Saudi Arabia, Kuwait Announce 'Highly Significant' Oil Discovery

Source: AP

Bank of America (BofA) FX strategists took note a continuation of the trend with investors selling the USD, particularly against the Australian Dollar (AUD) and Asian emerging market currencies, following the recent U.S.-China talks.

Over the past month, BofA noted that investors have been selling the USD, Japanese Yen (JPY), and Swedish Krona (SEK) in favor of Eastern Europe, Middle East, and Africa (EMEA) emerging market currencies, the Swiss Franc (CHF), and the Euro (EUR).

Analysts at BofA highlighted the potential for the USD sell-off to persist, especially among Real Money investors. They pointed out that it will be crucial to observe if officials continue to rebalance into the USD at the current strong rate.

In contrast to the USD, the JPY has faced downward pressure in recent weeks, attributed to Real Money investors. The shift in sentiment towards the JPY could be due to improved tariff sentiments, concerns over Japan’s fiscal health, and the Bank of Japan’s (BoJ) dovish stance, as outlined in the "Yen’s summer risk" report from May 14, 2025. BofA maintains a bearish outlook on the JPY, particularly against the EUR.

Conversely, the British Pound (GBP) has seen relatively bearish sentiment throughout the year. However, last week marked a change, with both Hedge Funds and Real Money investors returning to the GBP. This shift may be linked to optimism surrounding the UK-EU reset summit, a sentiment that BofA analysts share.

Source: Investing

Above: GBP/USD at daily intervals.

Above: GBP/EUR at daily intervals.

Source: Poundsterlinglive

The financial world is keeping a close eye on the US Dollar. Recent reports indicate the greenback is softening, a move linked significantly to growing concerns over the nation’s budget deficit. This trend isn’t happening in a vacuum; it’s part of a complex interplay of global economic factors. Understanding this dynamic is crucial, especially for those navigating the volatile world of cryptocurrencies, which often reacts to shifts in major fiat currencies like the dollar.

Why is the US Dollar Softening?

Several factors contribute to the current state of the Currency Market, but the spotlight is increasingly on the fiscal health of the United States. A large and persistent budget deficit can weigh on a currency for fundamental economic reasons.

• Increased Borrowing: To finance a deficit, the government issues more debt (Treasury bonds). A higher supply of debt can potentially reduce its appeal or require higher interest rates to attract buyers, impacting broader market sentiment.
• Inflation Concerns: Large deficits can sometimes fuel concerns about future inflation, as they might imply increased money supply or future debt monetization. Inflation erodes purchasing power, which can weaken a currency’s value over time.
• Reduced Foreign Investor Appetite: While US debt is generally considered safe, persistently large deficits can, in the long run, make some foreign investors hesitant, potentially decreasing demand for dollar-denominated assets.
• Comparison to Other Economies: The relative fiscal position of the US compared to other major economies also plays a role. If other countries appear to have stronger fiscal management, their currencies might become relatively more attractive.

Beyond the deficit, other elements influencing the US Dollar include the Federal Reserve’s monetary policy (interest rates, quantitative easing/tightening), global economic growth prospects, geopolitical stability, and market risk sentiment. When global risk appetite is high, investors might move away from safe-haven assets like the dollar towards riskier investments.

What Downside Risks Does ING Identify?

According to analysts at ING, the current softening of the dollar is not just a temporary blip. They point to specific factors suggesting that more downside risks remain for the currency.

