Daily Analysis 07/05/2025

• GBP/USD Price: The pair gives up part of its weekly gains during the European session, slipping back toward 1.3400 as profit-taking and cautious sentiment weigh on Sterling despite recent strength.
• US-UK Trade Talks: Negotiations show headway on reducing tariff quotas for UK steel and automobiles, though timeline uncertainty continues to limit upside for the pound, keeping traders defensive.
• US Data: The US ISM Services PMI rose to 51.6 in April, up from 50.8 in March, signaling resilience in the US services sector and supporting the US Dollar's safe-haven appeal.
• Fed News: Despite calls from markets and the Trump administration to lower interest rates, the Fed remains hesitant to shift policy without clear economic justification, creating mixed signals for USD positioning.
• BoE Rates: The Bank of England is widely anticipated to trim rates by 25 basis points, with an overwhelming 9–1 vote likely. This would mark the fourth cut since August, reflecting ongoing domestic economic caution.

Closing statement: GBP/USD is under pressure from both hawkish US data and dovish UK policy expectations. With trade talks lacking a concrete outcome and central bank divergence looming, the pair may continue to test downside levels, especially if the BoE delivers a rate cut as anticipated.

• XAU/USD Price: Gold (XAU/USD) bounces modestly from Asian session lows near $3,360, yet maintains a subdued tone as improving risk sentiment keeps demand for safe-havens in check.
• China-US Diplomacy: China confirmed Vice Premier He Lifeng will meet US officials in Switzerland from May 9–12, a development perceived as positive for geopolitical stability, reducing safe-haven bids for gold.
• Ukraine News: A Kremlin spokesman says Russia will stick to its plans for a unilaterally imposed ceasefire between 8 and 11 May but warned that an appropriate response will be given immediately if Ukraine does not also halt the fire.
• Gaza News: Israel's security Cabinet unanimously approved a plan to widen the military offensive in Gaza. The plan involves the Israel Defense Forces (IDF) invading and gradually seizing control of Gaza territory.
• Fed Decision: Markets await the Federal Reserve’s policy decision on Wednesday, with attention on Chair Powell’s tone and guidance for the rate-cut trajectory, which could significantly impact USD strength and gold pricing.

Closing statement: Gold is caught between diminishing geopolitical risk premium and uncertainty surrounding the Fed’s rate outlook. Price action remains tentative near $3,360, and any dovish tilt from the Fed could reignite bullish momentum, while hawkish signals may reinforce downside risks.

• Crude Oil Price: WTI prices gain positive traction on Wednesday, rising to a one-week high during the European session as buyers return amid improved global sentiment and demand expectations.
• US-China Trade Talks: Market mood is lifted by the announcement that US-China trade negotiations will resume this weekend, easing concerns over a global slowdown and boosting hopes for stronger energy demand.
• India Strikes: Tensions escalate between India and Pakistan, following India’s “Operation Sindoor”. This sharp military action could introduce supply disruption risks, adding a geopolitical premium to oil prices.
• Xi Jinping: President Xi’s comments on maintaining the post-war international order and tight China-Russia ties highlight a shifting geopolitical backdrop, with possible implications for trade flows and oil alliances.
• China Demand Optimism: Expectations for improving fuel demand in China support oil prices, but gains remain capped as the market continues to digest OPEC+’s decision to accelerate production increases, raising oversupply fears.

Closing statement: Crude oil is buoyed by trade optimism and China demand hopes, with geopolitical tensions in South Asia further supporting the upside. However, the OPEC+ output expansion poses a persistent cap on price rallies, leaving the market in a fragile balance between demand recovery and supply pressure.

• DAX Price: The DAX Index fell 0.41% to 23,250 on May 6, snapping a nine-day rally that had brought it within touching distance of its all-time high of 23,476. The decline reflects investor profit-taking and election-related caution.
• Political Transition: Markets responded cautiously to the election of CDU’s Friedrich Merz as German Chancellor, his victory coming on the second attempt with 325 votes in the Bundestag. While seen as pro-business, uncertainty over policy implementation weighed on investor sentiment.
• Factory Orders: Positive momentum came from stronger-than-expected factory orders in March, which rose 3.6% MoM after stagnation in February. This improved the economic outlook for Germany’s industrial sector.
• BMW Outlook: BMW reaffirmed its 2025 outlook, signaling confidence that global vehicle import tariffs may ease starting July, which helped limit losses in the auto-heavy DAX.
• Corporate Earnings: Investor attention now turns to key earnings reports from Siemens Healthineers, BMW, and Vonovia on May 7. These results are expected to drive short-term volatility and provide further clarity on sectoral performance.

Closing statement: The DAX’s rally paused as political transitions and cautious positioning dampened risk appetite. Strong economic data and upcoming corporate earnings will be crucial in determining whether the index can resume its march toward new record highs.