Daily Analysis 16/05/2025

• GBP/USD Price: The British Pound extended gains modestly on Friday, with the GBP/USD pair trading near 1.3320, as UK economic resilience reduced dovish expectations for the Bank of England. The move reflects renewed support for sterling amid shifting rate cut expectations.
• UK GDP: Stronger-than-expected UK GDP figures reinforced domestic economic strength, discouraging expectations of aggressive monetary policy easing by the BoE. This boosted the Pound, as markets reassess the likelihood of further rate cuts.
• US PPI: In the US, PPI inflation softened to 0.1% MoM, suggesting limited inflationary pressure from tariffs—for now.
• Jobless Claims: Initial Jobless Claims held steady at 229K, signaling a still-resilient labor market despite rising uncertainty.
• Fed Rate Cuts: Swap markets are now fully pricing in a 25 bps rate cut in September, with two more cuts expected by year-end. This outlook continues to weigh on the US Dollar, supporting cable (GBP/USD) as relative rate differentials shift.

Closing statement: With UK fundamentals improving and Fed policy expectations turning more accommodative, GBP/USD is positioned to retain a bullish bias in the near term. However, further gains toward 1.3350 and above will likely hinge on upcoming US data and Fed guidance.

• XAU/USD Price: After rebounding sharply from its lowest levels since April 10, XAU/USD failed to build further upside, hovering just above $3,120 in Friday’s session. Despite a supportive macro backdrop, momentum remains constrained, reflecting uncertainty around the broader risk environment.
• Russia-Ukraine Talks: Renewed negotiations in Istanbul mark the first direct peace talks in three years between Russia, Ukraine, and the US, but President Putin’s absence has dampened any near-term expectations for resolution. This keeps a geopolitical risk premium alive, offering mild support to gold as a safe-haven asset.
• Middle East Tensions: The Israeli military’s ongoing operations in Gaza have significantly heightened geopolitical tensions, with 143 Palestinian casualties reported in a single day. This elevated unrest helps maintain risk-averse flows toward gold, although gains are limited by profit-taking and consolidation pressure.
• US Retail Sales: April US Retail Sales rose only 0.1%, down from the prior month’s robust 1.7% rise. The soft print supports the view of a slowing US economy, reinforcing dovish Federal Reserve expectations and helping to anchor gold above recent lows.
• Key US Data: Markets await the University of Michigan’s Consumer Sentiment Index and key housing data (Building Permits, Housing Starts). Weak readings could reinforce recession fears and boost demand for gold, while upbeat surprises might pressure XAU/USD near-term.

Closing statement: Gold remains capped below key resistance near $3,240, as geopolitical tensions support but are counterbalanced by investor caution and technical hesitation. Safe-haven demand persists, but sustained upside likely requires clearer dovish cues from the Fed or sharper deterioration in sentiment.

• Crude Oil Price: West Texas Intermediate (WTI) crude oil prices are trading near $61.50 on Friday, as markets struggle to reconcile geopolitical optimism with supply-side concerns. The price action remains subdued, reflecting uncertainty over both demand recovery and inventory dynamics.
• Iran Signals: A senior adviser to Iran's Supreme Leader indicated Tehran may reenter a nuclear deal with the US if sanctions are lifted. This has moderated some geopolitical risk premiums, though markets remain cautious given the conditional nature of the proposal.
• US Sanctions: Senator Lindsey Graham’s proposal for tougher sanctions on Russia’s refining sector and on countries indirectly funding Russian energy purchases has resurfaced supply disruption concerns, partially offsetting bearish inventory data and supporting crude near current levels.
• Inventory Build: The EIA reported a 3.454 million barrel increase in US crude stocks for the week ending May 9, surprising markets and reinforcing fears of oversupply. This unexpected build is contributing to a downward drag on WTI despite external geopolitical support.
• Canada-Mexico: Talks between Canada’s PM Carney and Mexico’s President Sheinbaum emphasized the importance of energy cooperation and resilience. While not directly market-moving, these developments suggest longer-term policy shifts that may affect continental supply dynamics.

Closing statement: WTI remains range-bound near $61.50, caught between geopolitical developments and rising inventories. Sustained upside will likely require either a breakthrough in US-Iran talks or clear evidence of demand picking up, while persistent stock builds could cap gains or trigger a downside move below $60.

• DAX Price: The German DAX surged 0.72% on Thursday, recovering from the prior day’s decline to settle at a new all-time high of 23,527. The rally came amid upbeat US economic data that showed limited tariff impact, improving sentiment toward export-driven European equities.
• Wholesale Prices: German wholesale prices rose just 0.8% YoY in April, down from 1.3% in March. The moderation may signal weakening demand, potentially encouraging broader disinflation trends across the German economy—a supportive backdrop for the DAX if rate cut bets rise.
• Eurozone Trade Balance: Friday’s Eurozone trade figures are expected to show a wider surplus of €25 billion for March. While the data itself may support the eurozone outlook, US scrutiny—particularly from President Trump—could reignite transatlantic trade tensions, adding risk to DAX export-heavy constituents.
• Barclays outlook: Barclays has dropped its US recession call, now forecasting 0.5% GDP growth in 2025. This shift reflects improving global macro sentiment, which in turn buoys European equity markets like the DAX that are sensitive to global demand and trade dynamics.
• US Consumer Sentiment: Markets will watch the University of Michigan’s Consumer Sentiment Index, expected to tick up to 53.4 in May. A stronger-than-expected reading could further improve investor sentiment, providing an additional tailwind for equities like the DAX.

Closing statement: The DAX has broken to fresh highs, aided by easing inflation data, improving US economic sentiment, and resilient risk appetite. While trade policy uncertainty still looms, the path of least resistance for now remains upward, especially if upcoming data reinforces the soft-landing narrative.