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Hello everyone, today XM Foreign Exchange will bring you "[XM Group]: Focus on the RBA resolution, safe-haven demand boosts gold prices, Moody's downgraded the deposit rating of major U.S. banks." Hope it will be helpful to you! The original content is as follows:
On Tuesday (May 20), spot gold trading was around 3223, and gold prices fluctuated higher on Monday. The dollar weakened and safe-haven demand was driven by Moody's downgrade of the US government's credit rating; U.S. crude oil rose, trading was around $62.21 per barrel, due to signs that the US nuclear program negotiations with Iran broke down, offsetting the impact of Moody's downgrade of the US sovereign credit rating.
RBA Fed resolution and RBA Chairman Brock held a press conference on monetary policy, and several Fed officials spoke.
U.S. stocks closed nearly flat on Monday, and market sentiment weakened after the US sovereign credit rating was downgraded. After the stock market closed last Friday, Moody's downgraded the U.S. sovereign credit rating from "Aaa" to "Aa1", citing that the U.S. government's outstanding debt was as high as $36 trillion and the interest burden was heavy.
Talley Leger, chief market strategist at TheWealth Consulting Group, said, "It is understandable that the market will react, because Moody's statement was issued after the closing of the stock market, but I think the trading of 'selling US assets' is a bit overly high."
The stock market rebounded from the decline in the early trading and closed almost flat. However, the S&P 500 index continued to rise for the sixth consecutive trading day. Seven out of 11 sectors in S&P rose, healthcare, consumer essential goods, industry, materials and utilities sectors have the highest gains. The energy and consumer discretionary sectors underperformed.
The Dow Jones Industrial Average rose 0.32% to 42792.07 points; the S&P 500 rose 0.09% to 5963.60 points, and the Nasdaq rose 0.02% to 19215.46 points.
The yield on the 10-year U.S. Treasury rose by 1 basis point to 4.449% due to concerns that the U.S. tax bill would increase debt burdens more than previously expected. U.S. President Trump's comprehensive tax cut bill was approved by an important committee of Congress on Sunday. Novavax jumped 15% after its coronavirus vaccine was approved by long-awaited U.S. regulators.
Gold prices fluctuated higher on Monday, driven by weakening the dollar and safe-haven demand after Moody's downgrade of the U.S. government credit rating. Spot gold rose 0.9% to $3,229.51 an ounce. U.S. gold futures closed up 1.5% at $3,233.5.
Moody's downgraded the U.S. rating from "Aaa" to "Aa1" last Friday, citing rising debt and interest "significantly higher than sovereign states with similar ratings." Overall, in the coming months, I think gold is a good safety bet, given the downgrade of the U.S. rating, said Bob Haberkorn, senior market strategist at RJO Futures. For me, it's still a buy-and-hold market,"
The dollar index hit its lowest level since May 8, while Wall Street's main index has slumped. U.S. Treasury Secretary Bescent said on Sunday that if trading partners don't negotiate in "kindness", U.S. President Trump will impose tariffs at the tax rates he threatened on April 2, which also turbulent financial markets.
Gold, considered a safe asset under geopolitical and economic uncertainty, has set record highs many times this year and has risen 23.1% so far this year. Russian President Putin said after a regular phone call with Trump on Monday that efforts to end the Ukraine war are on track and Moscow is ready to have a memorandum of talks with Ukraine on a future peace agreement Open cooperation.
Spot silver rose 0.3% to $32.36 per ounce; palladium rose 1.1% to $998.26. The World Platinum Investment Association (WPIC) said demand for platinum jewelry in Asian powers is rebounding, which will lead to a global supply shortage of platinum this year beyond expectations. Platinum rose 1.4% to $974.50.
Oil prices rose slightly on Monday as signs that U.S. nuclear program talks broke down, offsetting Moody's downgrade of U.S. sovereign credit rating. Brent crude futures closed up $0.13 to $65.54 per barrel, while U.S. crude futures closed up $0.20 to $62.6 per barrel$9. Both contracts rose more than 1% last week.
Iranian state media quoted Iranian Deputy Foreign Minister Majid Takht-Ravanchi on Monday as saying that if Washington insists on Tehran stops uranium enrichment activities, nuclear negotiations will end in vain.
StoneX analyst Alex Hodes said the remarks weakened hopes of a deal that could have paved the way for U.S. sanctions and allowed Iran to increase oil exports from 300,000 to 400,000 barrels per day. "At present, the possibility of this potential growth is very small."
Moody's downgrade of the U.S. sovereign credit rating has raised doubts about the health of the world's largest oil consumer.
U.S. Treasury Secretary Bescent Bescent said President Trump will impose tariffs he threatened last month on trading partners that are not “integrity”, putting additional pressure on oil prices.
Again Capital's partner in New York, John Kilduff, said oil prices may remain volatile for the foreseeable future, with investors paying attention to the latest progress in tariffs, U.S.-Iran negotiations and negotiations to end the Ukraine war. Russian President Putin said after speaking with Trump on Mandarin on Monday that Moscow was preparing to sign a memorandum with Ukraine on a future peace agreement and said efforts to end the war were on the right track.
