Collinson FX: May 22: USD weakness has ripple effect on UK and Europe
by Collinson FX 22 May 01:47 BST
20 May 2025
NZ Nationals - RS Feva - Murrays Bay - May 11-12, 2025 © Justin Mitchell
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May 22: Moody's downgrade has ripple effect for others
The weakness of the US Dollar remains the centre theme surrounding markets, allowing further gains in the EUR and the GBP. The EUR topped 1.1300, while the GBP broke back above 1.3400. The US Dollar weakness is a result of concerns surrounding the US economy and US growth. Moody’s downgraded the US credit rating and economic data has been weak.
The RBA rate cut hammered the AUD, which crashed below 0.6400, following the 25-basis point rate cut on Tuesday. The overall weakness in the reserve currency has allowed a recovery in the AUD, jumping back above 0.6450. The NZD has consolidated above 0.5900, ahead of the budget, but these are no longer market movers.
May 21: USA downgraded
US equity markets tracked lower, with the Moody’s downgrade being digested, along with market sentiment.
The US Dollar tread water, with the EUR trading just above 1.1250, while the GBP held 1.3350. Canadian inflation was hotter than expected, coming in at 2.5%, up from 2.2%. The US will not want to see a repeat of this when their next inflation measures are released.
Both the RBA (Reserve Bank of Australia) and the Bank of China elected to cut rates, to counter any impact from Trump tariffs. The RBA has held back from rate cuts, due to the Federal Election, but proceeded as expected this time.
The impact was immediate, with the AUD falling back below 0.6400, while there remains a premium with margins. The NZD Dollar continues to battle to hold 0.5900.
May 20: "Brexit Reset" signed ahead of G7 meeting.
The big news overnight was a reset in relations between the UK and the EU.
A new agreement was signed ahead of the big G7 meeting starting tomorrow. The news of closer relations between the UK and Europe may shock many, considering the people voted to leave the EU, in a binding referendum.
The EUR and the GBP rallied on the news, with the GBP moving back towards 1.3400, while the EUR rose above 1.1250. Bond yields did reflect some caution, with UK Gilts yields jumping, following the news.
The weaker reserve allowed the commodity currencies to reverse recent losses, with the AUD looking to regain 0.6450, while the NZD pushed back to 0.5900.
The RBNZ inflation report, showed inflationary pressures may be on the rise again, and this was confirmed with a jump in the NZ PPI numbers released. Attention now turns to interest rate decisions from the RBA and PBoC.
Collinson FX: May 19: Tariffs depress US inflation
Markets rallied into the close of the previous week, buoyed by positive sentiment and growing confidence.
Trump has secured two major trade deals and completed the most successful of official visit to the Middle East, securing Trillions of US$$ investment, into the USA. This coming week will be highlighted by trade data including growth and inflation, while the PBoC and the RBA release their latest interest rate decisions. Over and above this, there will be fireworks on the Geo-Political front.
The US Dollar regained some ground to close out the week, with the EUR drifting back towards 1.1150, while the GBP slipped back below 1.3300.Commodity currencies have been under pressure in the last week, with the AUD looking to surrender 0.6400, while the NZD ended their battle with 0.5900. The weakness in these trade dependent currencies is enhanced by their lack of a trade agreement with the USA.
This coming week will be highlighted by the RBA latest monetary policy decision, and they are expected to resume interest rate cuts. Interest rates remain at a premium, in Australia, as the re-elected Government rearrange the deck chairs.
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