Gold goes higher as dollar eases again
Updated Updated Tue, 2025 May 20 08:57
- US 30-year Treasury bond yield wavers near key 5% level
- UK will not rejoin EU customs union, PM Starmer says
- Dovish RBA rate cut sees policy diverge with FOMC
- Stocks pause after six straight days of buying, USD slips too
FX: USD traded lower for a second day with selling accelerating int the close. Markets are still mixed, though the US downgrade didn’t appear to have a long-lasting impact. But trade uncertainty remains high as Treasury yields oscillate near their recent highs, with the 30-year around 5% and the 10-year at 4.5%.
EUR was better bid as it again ignored continued dovish messaging from ECB officials. Markets are currently pricing in one full 25bps rate cut in June and more than two for 2025. On trade, the EU is reportedly considering imposing a EUR 2 handling fee on small packages ordered online, primarily from China, the FT reported. PMIs and IFO are the key data points for the zone, released on Thursday.
GBP printed an inside day ahead of today’s CPI release. Chief Economist Pill noted that the pace of withdrawal of policy restriction since last summer is too rapid, given the balance of risks to price stability. He added his vote should be seen as a skip and not halt to withdrawal of the restriction process.
USD/JPY fell for a sixth straight day on subdued risk sentiment again. The yen gains among its peers were also put down to Japanese yields hitting their highest level on the 30-year since 1999. Japan was said to mulling accepting a US tariff reduction, not exemption.
AUD underperformed on the RBA’s expected rate move but more cautious view, as it lowered inflation forecasts and left the door wide open for additional rate cuts. The 200-day SMA continues to cap the upside at 0.6454. CAD inflation came in mixed with headline falling but core measures rising more than anticipated. Markets reined in BoC rate cut bets for the June meeting.
US stocks: The S&P 500 lost 0.39% to settle at 5,940. The tech-heavy Nasdaq finished down 0.37% at 21,367. The Dow closed 0.27% lower at 42,677. Defensives were again in favour with utilities, healthcare and consumer staples the only sectors in the green. Energy tumbled 0.99% with communication services off 0.77%. Stocks were choppy with some focus on the Trump tax bill and Medicaid/care. Fed speak saw Musalem express concern about a slowdown of businesses and consumers amid uncertainty, while Hammack provided three tariff scenarios, and suggested the most likely one is a case of stagflation. Tesla closed higher by 0.51% after CEO Musk stuck to his launch timeline by end of June for Robotaxi, via CNBC interview. He said there will be 1,000 Robotaxis within a few months. By the end of next year, he expects to see hundreds of thousands of self-driving Tesla’s if not millions. Apple said it is to open AI models to developers in a bid to spur new apps.
Asian stocks: Futures are mixed. Asian markets traded modestly higher on the better finish into the close on Wall Street. The Hang Seng and Shanghai Composite were in the green thanks to rate cuts. The Nikkei 225 rallied on the open with currency fluctuations in focus. The ASX 200 was helped by financials and tech, after the expected RBA rate cut, but more unexpected marginally dovish tone.
Gold pushed higher as the dollar continued to struggle. The break of the neckline of the double top hasn’t played out in a clear way so far. These patterns rarely do, so there’s solid support around $3,200/3,176.
Day Ahead – UK CPI
We get UK inflation data released early in the European session. April data will include many changes in indexed service sector prices. That means a big uptick in services to above 5% and core CPI to 3.6% is forecast. Increases in gas and energy price caps will also drive headline inflation, with consensus expecting a 3.3% y/y print versus the prior: 2.6%. This is in line with the MPC’s forecasts, and the committee has said that it will look through indexation impacts when setting policy going forward.
The BoE expects these price rises to continue in the months ahead, with the headline hitting 3.7% by September, before it falls back to target. The data will be digested by an increasingly divergent MPC with a three-way split at the last meeting. We note that we will receive both the May and June CPI series before the June 19th BoE policy announcement.
Chart of the Day –GBP/USD close to long-term top
UK rates are predicted to remain steady in June, with the focus instead on August for the next potential cut, keeping with the current quarterly pace of reductions. There is roughly a 72% chance of a 25bps august rate cut, with September fully priced. Cable is still stuck in a range between the mid-May low below 1.32 and the late April high at 1.3434. The 50-day SMA sits at 1.3131.
