The economic future uncertainty is arguably at its highest in the past few years. Trade flows are being significantly impacted by the conflict in Ukraine, especially for agricultural commodities. Bottlenecks appear destined to get worse soon, along with China’s lockdowns.

Following projections, the Federal Open Market Committee (FOMC) increased the Fed funds rate target range by 50 basis points at its meeting in May to 0.75-1%. At the press conference, Chair Jerome Powell clearly hinted at the possibility of additional large rate movements, noting that the Committee anticipated considering 50bp increases at the upcoming sessions.

In contrast to expectations for a steady economic expansion (consensus: +1.0%), the US GDP decreased in Q1 by -1.4% q/q annualized. The decrease is due to ongoing supply constraints in Q1 and strong demand.

US Inflation Rate

Compared to market expectations of 8.3%, the annual inflation rate in the US unexpectedly increased to 8.6% in May 2022, the highest level since December 1981.

Gasoline (48.7%), electricity (12%, the steepest 12-month increase since August 2006), fuel oil (106.7%, the highest increase ever), and natural gas (30.2%, which is the most since July 2008) all contributed to the 34.6% increase in energy prices, the highest level since September 2005. Since March 1981, food prices increased by at least 10% for the first time. 

Contrary to expectations of 5.9%, the core inflation rate decelerated for a second month to 6%.


Inflation in the Euro Area increased to 8.1% in May, up from 7.5% and higher than forecasted at 7.7%. The core result, which came in at 3.8% versus 3.5%, was above forecasts, reiterating the argument for ECB tightening in Q3. Nevertheless, the ECB must decide whether to proceed with 25 or 50 bps in July. In addition, slower growth is still a concern for the future, maintaining the bias against buying US Dollar drops.

By agreeing to a partial oil embargo on Russia, EU leaders would prevent 2/3 of Russian oil imports, which will ultimately harm the EU’s future economic prospects and, consequently, pressure the Euro.

Compared to previous recoveries of 3.3 to 3.5% in January and March, the latest bounce back for the Euro is about 4% from its recent lows, suggesting that it may be getting a little stale. The Fed will have little interest in changing course from its aggressive tightening outlook given that inflation remains very sticky at extremely high levels, despite the remarks by the Fed’s Bostic regarding a potential pause in tightening as soon as September likely made the USD weaker.


The Japanese 10-year government bond’s yield had a seven-week low but came back by 0.238% due to the inflationary pressure that redirected the trader’s focus to US Fed minutes. For the first time in 7 years, Japan’s inflation rates are above target. The Kishida government advised the central bank to remain on target in its long-term policy outline to ensure it remains sustainable.

The BOJ Governor Kuroda is confident that the central bank will exit the easy policy without difficulty, such as reducing the asset sheet and raising the interest rates while keeping the market stable. In early May, the yen lowered to 130 per dollar, looming close to a twenty-year low of 131.3.

Japanese policymakers confirmed that the authorities wouldn’t help the falling currency. The Bank of Japan reinforced its huge stimulus program and emphasized its commitment to the low-yield policy by announcing it would buy an unlimited number of 10-year government bonds. 


The S&P/NZX dropped 58.57 points or 0.52%, continuing the previous session’s decline and reaching its lowest close since early July 2020. Traders remained pessimistic in the wake of the Reserve Bank of New Zealand’s (RBNZ) more hawkish signal as it attempts to curb the ripple effects of surging inflation. 

The central bank increased the cash rate by 50 basis points to 2%, marking the sixth consecutive increase and the highest since November 2016. According to meeting notes from its early May meeting, the US Federal Reserve will likely approve two additional half-point rate hikes in the coming months.

While Wellington attempts to fully reopen its borders after more than two years of COVID-19 limits, Prime Minister Jacinda Ardern was in the US in an effort to increase exports and draw more tourists.

In response to pressure from a rising US dollar, resurgent inflation concerns, and broader risk-off sentiment, the New Zealand dollar declined past $0.65. As the RBNZ provided hawkish signals on its likely policy course, the kiwi held steady at approximately 4% above a recent low. 

The central bank predicted that the cash rate will reach its top at 3.95% in the third quarter of 2023, above its February prediction of a 3.35% peak. “The Committee agreed to continue to lift the OCR at pace to a level that will confidently bring back consumer price inflation to within the target range,” the bank stated.


The US dollar has continued to slide to new monthly lows, driving gold’s gains despite a positive sentiment in global macro trade. Market players are less concerned about US inflation due to the release of Core PCE inflation data and US Consumer Price Inflation data earlier in the month. As a result, bets on the Fed raising interest rates have seen a slight decline.

Attention was on US statistics with several tier-one releases, including the May labor market report and the May ISM Manufacturing PMI survey.

The trend of declining US inflation concerns, lessening Fed tightening expectations, and subsequent further declines in US rates and the dollar, according to analysts, might be a constructive medium-term driver for gold, even if it also increases risk-taking. The prospect for further upside toward the 50 DMA near $1,900 looks promising, given that XAU/USD has found strong support at its 21 and 200 DMAs.


As central bank indications pointed to a less hawkish Fed and a more hawkish ECB, the dollar spent the latter part of May falling from 20-year highs. Since Memorial Day weekend, the dollar had slowly increased as rising Treasury yields provided support. In contrast, others took refuge from escalating global inflation.