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Forex Today: Risk flows dominate markets ahead of US data

Here is what you need to know on Thursday, May 29:

Markets turn risk-positive in the second half of the week as fears over an economic downturn in the United States (US) ease following a federal court's decision to block US President Donald Trump's 'Liberation Day' tariffs. The US Bureau of Economic Analysis will release its second estimate of the Gross Domestic Product (GDP) growth for the first quarter on Thursday. The US economic calendar will also feature weekly Initial Jobless Claims and April Pending Home Sales data.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD0.84%0.52%2.15%0.74%0.90%0.59%1.24%
EUR-0.84%-0.31%1.33%-0.10%0.05%-0.25%0.41%
GBP-0.52%0.31%1.33%0.22%0.37%0.06%0.74%
JPY-2.15%-1.33%-1.33%-1.39%-1.24%-1.59%-0.90%
CAD-0.74%0.10%-0.22%1.39%0.18%-0.15%0.52%
AUD-0.90%-0.05%-0.37%1.24%-0.18%-0.34%0.37%
NZD-0.59%0.25%-0.06%1.59%0.15%0.34%0.67%
CHF-1.24%-0.41%-0.74%0.90%-0.52%-0.37%-0.67%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The Court of International Trade announced late Wednesday President Trump's reciprocal tariffs will be blocked from going into effect, explaining that Trump overstepped his authority by imposing across-the-board duties on imports from the US' trading partners, per Reuters. Commenting on the use of tariffs as leverage, "that use is impermissible not because it is unwise or ineffective, but because federal law does not allow it," a three-judge panel said. The Trump administration has reportedly already filed a notice of appeal, questioning the court's authority.

The US Dollar (USD) gathered strength with the immediate reaction and the USD Index climbed to its highest level in over a week above 100.50. At the time of press, the USD Index was up 0.25% on the day at 100.12, while US stock index futures were gaining between 1.3% and 2%, reflecting the improving market mood.

In the meantime, the minutes of the Federal Reserve's May meeting showed that officials saw elevated uncertainty about the economic outlook. "Participants noted they may face difficult trade-offs if inflation proved more persistent while outlooks for growth and employment weakened," the publication noted.

Gold came under heavy bearish pressure in the Asian session and fell to its lowest level since May 20 below $3,250 before correcting higher. As of writing, XAU/USD was down 0.5% on the day near $3,270.

EUR/USD extended its weekly slide and came within a touching distance of 1.1200 before recovering above 1.1250 by the European morning.

GBP/USD continued to push lower toward 1.3400 in the Asian session on Thursday after closing the previous two days in negative territory. The pair regains its traction in the early European session and trades marginally lower on the day at around 1.3450.

Japanese Finance Minister Katsunobu Kato said on Thursday that he agreed with US Treasury Secretary Scott Bessent that exchange rates should be set by the market. Meanwhile, Japan’s Chief Trade Negotiator and Economy Minister Ryosei Akazawa said that he wants to meet with Bessent to conduct ministerial talks and reiterated that they will continue to demand that the US reconsiders tariff measures. USD/JPY builds on its weekly gains and trades above 145.50, rising about 0.5% on the day.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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