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Hello everyone, today Avatrade Aihua Foreign Exchange will bring you "[Avatradescn]: The big news in the Middle East stimulates gold prices to soar, and Trump has set off a war of words again." Hope it will be helpful to you! The original content is as follows:
On May 22, the US dollar fell against a variety of major currencies on Wednesday. The tax cuts and spending proposals led by US President Trump are in a critical debate stage, and investors are paying attention to the US fiscal burden.
In addition, the results of the 20-year Treasury bond bid on Wednesday showed weak market demand, strengthening the market's view that the market is "selling the United States", which has exacerbated the decline of the US dollar.
The Republicans remained divided on details of the tax reform proposal, and Trump met with House Republicans on Tuesday but failed to convince party hardliners to support his proposal.
U.S. House Speaker Johnson said that hardliners in the party believe that the tax cut proposal is not sufficient in terms of spending cuts.
The US Treasury Department sold 20-year Treasury bonds on Wednesday, with a bid rate of 5.047%, far higher than market expectations and the average of the past six auctions, which means investors need higher rewards to be willing to take over U.S. bonds.
After the bleak bid results were announced, the 20-year U.S. Treasury yield surged to 5.127%, and the US dollar further weakened against the euro and the Japanese yen.
Kim Rupert, executive director of global fixed income analysis at ActionEconomics in San Francisco, said: "The disappointing bid results match the subject of weakening demand for U.S. assets and the 'selling of the United States' argument under fiscal concerns. These anxieties are amplified by the ongoing debate on tax reform proposals in the House."
According to nonpartisan analysts, Trump's tax reform proposal will increase U.S. debt$3 trillion to $5 trillion. "A reconfiguration that is generally far from the U.S. safe-haven assets is now amid budget proposals," said Eugene Epstein, head of North American trading and structural www.avaforexcn.commodities at Moneycorp in New Jersey. "Asia's Western Pacific Leadership Index slowed to 0.2% in April, indicating a loss of growth momentum.
According to Westpac, the growth above trend levels earlier this year, “almost disappeared”, largely due to rising global trade uncertainty and weak www.avaforexcn.commodity prices.
While these external pressures dominate, domestic factors such as the slowdown in the labor market and the provision of moderate support for interest rate cuts have also led to the loss of momentum.
Overall situation shows that the already lukewarm recovery has stagnated, and it is expected that by the end of 2025, the GDP growth rate will only reach 1.9%, far below the historical average.
WestPacific expects to be cautiously suspended at its next policy meeting from July 7 to 8, following the RBA's recent cut rate by 25 basis points to 3.85%. The central bank may wait for a clearer second-quarter inflation data released by the end of July before considering further easing.
Japan's export growth slowed to only 2.0% in April, the lowest growth rate since October 2024.
It is worth noting that shipments to the United States fell -1.8% year-on-year due to weaker demand for cars, steel and ships, which is the first decline in four months. Affected by the appreciation of the yen and the reduction in demand for high-end models, automobile exports alone fell by -4.8% year-on-year.
This decline coincides with the 25% tariff imposed by the U.S. on Japanese auto, steel and aluminum exports and a 10% package tax on most trading partners under the current U.S. trade system.
Trade with Asia remains more resilient, with exports growing by 6.0% year-on-year. However, shipments to China fell by -0.6% year-on-year.
In terms of imports, Japan shrank -2.2% year-on-year, resulting in a trade deficit of -115.8B yen.
Seasonally adjusted data showed that exports fell -2.7% month-on-month, imports fell -1.4% month-on-month, and the adjusted trade deficit expanded to -409B yen.
European market
UK inflation in April was higher than expected, with overall CPI rising 1.2% month-on-month, while expected to increase 1.1% month-on-month. The annual CPI accelerated from 2.6% year-on-year to 3.5% year-on-year, exceeding the 3% mark for the first time since March 2024.
The core CPI excluding energy, food, alcohol and tobacco rose sharply from 3.4% to 3.8% year-on-year, the highest level since April 2024.
The segment shows that both goods and services inflation has risen sharply. www.avaforexcn.commodity inflation accelerated from 0.6% year-on-year to 1.7% year-on-year, whileThe inflation rate of the service industry climbed from 4.7% year-on-year to 5.4% year-on-year, highlighting the intensity of domestic price pressure.
U.S. Market
St. Louis Fed Chairman Alberto Musalem warned that even if a 90-day trade truce was reached between the United States and China, current tariff levels could still have a "significant" short-term impact on the economy.
In a speech overnight, he warned that tariffs could “suppress economic activity” and further weaken the labor market. At the same time, tariffs can directly increase inflation by raising import prices, and indirectly increase inflation by triggering a wider cost increase in domestic goods and services.
Musalem outlines two possible monetary policy responses, depending on the durability of the inflationary impact of tariffs.
If the price impact is temporary and inflation is still under control, the Fed may be suitable to “see through” short-term inflation soaring and consider easing policies to buffer the labor market.
However, if inflation proves to be more sticky and begins to deviate from long-term expectations, Mousalem believes that returning to price stability should be prioritized, even at the expense of weak growth and rising unemployment.
"History tells us that it is more costly for the public to restore price stability...if inflation expectations are not well anchored," Mousalem said.
The above content is all about "[Ava Avatrade Foreign Exchange]: The big news in the Middle East has stimulated gold prices to soar, and Trump has set off a war of words again". It was carefully www.avaforexcn.compiled and edited by the Avatrade Foreign Exchange editor. I hope it will be helpful to your transactions! Thanks for the support!
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