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A collection of positive and negative news that affects the foreign exchange market
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Hello everyone, today XM Foreign Exchange will bring you "【XM Foreign Exchange Decision Analysis】: Collection of positive and negative news that affects the foreign exchange market". Hope it will be helpful to you! The original content is as follows:
On May 26, 2025, the foreign exchange market was affected by the interweaving of multiple factors, and policy trends, economic data and geopolitical situations became key variables. The following is a review of the core positive and negative news that affected the market on the same day: 1. Good news
1. The phased easing of Sino-US tariff negotiations boosted market confidence
The economic and trade agreement reached by China and the United States in Geneva, Switzerland was officially implemented on May 14. The US canceled the 91% tariff imposed on China, and China adjusted its countermeasures accordingly. This progress eased market concerns about the escalation of the trade war. The RMB exchange rate mid-price has stabilized at 7. yuan, and the onshore and offshore price spread narrowed to within 25 basis points, indicating that cross-border capital's expectations for the RMB are becoming consistent. In addition, the 10% tariff and 90-day observation period retained in the agreement leave room for subsequent negotiations, and the market's preference for risky assets has rebounded.
2. The Fed's expectation of a higher rate cut is suppressing the US dollar index
Feder Chairman Powell emphasized the independence of monetary policy in his speech at Princeton University, implying that interest rate cuts may be considered under the premise of controllable inflation. The market's expectations for the probability of a rate cut in June rose to 35%, and the US dollar index continued to fluctuate downward trend, indirectly alleviating the depreciation pressure of non-US currencies. For example, the euro-dollar exchange rate remained stable at around 1.08 amid the European Central Bank's easing policy, and the pound also rebounded above 1.26 against the US dollar due to the UK service industry PMI exceeding expectations.
3. The UK service industry PMI rebounded unexpectedly
The initial value of the UK service industry PMI rose to 50.2 in May, slightly higher than the market expectations of 50, ending the two consecutive months of contraction. Although the manufacturing PMI is still in the shrinking zone of 45.1However, the improvement of the service industry has provided short-term support for the pound. The market began to re-evaluate the Bank of England's interest rate cut path. Interest rate futures show that the rate cut in 2025 may narrow from 100 basis points to 75 basis points, and the pound against the US dollar rose 0.3% to 1.2635 on the same day.
4. The flow of capital in the Middle East reshapes the market structure
The three major investment banks on Wall Street (JP Morgan Chase, UBS and Goldman Sachs) announced that they would increase their Middle East business, planning to expand the size of employees in the region by 35% in the next two years. The investment diversification trend of the Middle East sovereign wealth fund (managed by US$4.9 trillion) has driven the flow of funds from US dollar assets to emerging markets. This structural change may weaken the safe-haven attributes of the US dollar and form long-term benefits for currencies such as the euro and the RMB.
2. Negative news
1. The European Central Bank’s dovish position suppresses the euro
In its strategic assessment in May, the European Central Bank clearly continued its radical easing policy, maintained the negative interest rate and quantitative easing (QE) framework, and only made "slight modifications" to the 2021 policy documents. Although the final value of the euro zone CPI in April rose 2.2% year-on-year and core inflation reached 2.7%, the central bank still emphasized weak economic growth (the GDP growth rate is expected to be only 0.9% in 2025), and it needs to rely on loose policy support. Affected by this, the euro and the US dollar exchange rate fell under pressure and fell below the 1.08 mark during the session.
2. The US consumer confidence index hit a three-year low
The initial value of the University of Michigan's consumer confidence index fell to 50.8 in May, falling for the fifth consecutive month, the lowest level since June 2022. The survey shows that three-quarters of respondents spontaneously mentioned the impact of tariffs, and the uncertainty of the Trump administration's trade policy has become the main reason for the deterioration of confidence. This data reinforces market concerns about the US economy falling into stagflation, with the US dollar index falling 0.2% to 102.5 under pressure.
3. The escalation of geopolitical risks in the Middle East has triggered a demand for risk aversion
The humanitarian crisis in the Gaza Strip continues to ferment, with more than 90% of medical supplies exhausted inventory and aid trucks stranded on the border. At the same time, the Iranian Revolutionary Guards vowed to make a "destructive response" to Israel's "stupid behavior", and Yemen's Houthi forces once again attacked Israel's Ben-Gurion International Airport. Geological tensions boosted risk aversion, with the US dollar rising 0.4% to 138.5, and the gold price broke through $2,050 per ounce.
4. The Bank of England sent a signal to cut interest rates
The Bank of England's monetary policy meeting in May maintained the interest rate by 5.25% with 6:3 votes, but removed the wording of "interest rates may rise again" and suggested a rate cut may occur after inflation slows. Governor Bailey said at a press conference that "are considering lowering interest rates" and the market expects a rate cut in 2025 to advance to July. The dovish turn caused the pound to fall 0.5% against the dollar on the same day, and the UK's 10-year Treasury bond yield hit a three-month low.
III. Key Events and Data Preview
Federal officials' speech: Chicago Fed Chairman Goulsby (2025 FOMC vote xmserving.committee) will make a speech at 22:00 Beijing time, and the market is paying attention to its further statement on the path to rate cuts.
Eurozone April CPI final value: Data shows that it has increased by 2.2% year-on-year, and core inflation is 2.7%. It is necessary to observe whether the European Central Bank adjusts its policy expectations.
Progress in the situation in the Middle East: Pay attention to the progress of humanitarian aid in the Gaza Strip and the negotiations on the Iranian nuclear issue, and geopolitical risks may intensify market volatility.
Bank of Japan Policy Trends: Although no latest statement was issued, the core CPI rose 3.5% year-on-year in April, and we need to be wary of the possibility of the central bank interfering in the exchange rate.
4. Market outlook and strategic advice
The current foreign exchange market is in the game between policy expectations and geopolitical risks. Investors need to focus on the following directions:
U.S. USD: The expectation of interest rate cuts has formed negative news with weak economic data, but geopolitical risk aversion demand provides support, and may maintain the 102-103 range in the short term.
Euro: The European Central Bank's dovish position suppresses the exchange rate. If the euro falls below 1.08 against the US dollar, it may fall below 1.07 key support.
GBP: The positive news brought by the rebound of the PMI in the service industry may be offset by the expectation of interest rate cuts. Pay attention to the breakthrough direction of the 1.25-1.27 range.
Renminbi: Easing tariffs between China and the United States and the restoration of the domestic economy provide support, and the short-term volatility range is expected to be between 7.15 and 7.25.
Investors are advised to adopt the "light position, diversification, and hedging" strategy, use the fluctuations of currency pairs such as Euro/USD, GBP/USD for arbitrage, and at the same time allocate safe-haven assets such as gold and yen to deal with geopolitical risks.
The above content is all about "【XM Foreign Exchange Decision Analysis】: Collection of Positive and Negative News that Influence the Foreign Exchange Market". It was carefully xmserving.compiled and edited by the XM Foreign Exchange editor. I hope it will be helpful to your trading! Thanks for the support!
Due to the author's limited ability and time constraints, some content in the article still needs to be discussed and studied in depth. Therefore, in the future, the author will conduct extended research and discussion on the following issues:
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