Rising Yields Reflect Mounting Fiscal Pressure

Stocks and Dollar Decline on Policy Volatility

Tariff Tensions Add to Market Strain

Fed Outlook Moderates, but Cuts Still Expected

Global Headwinds Deepen Market Unease

Commodities Reflect Diverging Economic Signals

Source: Reuters

Panel Approval Advances Trump’s Ambitious Fiscal Agenda

Credit Downgrade and Fiscal Risks Stir Market Anxiety

Medicaid and Social Spending at the Center of Intra-Party Conflict

Ideological Divide Over Fiscal Responsibility and Growth Strategy

Legislative Momentum Amid Fiscal and Political Uncertainty

Source: Reuters

Comprehensive Agreement Signals Strategic Shift in EU-UK Relations

A Reset Driven by Mutual Strategic and Economic Interests

Youth Mobility and Fisheries: Symbols of Reconciliation

Diplomatic Tone Suggests Renewed Trust

Source: Reuters

Euro-area inflation will fall below the European Central Bank’s target next year because of fallout from US trade policies, according to the European Commission.

Consumer-price growth will slow to the 2% goal by the middle of this year and average only 1.7% in 2026, the EU’s executive arm said in its spring forecast released on Monday. Downward pressures including lower energy costs, the diversion of Chinese goods and a stronger euro are having a “clearly negative” impact, the commission said.

Economic expansion is seen picking up to 1.4% next year from 0.9% in 2025, a slightly more optimistic view compared to the last ECB forecast in March and the International Monetary Fund’s global outlook in April. Brussels officials see uncertainty weighing on domestic demand, but labor markets staying robust.

“Inflation is declining faster than previously forecast and is on track to reach the 2% target this year,” European Economy Commissioner Valdis Dombrovskis said. “But we cannot be complacent. The risks to the outlook remain tilted to the downside, so the EU must take decisive action to boost our competitiveness.”

The ECB will present its own set of quarterly forecasts alongside its next rate decision on June 5. Investors are expecting another reduction in borrowing costs, with many policymakers sharing the view that US tariffs will put downward pressure on prices.

Uncertainty about how policies evolve is high. Most euro-zone exports to America are subject to a 10% tariff during a 90-day negotiation period. The EU is seeking to secure favorable terms in these talks, but it has also prepared a list of products to hit with counter-levies should discussions fail.

The EU’s forecasts assume that US tariffs remain at 10%, with higher duties on some products and exemptions on others, and used a cut-off date of April 30 for other inputs. Some de-escalation between the US and China was expected, but with duties remaining at a higher level than what was announced on May 12.

The two nations agreed to temporarily slash tariffs to allow for talks after previously raising them to prohibitive levels. The tensions have raised the threat that a large amount of Chinese products get rerouted to the euro zone, intensifying competition and driving down prices.

“Given the magnitude of these flows, this is set to markedly increase competitive pressures in consumer goods markets across the EU,” the commission said. Together with the appreciation of the euro, this should push goods inflation down to close to 0% in the euro area, it said.

Services costs have remained more elevated, mostly due to robust wage growth. It’s expected to slow “only gradually” to 2.5% toward the end of 2026.

The situation presents a challenge to the ECB, which has to weigh the disinflationary impacts from tariffs in the short term against the longer-term effect from disrupted supply chains and higher fiscal spending in Europe. Many policymakers are wary of taking interests much lower and into territory where they’d boost economic activity.

When the ECB presents new forecasts next month, it will produce different scenarios to capture various possible trajectories on how US tariff policy will evolve.

Germany, the region’s biggest economy, won’t see any economic growth this year before rebounding to a 1.1% pace in 2026, the forecasts show. Austria is the only country in the EU predicted to suffer a contraction in 2025.

The commission expects the euro zone’s collective debt burden to rise to 91% of gross domestic product next year from 89% in 2024. That doesn’t include some of the higher defense spending made possible by a relaxation of the bloc’s fiscal rules because the national plans weren’t concrete enough.

Source: Bloomberg Europe

The USD/JPY pair declined for a fifth consecutive day, touching 145.25, as the US dollar faced sustained pressure following Moody’s decision to downgrade the US credit rating.

Key drivers affecting USD/JPY

On Friday, Moody’s cut the US credit rating from Aaa to Aa1, citing a deteriorating fiscal outlook and a lack of “effective measures” to curb the widening budget deficit.

Meanwhile, domestic data revealed that Japan’s economy contracted in Q1 2025, shrinking by 0.2% month-on-month and 0.7% year-on-year, falling short of expectations in both cases. This marks the first economic contraction of the year, driven primarily by a decline in exports.

Investors are now closely monitoring Japan’s trade figures, particularly as the potential impact of new US tariffs looms.

In a recent statement, Prime Minister Shigeru Ishiba stressed that Japan would not accept an unconditional preliminary trade deal, especially concerning automobiles. The country remains wary of a potential 25% US tariff on Japanese car imports. While Japanese diplomats are keen to finalise a trade agreement with the US swiftly, they acknowledge that the outcome is not entirely within their control.

Technical analysis: USD/JPY

On the H4 chart, USD/JPY has corrected to 146.04, with the fifth wave of decline now in motion. The immediate downside target is 143.50, with further downward momentum expected today. Once this target is achieved, a potential rebound towards 146.04 may follow. This scenario is supported by the MACD indicator, where the signal line remains below zero and points firmly downward.

On the H1 chart, the pair consolidated around 146.04 before breaking downward. The current focus is on completing the fifth decline wave towards 143.50. So far, the pair has reached 144.80, followed by a minor correction to 145.30. The next expected move is a further drop to 144.15, with an eventual extension towards 143.50. This outlook is reinforced by the Stochastic oscillator, where the signal line has dipped below 80 and is trending sharply downward towards 20.

Conclusion

The US dollar’s weakness, exacerbated by Moody’s downgrade, continues to drive USD/JPY lower, while Japan’s economic contraction adds further complexity. Traders should monitor trade developments and technical levels for near-term direction.

Source: ACTIONFOREX

Thailand and Indonesia pledged to boost trade and investment and cooperate on cyber scam and drug trafficking crackdowns, as Southeast Asia’s two biggest economies elevated ties to a strategic partnership.

Thailand will host the two countries’ first joint trade committee meeting later this year to explore ways to strengthen economic cooperation, Prime Minister Paetongtarn Shinawatra said during a joint news conference in Bangkok on Monday alongside Indonesian President Prabowo Subianto.

Both countries will explore possible deals through their respective investment institutions, including Indonesia’s newly established wealth fund Danantara, Prabowo said. Indonesia will also open up opportunities for Thai companies to invest in its energy sector and potentially form joint ventures in food management and storage, he said.

Thailand and Indonesia, which have a total trade worth $18 billion, will work to strengthen the 10-member Association of Southeast Asian Nations and push for more economic integration within the bloc to unite against the backdrop of global geopolitical and economic uncertainties, the Thai leader said. The two countries will also work with Malaysia, which is this year’s Asean chair, to bring peace to civil war-torn Myanmar.

Paetongtarn and Prabowo, who was in Bangkok for his first official visit, also said the two countries will cooperate on the defense industry and military exercises, and increase maritime and law enforcement collaboration.

The two leaders welcomed new flight routes connecting more Thai and Indonesian cities, including Bangkok-Surabaya and Bangkok-Medan. They also pledged to exchange official visits more frequently in the future.

Source: Bloomberg Europe