XAU/USD – Daily Chart
Forex Signals Brief May 16: Inflation Eases Sparking Fed Cut Bets, Gold Price Soars
Markets responded to a wave of data with diverging moves across bonds, currencies, commodities, and crypto, as soft U.S. PPI inflation boost
Skerdian Meta•Friday, May 16, 2025•2 min read
Quick overview
- Markets reacted to mixed economic data, with softer U.S. PPI inflation raising expectations for Federal Reserve rate cuts.
- The U.S. dollar strengthened despite falling yields, indicating a disconnect between currency movements and bond market behavior.
- The Canadian dollar gained due to rising oil prices, while gold prices experienced significant volatility amid shifting risk appetites.
- Bitcoin surged above $103,850, driven by positive sentiment regarding trade relations, contrasting with gold's recent decline.
Markets responded to a wave of data with diverging moves across bonds, currencies, commodities, and crypto, as soft U.S. PPI inflation boosted rate cut hopes and investor sentiment tilted cautiously toward risk.
Mixed Signals from Economic Data Spark Market Movements
Markets processed a heavy dose of economic data, with most figures landing close to expectations. However, Producer Price Index (PPI) surprised on the softer side, prompting a modest increase in expectations for Federal Reserve rate cuts, particularly for longer-dated timelines. This softer inflation read helped bond markets rally, with yields dropping by 7 to 11 basis points across the curve.
Dollar Moves Defy Yield Trends
Despite falling yields, the U.S. dollar strengthened, reflecting a growing divergence between bond market behavior and currency movements. Analysts suggest this decoupling signals growing concern that U.S. fiscal policy is increasingly disconnected from economic fundamentals. In contrast, on days when yields rise, the dollar has weakened—an inverse response that adds complexity to the current macro outlook.
Consumer Spending and Retail Insights
U.S. retail sales offered a small dose of optimism, especially in the bars and restaurants segment—typically one of the first areas to weaken in downturns. However, Walmart’s warning on accelerating prices served as a reminder that inflationary pressures remain, potentially keeping the Fed on alert despite recent soft data.
Oil Boosts Canadian Dollar; Commodities Stabilize
The Canadian dollar outperformed among North American currencies, driven by a recovery in oil and commodities prices. Oil saw gains after Iran denied receiving a deal proposal from the U.S., calming geopolitical fears and stabilizing energy markets. While the risk backdrop improved, similar support wasn’t evident for other commodity-linked currencies.
Last week, markets were slower than what we’ve seen in recent months, with gold retreating as a result, the EUR/USD falling below 1.11, and stock markets continuing upward. The moves weren’t too big, but we opened 37 trading signals in total, finishing the week with 25 winning signals and 12 losing ones.
Gold’s Rollercoaster and Safe-Haven Sentiment
Gold prices have shown significant volatility. After dropping to $3,120, prices rebounded sharply during European trading, ending the day nearly $120 higher. The precious metal had peaked near $3,500 in April, but has since lost ground amid rising appetite for risk assets and new geopolitical developments like the US-UK trade deal. Despite the recent bounce, analysts suggest gold’s dip reflects underlying market caution, masked by short-term risk appetite.
USD/JPY Rejected by the 200 Daily SMA
In forex, USD/JPY continued higher, reaching 146.00, after surpassing the 140.00 mark. Despite occasional pullbacks, the yen remains structurally weak, with the rally peaking near the 200-day moving average (148.50) before profit-taking kicked in. The retracement has attracted buyers eager to test upside momentum again.
USD/JPY – Weekly Chart
Cryptocurrency Update
Bitcoin Consolidates Above $100,000
Meanwhile, Bitcoin surged 6%, breaking above $103,850—its highest since February. Positive sentiment was driven by renewed hope in US-UK trade ties and easing concerns in US-China relations, contrasting sharply with gold’s recent weakness.
BTC/USD – Weekly chart
Ethereum Tests MAs after Rebound Following Pectra Upgrade
Ethereum has also rebounded significantly after bottoming out at $1,475 in April. The launch of the Pectra update—which enhances wallet and staking features—has driven a nearly 20% rally, lifting ETH above $2,200 and further reinforcing the ongoing crypto recovery.
ETH/USD – Weekly Chart
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ABOUT THE AUTHOR
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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst.
Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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