Fed Holds Rates and Trade Hopes Lift Sentiment (12 - 16 May)

The dollar index dipped to 100 on Friday but posted a third weekly gain, supported by the Fed’s steady policy and Trump’s upbeat trade tone. The euro held at $1.13 as traders eyed ECB cuts by year-end. The pound steadied near $1.33 after a limited US-UK trade deal. The yen weakened past 145 on stronger dollar demand and improved global trade sentiment.

Gold held near $3,320, pressured by easing safe-haven demand ahead of US-China talks, though still up for the week. Silver gained slightly on trade caution and Powell’s steady tone. Brent crude rose toward $63, supported by falling US inventories, while OPEC+ output plans capped gains.

Bond yields climbed last week on trade optimism and the Fed’s hawkish tone. U.S. 10-year at 4.38%, Japan’s at 1.37%, and Germany’s at 2.58%.

S&P Global Services PMI (April 2025)

The index was revised down to 50.8 from 51.4, showing the slowest growth in nearly 18 months. Business activity and new orders lost steam due to rising input costs driven by tariffs. Selling prices rose at the fastest pace since January, while sentiment fell to its lowest in 2.5 years. Foreign demand dropped sharply, the biggest decline since November 2022.

ISM Services PMI (April 2025)

The PMI rose to 51.6 from 50.8, beating forecasts. New orders and inventories improved, while business activity stayed positive at 53.7. Employment declined more slowly (49), and price pressures surged to 65.1, which is the highest since February 2023. ISM noted that concerns now focus on actual price increases, not future uncertainty.

Federal Reserve Rate Decision (May 2025)

The Fed held rates at 4.25%–4.50% for a third meeting, citing increased risks from Trump’s tariffs. Powell said it’s too early to assess whether inflation or unemployment will be the greater challenge. The Fed signaled patience and ongoing monitoring of incoming data, while noting continued solid economic expansion despite trade-related volatility.

Bank of England Rate Decision (May 2025)

The BoE cut its base rate by 25 bps to 4.25% in a 5–4 vote. Two members called for a deeper cut, two wanted to hold rates. March CPI fell to 2.6%, but a temporary rise to 3.5% is expected in Q3. Slower GDP growth, a cooling labor market, and global tariff risks contributed to the decision. The BoE reaffirmed its 2% inflation target and cautious policy stance.

U.S. Jobless Claims

Initial claims dropped by 13,000 to 228,000, slightly better than forecast. Continuing claims fell by 29,000 to 1.879 million, easing from a recent three-year high.

Currencies

The dollar index dipped to 100 but still marked a third weekly gain (+0.6%) as markets focused on US-China trade talks. Trump voiced optimism, while the US-UK deal offered limited relief, keeping UK tariffs at 10%.

The euro held at $1.13, supported by trade uncertainty and ECB rate cut expectations (1.6% by year-end).

The pound steadied near $1.33 after the US-UK deal, which included procurement access but no tariff cuts.

The yen weakened past 145 as risk sentiment improved and Powell rejected early Fed cuts. Japanese data showed rising spending but declining real wages.

Commodities

Gold hovered around $3,320 per ounce, retaining weekly gains as US-China talks approached. Reduced safe-haven demand was offset by Fed caution and trade-related uncertainty.

Silver also ended higher on safe-haven interest ahead of the He–Bessent talks in Switzerland.

Brent crude neared $63 per barrel, on track for a weekly rise. Hopes of easing trade tensions lifted demand outlook, but OPEC+ output plans capped gains. April supply fell in Libya, Iraq, and Venezuela, and U.S. inventories dropped more than expected.

Equities

U.S. indexes ended slightly higher. Nasdaq gained, Dow rose modestly, and the S&P 500 was flat as the Fed’s hawkish tone offset improving trade sentiment.

Nvidia rose 5%, Meta 1%, and Microsoft 1.5%. Apple dropped 5.5% and Google 3.85%.