ING’s perspective often considers macro-financial trends and how they interact. While the precise details of their latest analysis would be in their specific reports, the general arguments for continued dollar weakness often revolve around:

• Persistent Fiscal Challenges: The budget deficit is not a short-term issue. Ongoing government spending and revenue shortfalls create a structural headwind for the dollar. ING likely emphasizes that without concrete steps to address the deficit, the pressure will continue.
• Relative Monetary Policy: Expectations about when and how much the Federal Reserve might cut interest rates compared to other central banks can weaken the dollar. If the Fed is expected to ease policy more aggressively or sooner than others, it makes dollar-denominated assets less attractive for yield-seeking investors.
• Global Recovery or Stability: If other major economies show signs of strengthening or if global risks subside, the demand for the dollar as a safe haven decreases. ING might foresee scenarios where international economic conditions improve, reducing the dollar’s appeal.
• Technical Factors: Currency markets are also driven by technical analysis and market positioning. ING’s view could be influenced by technical indicators suggesting further downward momentum for the dollar.

These downside risks suggest that the path of least resistance for the dollar, in ING’s view, is downwards, at least in the near to medium term.

How Does This Impact the Forex Market?

The Forex market, or foreign exchange market, is where currencies are traded. It’s the largest and most liquid financial market globally. When the US Dollar softens, it has ripple effects across this massive market.

• Major Currency Pairs: Pairs like EUR/USD, GBP/USD, and AUD/USD tend to rise when the dollar weakens, as it takes more dollars to buy one unit of the other currency.
• Emerging Market Currencies: Many emerging market currencies are sensitive to dollar strength. A weaker dollar can provide relief to countries with dollar-denominated debt, making it cheaper to service. It can also potentially increase capital flows into these markets as the relative attractiveness of dollar assets diminishes.
• Commodities: Commodities like oil and gold are often priced in dollars. A weaker dollar makes these commodities relatively cheaper for buyers using other currencies, potentially increasing demand and prices.
• Global Trade: Exchange rates influence the cost of imports and exports, affecting trade balances between countries.

Traders and investors in the Forex market constantly analyze these factors, including reports from institutions like ING, to anticipate currency movements.

Actionable Insights for Navigating Currency Shifts

Given the current outlook and the warnings from institutions like ING, what steps can market participants consider?

Firstly, stay informed. Monitor economic data releases, particularly those related to the US budget, inflation, and employment. Pay attention to statements from the Federal Reserve and other major central banks. Follow analysis from reputable financial institutions like ING.

Secondly, understand your exposure. If you hold assets denominated in dollars, recognize that a weakening dollar affects their value in terms of other currencies. If you are involved in international business or have foreign investments, currency fluctuations directly impact your bottom line.

Thirdly, consider diversification. Holding assets across different currencies and asset classes can help mitigate the risks associated with the decline of a single currency.

Finally, for those in the crypto space, remember that while cryptocurrencies operate independently of central banks, their prices are often influenced by global liquidity and risk sentiment, which are tied to major currency movements. A weaker dollar can sometimes correlate with increased risk appetite, potentially benefiting assets like Bitcoin, though this relationship is not always direct or consistent.

Conclusion: The Path Ahead for the US Dollar

The softening of the US Dollar, fueled by concerns over the Budget Deficit and other macro factors, is a significant development in the global financial landscape. Analysis from institutions like ING reinforces the view that the dollar faces continued downside risks. This situation impacts the vast Forex market, influencing everything from major currency pairs to commodity prices and global trade dynamics. While the future is never certain, understanding the pressures on the dollar and the potential implications is vital for investors, businesses, and anyone with exposure to the global economy. Keeping a close watch on economic indicators and expert analysis will be key to navigating the potential shifts in the Currency Market ahead.

Source: CryptoSlate

Citi analysts warned in a note Tuesday that European equities could face significant downside if President Trump’s tariff threats materialize.

The bank outlined the potential implications of a 50% tariff on European goods, a scenario the firm is treating as hypothetical for now but one that has already rattled markets.

While Trump said on Sunday that he has agreed to delay the 50% tariff on the European Union until July 9, Citi noted that the “surprise announcement on a possible 50% tariff on European goods” had triggered broad selling in European equities.

The Stoxx 600 Index could drop “c7-8% from here” if the tariff threats are enacted and priced in, according to Citi’s projections.

