In the week ahead: ISM Manufacturing & Services PMIs, Non-Farm Payrolls, ECB Interest Rates

The EUR/USD pair ended the session on Friday with minor losses following softer-than-expected U.S. Personal Consumption Expenditures (PCE) data, with headline inflation edging closer to the Federal Reserve’s 2% target.

While the latest PCE report signaled some cooling in price pressures, core inflation continues to hover stubbornly between 2% and 3%. The data suggests that while disinflation is progressing, the Fed may remain cautious before signaling any policy shifts. Meanwhile, consumer sentiment ticked higher, according to the University of Michigan, with households showing mild optimism despite anticipating rising prices.

Market sentiment remains fragile as geopolitical developments weigh on risk appetite. President Donald Trump rekindled tensions with China, alleging that Beijing is failing to uphold its commitments under the Switzerland trade agreement. Trump noted plans to speak with Chinese President Xi Jinping to resume stalled negotiations, but the remarks injected fresh uncertainty into global markets.

In Europe, economic data painted a bleak picture. German retail sales saw a sharp monthly decline, intensifying concerns over the eurozone’s growth outlook. However, inflation in both Germany and Spain remains in line with the European Central Bank’s 2% target, bolstering expectations for a potential rate cut at the ECB’s upcoming June 5 policy meeting.

Gold prices retreated on Friday as the U.S. Dollar regained some strength, even as Treasury yields declined following a cooling in inflation data as investors reassess the likelihood of Federal Reserve rate cuts in 2025.

The greenback rebounded from session lows, bolstered by safe-haven flows as geopolitical tensions flared. President Donald Trump reignited trade concerns by accusing China of violating the bilateral trade agreement reached in Switzerland.

These remarks triggered a risk-off shift across markets, leading to declines in U.S. equities and renewed demand for the U.S. Dollar, as measured by the U.S. Dollar Index (DXY).

In a related development, a U.S. Federal Appeals Court reinstated most of the tariffs originally imposed by Trump on April 2—dubbed “Liberation Day”—overriding an earlier ruling from the U.S. Court of International Trade that had blocked the duties as illegal.

Economic data released Friday showed a modest pullback in the Core PCE Price Index—the Fed’s preferred inflation gauge—suggesting a gradual cooling in price pressures.

Despite easing inflation and improving sentiment, gold remains under pressure as the U.S. Dollar strengthens on renewed geopolitical tensions and fiscal uncertainty. Traders continue to monitor U.S.-China trade developments and Federal Reserve signals for clarity on the policy trajectory heading into 2025.

Oil prices surged more than $1 a barrel early Monday after OPEC+ opted to maintain its measured pace of output increases, easing concerns of a larger-than-expected supply boost. The producer group announced a 411,000 barrels-per-day (bpd) hike for July—matching the increases from the previous two months.

The decision from OPEC and its allies, collectively known as OPEC+, came as a relief to markets that had braced for a more aggressive production hike. Analysts noted that the group’s conservative approach appears aimed at balancing market share objectives with discipline enforcement among members.

The move also appears to target chronic over-producers within the bloc.

Looking ahead, Goldman Sachs expects a final 411,000 bpd increase to be approved in August. In a note published Sunday, the bank cited “relatively tight spot oil fundamentals,” strong global economic data, and seasonal demand factors as reasons why a sharp slowdown in oil demand is unlikely.

At the same time, low U.S. fuel inventories and concerns over an active Atlantic hurricane season are adding to supply-side worries.

With a cautious OPEC+ stance, persistent quota non-compliance, and seasonal demand tailwinds, oil prices are likely to remain supported in the near term. Traders will closely monitor developments ahead of the next OPEC+ policy meeting on July 6, particularly amid growing global supply risks and signs of slowing U.S. drilling activity.

The US 500 capped off May with its strongest monthly gain in 18 months, rising 5.01%, even as renewed U.S.–China trade tensions and pressure on semiconductor stocks weighed on markets in the final session. The index posted its best monthly performance since November 2023.

Nvidia shares fell more than 3% Friday, dragging chipmakers lower after the company flagged an $8 billion revenue hit due to U.S. export bans on chip sales to China. The selloff was intensified by reports that the Trump administration plans to expand restrictions targeting Chinese tech subsidiaries that may be circumventing existing sanctions.

Market sentiment was further dented after a U.S. appeals court reinstated most of Trump’s tariffs, just a day after a federal trade court had ordered the administration to roll them back.

On the macro front, April’s Personal Consumption Expenditures (PCE) Price Index pointed to a continued easing in U.S. inflation. Headline PCE rose 2.1% year-over-year, the lowest since February 2021, while core PCE—excluding food and energy—came in at 2.5%, slightly below February’s 2.6%.

With the appeals court's tariff decision looming and inflation cooling, markets head into June watching both regulatory developments and central bank policy closely. Tech, in particular, may remain volatile as tensions with China evolve and further restrictions are considered.