Forex markets start the day uneasy as geopolitical sparring and mixed economic signals swirl. President Trump’s surprise meeting with Fed Chair Powell – in which he reportedly told Powell it was a “mistake” not to cut rates – added political noise, even as Fed officials stress that policy hinges on incoming data and the direction of U.S. tariffs. On the data front, U.S. consumers slowed further: April personal spending rose just 0.2% (vs 0.7% expected), while core PCE inflation eased, underscoring a cautious Fed backdrop. In Europe, risk sentiment got a lift when a U.S. appeals court struck down proposed EU tariffs, pushing EUR/USD to a one-month high. In Asia-Pacific, New Zealand trimmed rates 25bp to 3.25% as expected, and Canada’s BoC – after 225bp of cuts to 2.75% – held fire amid tariff-related uncertainty; oil slid to two-week lows on rising U.S. inventories, lending support to commodity-linked currencies. Traders are now braced for next week’s big U.S. jobs and inflation reports amid this murky mix of policy shifts and political shocks.
EUR/USD
Markets went haywire after U.S. inflation data hit. The euro fell off a cliff when Core PCE inflation surprised higher (0.1% vs 0.0% forecast), even as year-on-year PCE eased to 2.2%. EUR/USD plunged from ~1.1340 into the mid-1.12s within minutes, reflecting traders’ panic. Strong U.S. data – including a Chicago PMI of 45.1 (up from 44.6) – fueled the greenback’s rebound. Commentators linked the swoon to Washington’s inflation debate and Fed chatter, noting Powell’s insistence that policy depends “entirely” on incoming data; amid tariff squabbles and looming elections, any quick Fed pivot looks doubtful.
NZD/USD
NZD/USD was not spared by the USD bombshell. The kiwi sank sharply after New York open as traders digested the hot PCE print. By mid-morning the pair had slid into the 0.5940s. Markets blamed the rout on renewed U.S. inflation jitters – Michigan consumers now project ~7.3% price growth over the next year – which bolstered the dollar. With Washington gridlock and Fed hawkish whispers, even a modest NZD bounce quickly fizzled.
USD/CAD
The loonie got shellacked as the greenback exploded after U.S. inflation data. USD/CAD jumped from around 1.2750 to ~1.2820 after the Core PCE shock and sticky inflation expectations lifted the dollar. Canada’s market was quiet ahead of GDP data, so the loonie had no guard – even oil prices dipped on global slowdown fears, removing support from CAD. Fed Chair Powell’s data-driven mantra seemed prescient as traders bet on higher-for-longer rates. The chart shows USD/CAD ripping higher on the news; traders will now eye next week’s U.S. GDP and Fed speakers for clues on whether the dollar rally has legs.
Market Outlook
Traders will watch upcoming Fed speeches (Powell, Bostic) and U.S. Q2 GDP forecasts closely, as well as global inflation reads (like German CPI) for signs of persistence in price pressures. With politics and central-bank policy both in focus, any hint of a U.S. fiscal or trade surprise could send volatility soaring in currency markets.