Earnings estimates for European companies have already started to reflect increased geopolitical risks.

“Analyst consensus forecasts for 2025E European EPS growth have fallen from +7% pre-Liberation day to c2% now,” Citi noted. That decline is said to be consistent with their prior modeling of the earnings impact from a 20% tariff.

However, should tariffs rise to 50%, Citi’s top-down models suggest EPS growth could deteriorate further.

“EPS growth could fall another 5-6% to c-4%, if 50% broad tariffs are implemented,” they warned. “This comes against the backdrop of the market pricing in c4% EPS growth over the next 12m.”

Citi emphasized that the uncertainty surrounding trade policy is already dragging down sentiment and could translate into more pronounced equity declines if the threats are realized.

Source: Investing

The European Union (EU) is seeking to accelerate trade talks with the US just six weeks before President Donald Trump’s threatened 50% tariffs come into effect.

The European Commission, which handles trade matters for the EU, will focus its new strategy on critical sectors as well as tariff and non-tariff barriers, according to people familiar with the plans. The commission will also link its approach to addressing regulatory barriers with its plans to simplify rules.

The EU’s trade chief, Maros Sefcovic, will lead political negotiations on industries such as steel and aluminium, automobiles, pharmaceuticals, semiconductors and civilian aircraft, said the people, who spoke on the condition of anonymity. Those talks will happen in parallel with the technical discussions on tariffs and non-tariff barriers.

Last week, Trump threatened to impose a 50% tariff on the EU starting June 1 after complaining the bloc was slow-walking negotiations and unfairly targeting US companies with lawsuits and regulations. But the US president extended the deadline back to July 9 after a Sunday call with Commission President Ursula von der Leyen when she agreed to fast-track talks.

A spokesperson for the commission declined to comment.

Member states were briefed on the discussions on Monday after Sefcovic held a call with his US counterparts, Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer, according to the people.

The industries that Sefcovic will focus on either have already been hit with US tariffs, or have been earmarked for future levies. The EU has proposed deepening cooperation with the US in those sectors as part of a previous proposal shared with the US last week, Bloomberg reported.

The EU offer last week — which also proposed mutually lowering tariffs on many goods and working together on global challenges as well as mutual investments and strategic purchases — was rejected by the US and triggered Trump’s threat of higher tariffs.

Any US unilateral demands that would impair the bloc’s autonomy in regulatory and tax matters are likely to remain red lines, the people said.

Talks so far have been beset with multiple problems, with no clear path to finding a middle ground. The Europeans have complained that it’s not clear what the US wants or even who speaks for the American president, and the US has said the EU unfairly targets US companies with lawsuits and regulations.

In parallel to ongoing talks with the Trump administration, the EU will continue to prepare countermeasures should negotiations fail to yield a satisfactory outcome, the people said.

The EU has approved tariffs on €21 billion (US$23.8 billion or RM100.8 billion) of US goods in response to Trump’s metals levies that can be quickly implemented. They target politically sensitive American states and include products such as soybeans from Louisiana, home to House Speaker Mike Johnson, as well as agricultural products, poultry and motorcycles.

The bloc is also preparing an additional list of tariffs on €95 billion of American products. Those measures, which are in response to Trump’s “reciprocal” levies and automotive duties would target industrial goods including Boeing Co aircraft, US-made cars and bourbon.

The EU has been urged by some member states to additionally prepare countermeasures to any further action the US president has threatened, including on semiconductors and the pharmaceutical sector.

Many EU officials and member states continue to believe that several of Trump’s tariffs will stay in place and the chances of a good deal remain slim, the people added.

“We want a quick solution now,” German Finance Minister Lars Klingbeil told reporters in Berlin Monday. He added that he was “cautiously optimistic” that an agreement could be found, without elaborating. Klingbeil said the EU must respond to tariff threats from the US in a united, coordinated and consistent manner.

Source: Theedgemarkets