After unexpectedly lowered U.S. government credit ratings late last Friday, the dollar's exchange rate generally fell on Monday, with exchange rates against safe-haven currencies Japanese yen, Swiss franc and euro hitting new lows in more than a week, and trade tensions also put pressure on the dollar.
U.S. Treasury Secretary Becent said in an exclusive interview with TV on Sunday that countries with lack of "good intentions" in trade negotiations will impose tariffs on them at the tax rate announced on April 2.
But Moody's move to downgrade the U.S.'s highest sovereign credit rating by one level last Friday triggered a decline in the dollar. Moody's reason is concerns about the growing US government's $36 trillion debt.
Before this, Fitch had taken similar actions in the summer of 2023, and S&P Global also lowered its highest rating in the United States as early as 2011. The news caused the dollar to lose its exchange rate against its main competitors, after it had risen for four consecutive weeks as a rising optimism about the U.S. trade deal eases concerns about a global recession. But from mid-morning to afternoon trading hours, US dollar selling lost momentum. "For me, this isn't really a game changer: Moody's isn't really telling us what we don't know. We all know what's going on in Washington and the huge budget deficit they predict," said Marc Chandler, chief market strategist at Bannockburn GlobalForex, New York. On Monday, the dollar fell to 144.665 yen, the lowest since May 8, with New York falling 0.5% at 144.98 yen late in trading at 144.98 yen. The dollar also fell to its weakest against the Swiss franc in more than a week, at 0.8317 Swiss francs.
At the same time, the euro rose 0.6% against the dollar to $1.1232, rising to its highest point since May 9 intraday. The pound rose 0.6% against the dollar to $1.3355. The pound climbed to its highest since April 30 earlier in the session as Britain agreed on Monday to restart its most important defence and trade relations with the EU since Brexit.
Although the dollar fell on Monday, New York Fed President Williams said he did not see a massive withdrawal of funds from U.S. assets, noting that the dollar remains the world's reserve currency.
The United States has begun serious trade negotiations with the EU, which has made investor sentiment slightly better. The talks broke a long deadlock and brought some hope to more deals after Washington signed a framework agreement with the UK earlier this month.
Trump has previously said that he may also reach an agreement with India, Japan and South Korea, but negotiations with Japan appear to be deadlocked due to car tariffs.
In other currencies, the Australian dollar rose 0.66% to $0.6444, after three consecutive declines, the RBA will announce monetary policy on Tuesday, and the market generally expects to cut interest rates by one quarter percentage point. The New York dollar also rose 0.5% to $0.5911.
On the 19th local time, Ukrainian President Zelensky said at a briefing after his Mandarin with US President Trump that he emphasized three key demands in his first call with Trump that day: a ceasefire must be achieved, sanctions imposed on Russia, and the United States "do not make any decisions on matters related to Ukraine without Ukraine's participation." Ukraine's position can only be determined after receiving the Russian proposal Zelensky said that Trump introduced to him that the United States and Russia have discussed the memorandum under the bilateral framework of Russia and Ukraine. The document may become the basis for a subsequent ceasefire and ultimately lead to a peace treaty. This memorandum jointly supported by both countries will contain the ceasefire clause. Zelensky said that Russia and Ukraine could sign a memorandum first and then sign an agreement to end the full conflict, according to Russian President Putin. At the same time, Zelensky also pointed out that it is not clear what the specific content of the memorandum proposed with Russia is. He said that from Ukraine's perspective, Ukraine will be able to determine its position after receiving Russia's suggestions on the memorandum. Considering holding a quadron meeting between the United States, Ukraine, Russia and Europe. In addition, Zelensky said that Ukraine is considering holding a joint meeting with the participation of the United States, Ukraine, Russia and the European Union. It was revealed that such a conference could be held in Türkiye, the Vatican or Switzerland. If there is no ceasefire, Europe will impose sanctions on Russia. Zelensky also said that if Russia does not ceasefire, the EU will impose a package of severe sanctions on Russia. Zelensky said he did not make stricter sanctions on RussiaDisappointed, you should stay focused at the moment. Zelensky believes that he is sure that Europe will introduce a strong sanctions plan and set a date for implementation. It is reported that Zelensky had two calls with Trump on the 19th. First, the two sides had a one-on-one separate call, and then Zelensky and Trump communicated with the European Commission President, France, Italy, Germany and Finland during a joint call.
