DXY – Macro Outlook and Analysis
Tensions between the U.S. and the European Union have escalated following Trump’s latest proposal to impose a 50% tariff on all EU imports starting in July. Trump expressed dissatisfaction with the pace of ongoing negotiations covering taxation, regulatory frameworks, and trade policy, dramatically raising both economic and diplomatic stakes.
A core issue remains the trade imbalance—in 2024, the EU exported over $600 billion in goods to the U.S. while importing only $370 billion worth, according to U.S. government data. This protectionist move now threatens to undermine the recent global equity rally, which was driven by trade de-escalation progress with other key partners such as the UK and China. While EU officials have signalled a willingness to engage in dialogue, they emphasize that talks must be grounded in mutual respect, not threats. Brussels has also begun preparing for a more distant transatlantic economic relationship, if needed.
Meanwhile, Trump’s "One Big Beautiful Bill" narrowly passed the House of Representatives and is headed to the Senate. The bill combines elements of the 2017 Tax Cuts and Jobs Act, border security funding, Medicaid adjustments, and more. However, it is projected to add $3.8 trillion to the federal deficit over the next decade, exacerbating the existing $37 trillion U.S. national debt. If passed, this could prompt increased Treasury issuance, and a decline in investor confidence could lead to rising yields. As of May 25, the U.S. 30-year Treasury yield stands at 5.035%, its highest since October 2023.
In a separate development, Harvard’s international student population is facing policy uncertainty under the Trump administration, with approximately 6,800 students and $34 billion in economic value at stake. Although a federal judge has temporarily blocked the policy, the uncertainty could deter future international enrolment, benefiting universities in China and East Asia, and weakening the U.S.’s appeal as a top educational destination and foreign investment hub.
On the economic data front, Flash Manufacturing and Services PMIs both came in strong at 52.3, exceeding expectations. These readings reflect improved business sentiment, bolstered by the pause in further tariff escalation and marginal easing in trade tensions.
As of May 25, the DXY is trading at 99.104, having failed to sustain momentum above the RSI 50 mark—now falling to 38.88, indicating bearish pressure. Key resistance levels are seen at:100.000 (psychological barrier), 99.950 (200-day SMA), 100.510 (0.50 Fibonacci retracement). Support is found at: 98.736 (100-month SMA) and 98.370.
Looking ahead, market attention will turn to several high-impact releases: Preliminary GDP q/q (May 29), Unemployment Claims (May 29), Core PCE Price Index m/m (May 30). These releases will offer insight into consumer spending trends and whether tariffs are beginning to filter through to broader economic activity.
Outlook: We maintain a bearish bias on the U.S. dollar in the medium term. Rising fiscal deficits, the risk of new tariffs with the EU, inflationary effects from trade policies, and persistent macro uncertainty continue to undermine investor confidence. Until clearer direction emerges regarding fiscal and trade strategies, the USD’s position as a reserve currency remains vulnerable.
GBP/USD – Weekly Outlook and Analysis
The latest UK inflation data surprised to the upside, with headline CPI rising to 3.5% in April, above the forecasted 3.3%, primarily due to a spike in household energy bills. Core CPI also came in strong at 3.8%, underscoring persistent underlying inflationary pressures. In response, the Bank of England (BoE) reaffirmed its stance that any future interest rate cuts will be “gradual and careful,” reflecting its cautious approach in the face of sticky inflation.
Adding to the positive sentiment, UK retail sales rose 1.2% month-on-month, beating expectations. While part of the rise may be attributed to favourable weather conditions, when combined with the strong CPI print, the data reinforces investor confidence in the resilience of the UK economy.
As of May 25, GBP/USD is trading at 1.35374, continuing its upward trend. On the technical front, the RSI remains above 50 and is approaching overbought territory near 70, suggesting bullish momentum may be nearing exhaustion. Resistance levels are seen at 1.36320 and 1.37340, while support lies at 1.34860 and 1.34548.
The week ahead is relatively quiet for the pound, with the main event being BoE Governor Bailey’s speech on May 30, which may provide additional insights into the BoE’s economic outlook and policy trajectory.
