are rising, with the S&P future down 1.0% due to Moody’s decision to downgrade the US sovereign rating from Aaa to Aa1. This marks Moody’s as the last of the big three agencies to lower the US rating, following S&P in 2011 and Fitch in 2023.

Moody’s cited increased US government debt and interest payment ratios, higher than similarly rated countries, and doubts about reducing deficits with current fiscal proposals. The downgrade came as the House Budget Committee approved a tax and spending package involving cuts to Medicaid and clean energy subsidies.

Impact of the Downgrade

The downgrade could lead to further USD asset selling, with risks highlighted by Moody’s judgment being the final one from the big three agencies. Recent trends indicate potential continued USD selling. The agreed bill suggests ongoing US deficits of 5%-7% of GDP, risking higher yields that might offset growth benefits.

A short USD/JPY trade idea was suggested before Moody’s downgrade, with risk aversion now increased. The BoJ indicated the possibility of a policy rate hike if economic projections are realised, putting more pressure on USD/JPY.

From what we’ve seen, the downgrade by Moody’s has introduced a fresh layer of pressure across risk assets and fixed income markets. The move from Aaa to Aa1 itself isn’t unexpected—it’s more the timing and finality of it, considering this was the only major agency yet to lower their assessment of US credit. With this step, the theme of fiscal strain in the US becomes much harder to ignore, and price action appears to be responding accordingly.

The S&P futures falling over 1% is a fair reflection of market unease after Moody’s flagged rising debt levels and unsustainable interest payment obligations as clear concerns. These aren’t abstract metrics; they directly feed into how investors think about risk. Expectation of persistent deficits at 5% to 7% of GDP—even with fiscal tightening on the table—suggests little hope for deficit improvement anytime soon. That causes yields to climb, which then hits equity valuations hard, especially in highly priced tech and consumer growth segments.

Market Reaction and Strategy

Taking a step back, the House’s approval of the new tax-and-spending bill offers limited support from a debt management perspective. Reductions in Medicaid and green subsidies may ease some budget pressure, but they’re not enough to change the overall trajectory. With higher bond issuance needed to cover those persistent shortfalls, buyers will demand greater compensation—hence, the upward pressure on long-term Treasury yields.

That brings us to the dollar. The softer tone in the greenback this week aligns with what we’d expect after such a downgrade. The risk is no longer theoretical. This isn’t about sudden panic, but about steady repositioning. Yield differentials remain a major driver in FX, so as long-term US rates rise without offsetting currency support, pressure builds. We’ve started seeing that now.

USD/JPY is a good example. The idea to short into strength ahead of the downgrade picked up extra weight given the collapse in broader risk sentiment. Japanese yields may still be near historic lows, but recent BoJ commentary from Ueda confirms their growing readiness to hike if inflation stays on track. They’re preparing for normalisation—even if slowly—and that’s enough to cause modest shifts in funding cost expectations. Combine that with rising risk aversion and a relatively better fiscal picture in Japan versus the US, and the dollar’s vulnerability becomes more evident.

In periods like this, implied volatility tends to rise and skew changes reflect more demand for protection. We are already seeing wider ranges being priced in, particularly in FX options tied to USD crosses. For pairs like USD/JPY, this suggests we’re entering a phase where directional clarity may look clearer, but paths remain jagged.

In practical terms, we should be mindful of how fixed income reacts in the coming sessions. A sustained rise in yields—particularly in the long-end—will likely ramp up pressures in duration-sensitive sectors. Meanwhile, USD shorts may not pay off immediately in all cases, but the structural backdrop now favours strength in peers that carry less fiscal baggage.

For positioning, keeping duration light and optionality elevated seems prudent. The macro tone right now is one where surprises tend to skew negative, and price responses are more exaggerated during illiquid trading windows. It’s not about wholesale shifts, but adjusting the bias, letting volatility work in our favour, and pressing when the data confirms the direction.

Create your live VT Markets account and start trading now.