The British Prime Minister's Office issued a statement on the 19th saying that the UK and the EU have reached agreements in fisheries and trade fields, and it is expected that the relevant agreements will drive the UK's economic growth by nearly 9 billion pounds (1 pound is about 1.34 US dollars) by 2040. British Prime Minister Stamer held a meeting with EU leaders in London that day. After the meeting, the UK and the EU signed a new 12-year fishing agreement to ensure that British fishing boats can continue to enter EU waters and maintain the existing fishing quota for EU fishing boats in UK waters. The British government will invest 360 million pounds to modernize fishing boats and upgrade technical equipment. In addition, the animal and plant quarantine agreement reached between the two parties will simplify the export procedures of UK food and reduce costs, benefiting British companies. The Prime Minister's Office said that since Brexit, Britain's exports to the EU have fallen by 21%, and imports have fallen by 7%. The agreement will prompt British burgers, sausage and other products to re-enter the EU market. In the field of environmental protection, the UK and the EU have agreed to connect with their respective carbon emission trading systems to "avoid companies being affected by the upcoming carbon taxation that the EU will implement next year." UK steel exports will receive a "tailored" agreement to circumvent new EU regulations and tariffs, which is expected to save British steel manufacturers about £25 million a year. According to the agreement, the UK and the EU will also launch the "Youth Mobility Plan". The Prime Minister's Office said in a statement that the plan will set personnel flow limits and stay periods, and the specific provisions are expected to refer to the agreement between the United Kingdom and Australia, New Zealand and other countries. The agreement will focus on promoting cooperation between the UK and EU in combating illegal immigration, including “establishing repatriation”Mechanism, coordinated response to the smuggling problem of the English Channel."
Fed Vice Chairman Philip Jefferson said that central banks must ensure that any price increase caused by policy changes does not cause continued inflation to rise. U.S. President Donald Trump has imposed comprehensive new tariffs on many U.S. trading partners, while proposing and implementing other immigration and regulatory policy reforms. Economists generally expect that changes in trade policy will put upward pressure on inflation and curb economic growth, although there is still great uncertainty in the final scale of tariffs and their potential impact on the economy. "I think it is important that monetary policy must ensure prices Any rise in Gerber will not translate into a sustained rise in inflation," Jefferson said at the Atlanta Fed's 2025 financial markets conference in Fernandena Beach, Florida on Monday. Jefferson said the Fed's policy stance is in a "very good position" and has "moderately restrictive" the economy.
JP Morgan said that as the U.S. lost its last highest credit rating and bond yields rise, high-grade corporate bonds may become more attractive to fund managers. Last Friday, Moody's downgrades in the U.S., joining Fitch and S&P, which have previously rated the U.S. as the highest rating of non-AAA. ranks. Moody's said the downgrade was due to concerns about the rapid expansion of debt and fiscal deficits, which would hurt the U.S. position as a global capital destination and push up borrowing costs. JPMorgan strategists Eric Beinstein and Nathaniel Rosenbaum quoted another report from the bank's interest rate team in a report on Monday, saying investors had questions about how the downgrade would affect Treasury valuations in the coming days and even in the medium term. In the short term, given uncertainty over trade and monetary policy amid structural changes in demand, risks tend to be "steeper in the bear market" of the yield curve.
Bank of International Settlements (BIS) said that in a time of turmoil in the U.S. market, if investors start closing positions in the $113 trillion foreign exchange swap market, it may trigger a fight against the dollar. BIS recently estimated that funds and other non-bank financial companies have more than $80 trillion in foreign exchange swap positions - borrowed funds in the U.S. dollars and promised to repay them at the agreed exchange rate later. Swaps are actually a short-term debt usually held on "off-balance sheet" and are not included in regulatory capital requirements. Shin Hyun-song, head of the monetary and economics department of BIS, pointed out in a speech at the London School of Economics that if investors suddenly rush to lift these positions, the problem arises. Investors who hedge positions usually hold euros or yen but still have the obligation to repay the dollar. "If swaps must be expanded," Shin Hyun-song said.In the future, we must join the ranks of competition for (USD). "Shen Hyun-song added that this may lead to a rapid appreciation of the US dollar.
China Construction Bank lowered the RMB deposit interest rate on May 20, of which the current interest rate was lowered by 5 basis points to 0.05%; regular deposit and withdrawal were all lowered by 15 basis points in three-month, six-month, one-year and two-year periods. 0.65%, 0.85%, 0.95%, and 1.05% respectively; both three-year and five-year periods were lowered by 25 basis points, to 1.25% and 1.3%, respectively. The three periods of regular zero deposits, whole deposits, zero deposits, and principal and interest deposits all fell by 15 basis points. The deposit interest rate for 7-day notice was lowered by 15 basis points to 0.3%.
Li Bin, deputy director and spokesperson of the State Administration of Foreign Exchange, said that in April, the net inflow of cross-border funds of non-bank sectors such as enterprises and individuals was US$17.3 billion. From the main channels, first, my country's foreign trade showed a certain resilience, and the net inflow of cross-border funds under the trade of goods was US$64.9 billion, maintaining a relatively high scale. Second, foreign capital's willingness to allocate RMB assets continued to improve. In April, foreign capital increased its holdings of domestic bonds by US$10.9 billion, which was at a relatively high level. In late April, foreign investment in domestic stocks turned into net buy. Third, the main outflow channels were stable and orderly. Net outflows of service trade funds in April were basically the same month-on-month; profit remittances of foreign-invested enterprises increased seasonally, but lower than the same period last year; coming to China and foreign direct investment were basically stable, and cross-border funds from related enterprises' loans changed from net outflow to basic balance.
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