Turning Point for Energy Markets (25-29 May)

Financial markets started the week with a more constructive tone as optimism surrounding a potential US-Iran agreement fueled expectations of a reopening of the Strait of Hormuz.

The prospect of smoother energy flows pushed oil prices sharply lower, easing inflation concerns and reducing pressure on central banks to tighten policy further.

The shift weighed on the US dollar while supporting the euro, yen, gold, and silver. Treasury yields moved lower, reflecting reduced inflation fears, while technology stocks extended their strong run. Economic data painted a mixed picture, with Japan’s GDP exceeding forecasts, Germany posting strong growth, and UK inflation continuing to cool despite lingering weakness in retail spending and public finances.

Currencies

Dollar Index: The dollar index slipped toward 99, pulling back from six-week highs as hopes for a US-Iran agreement and a potential reopening of the Strait of Hormuz reduced inflation concerns. Attention now turns to the upcoming PCE inflation report, while US markets remain quiet due to a public holiday.

Euro: EUR/USD opened the week higher, supported by reduced demand for the dollar as optimism surrounding US-Iran negotiations improved sentiment. The pair climbed back into the mid-1.1600 range but remains close to last week's low of 1.1575, the weakest level since April 7.

British Pound: Sterling held above $1.34 despite disappointing UK data. Retail sales fell 1.3% in April, well below expectations, while the budget deficit widened to £24.3 billion, the largest April shortfall since 2020. Softer inflation, weaker labour market conditions, and contracting PMIs reduced expectations for further Bank of England tightening.

Japanese Yen: The yen strengthened beyond 159 per dollar as lower oil prices and a softer dollar supported demand. Progress in US-Iran talks also improved the outlook for Asian energy importers. Japan’s core inflation slowed to a four-year low, easing pressure on the Bank of Japan, though policymakers continue to leave the door open for future rate increases.

Commodities

Hope Returns to the Gold Market

Gold climbed toward $4,600 an ounce, recovering part of last week’s losses as hopes for a US-Iran agreement eased concerns about inflation and additional rate hikes. Despite the rebound, prices remain roughly 13% below pre-conflict levels.

The Pressure Builds on Crude

Brent crude dropped toward $98 per barrel, extending last week’s decline as progress in US-Iran negotiations raised expectations for smoother oil flows through the Strait of Hormuz. The route carries around one-fifth of global oil and LNG shipments, making any reopening significant for energy markets.

Fresh Buying Returns to Silver

Silver advanced toward $78 an ounce, supported by the same improvement in sentiment that lifted gold. The metal remains around 17% below levels seen before the conflict despite the recent recovery.

Fixed Income

US 10 Year Treasury Note Yield: The US 10-year Treasury yield fell to 4.56%, its lowest level in a week, as lower oil prices reduced immediate inflation concerns. Oil remains around 50% above pre-conflict levels; however, maintaining pressure on central banks. FOMC minutes showed most policymakers remain open to additional rate increases if inflation fails to return to the 2% target. Markets continue to price in a 25-basis-point hike by year-end. Treasury trading is closed on Monday for the public holiday.
UK 10 Year Bond Yield: UK 10-year yields declined toward 4.9%, heading for their largest weekly drop since 2024. Weak retail sales, softer inflation, slowing labour-market conditions, and contracting PMIs encouraged traders to scale back expectations for further Bank of England tightening. The budget deficit widened to £24.3 billion, while developments in US-Iran negotiations remained another source of uncertainty.
Japan 10 Year Government Bond Yield: Japan’s 10-year yield eased to around 2.71%, retreating from 30-year highs as falling oil prices reduced inflation pressure. April core inflation slowed to its weakest pace in four years, easing near-term pressure on the Bank of Japan. Prime Minister Takaichi reportedly expressed openness to additional fiscal support measures to offset higher energy costs.
Germany 10-Year Bond Yield: Germany’s 10-year Bund yield edged down to 2.99%, falling 4 basis points from the previous session. The yield is down 5 basis points over the past month but remains 43 basis points above its level a year ago.

Economic Data

Japanese GDP (Q1)

Japan’s economy expanded 0.5% in the first quarter, exceeding expectations of 0.4% and accelerating from 0.2% growth in the previous quarter, highlighting continued economic resilience.

UK CPI (YoY) (Apr)

UK inflation slowed to 2.8% year-on-year in April from 3.3% in March, below the 3.0% forecast and marking the lowest reading in more than a year. Core inflation eased to 2.5%, its lowest level since July 2021, while services inflation fell to 3.2%, the weakest since January 2022. Food inflation also slowed to 3.0%. Lower housing and household service costs largely drove the moderation following the introduction of an energy price cap.

Despite the softer figures, expectations for rate cuts remain limited as the Iran conflict continues to affect global supply chains and energy prices.

German GDP (QoQ) (Q1)

Germany’s economy grew 0.3% quarter-on-quarter in Q1, exceeding expectations and improving from a revised 0.2% expansion in Q4. Exports rose 3.3%, led by chemicals, pharmaceuticals, and metals, while both private and government consumption increased. Annual GDP growth reached 0.5%. Most service sectors expanded, though construction output fell 4.4%. Employment declined by around 157,000 compared with a year earlier.

Latest Analysis

Japan’s Bond Market Draws Fresh Attention

While much of the market remains focused on artificial intelligence and elevated US equity valuations, some analysts believe a larger macro risk may be developing in Japan. Market strategist Albert Edwards argues that Japan’s bond market deserves closer attention as rising yields, persistent yen weakness, and changing monetary policy begin to challenge the country’s long-standing financial framework.

Detail

Warsh Unveils Fed Task Forces (10.07.2026)

The euro stabilized and held onto its previous gains as investors weighed the possibility of a September ECB interest rate hike against cooling Eurozone inflation data. However, the currency faced persistent overhead pressure from defensive safe-haven dollar demand, which was driven by Donald Trump ending the Iran ceasefire, hawkish Federal Reserve commentary, and elevated global crude oil prices.

Detail

Fed Minutes Highlight Inflation Risk Again

The minutes from Federal Reserve Chairman Kevin Warsh's first meeting showed that the Fed maintains a cautious stance regarding inflation risks. Federal Open Market Committee officials emphasized that although specific price pressures have registered recent declines, substantial additional evidence is required to confirm that inflation is sustainably returning to its target.

Detail