Outlook: We maintain a neutral stance on GBP/USD. While recent economic data reflects a modestly improved UK outlook, several risks persist—including rising business costs, the impact of U.S. trade policy, and slowing economic momentum in the second half of 2025. Nonetheless, continued softness in the U.S. dollar may help offset these headwinds and support the pound in the near term.
USD/JPY – Weekly Outlook and Analysis
Japan’s latest inflation data surprised to the upside, with headline CPI rising to 3.5%, the highest level in over two years. A significant portion of this increase was driven by a 98.6% surge in rice prices, highlighting the persistent impact of food inflation. This presents a growing challenge for the Bank of Japan (BoJ), which must balance imported inflation pressures—exacerbated by Trump’s tariff threats—with broader economic uncertainties.
Despite previous signals from the BoJ that it is prepared to raise interest rates further, analysts now expect the central bank to hold rates steady through September, with only a modest chance of a hike by year-end. Sticky inflation and fragile domestic growth continue to delay policy normalization, even as inflation remains above the BoJ’s 2% target.
Meanwhile, the 30-year Japanese Government Bond (JGB) yield has risen steadily, reaching 3.074% as of May 25. This climb is narrowing the yield differential with the U.S. 30-year Treasury, thereby increasing demand for the yen. The rise in domestic yields could also trigger unwinding of the yen carry trade, as Japanese investors repatriate funds, reducing exposure to foreign assets like U.S. Treasuries and equities.
Additionally, the U.S. proposal to impose a 50% tariff on EU imports has added to global risk aversion, further supporting the yen’s safe-haven appeal.
As of this writing, USD/JPY is trading at 142.548. On the technical front, the RSI is below 50, indicating a bearish bias. Key resistance levels are located at 144.000 and 145.240, while support can be found at 140.480 and 138.900.
The week ahead is relatively quiet for the yen, with the main focus on Tokyo CPI y/y (May 30). This data release will help gauge the extent to which tariffs and cost pressures are continuing to influence Japan’s consumer prices.
Outlook: We maintain a bearish bias on USD/JPY. The yen retains upside potential due to the BoJ’s scope for further gradual tightening, particularly if inflation continues to surprise to the upside. Meanwhile, expectations of Fed easing and declining U.S. yields may continue to place downward pressure on the dollar. Rising Japanese bond yields and broader risk aversion could reinforce demand for the yen in the near term.
USD/CAD – Weekly Outlook and Analysis
Canada's latest inflation data came in hotter than expected, with median CPI at 3.2% and trimmed mean CPI at 3.1%, both well above the Bank of Canada's (BoC) 2% target. In response, markets have reduced the probability of a June rate cut to 28%, down from 65%. This places the BoC in a difficult position, as it must balance inflation control with supporting economic growth amid ongoing global trade uncertainties.
Adding to the hawkish case, retail sales rose by 0.8%, surpassing expectations, primarily driven by strong performance in motor vehicles and parts dealers. Core retail sales also increased by 0.2%. This robust consumer spending data may reinforce the likelihood that the BoC will hold interest rates steady in the near term.
As of May 25, USD/CAD is trading at 1.37242. The Relative Strength Index (RSI) is currently below 50, indicating a bearish momentum, and approaching oversold territory. Key resistance is located at 1.37334, while support is found at 1.36120.
Looking ahead, the key economic release this week will be Canada’s monthly GDP (May 30), which will provide important insights into the country’s economic resilience amid trade tensions and inflationary pressure.
Outlook: We maintain a slightly bullish bias on the Canadian dollar in the near term. Stronger-than-expected inflation and retail sales figures may encourage the BoC to maintain its current policy stance into the June meeting. Additionally, escalating U.S.–EU trade tensions could further weaken the USD, providing additional support for the loonie and putting downward pressure on the USD/CAD pair.
Forecasts for the near term
Currency Pair | Jun 30 | Jul 30 |
GBP/USD | 1.33900 | 1.34500 |
USD/JPY | 144.050 | 143.120 |
USD/CAD | 1.38930 | 1.38390 |
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