Waiting for the War to End – Currency Thoughts
Waiting for the War to End
May 29, 2026
The verbal message that a peace deal in the Middle East, which began very soon after the conflict’s outbreak, may be getting stale but nonetheless continues to temper the reaction of financial markets. The Strait of Hormuz remains largely shut. Fighting in Lebanon continues. The U.S. has still not signed off on the reported deal whose specifics thus far remain murky.
And yet the final week of May finds financial markets positioning for a positive outcome. West Texas Intermediate crude oil, which had briefly been as elevated as $126 per barrel during the conflict, has retreated to $88.6, around 15% below a month ago and down 0.3% so far today. The dollar has lost some luster, which is to be expected as safety-seeking capital flows wind down. Compared to Thursday closing levels, the U.S. currency has declined 0.8% against the kiwi, 0.2% versus the Swiss franc and Australian dollar, and is flat relative to the euro and yen.
The ten-year U.S. Treasury yield is steady at 4.45%. The Japanese JGB yield is three basis points lower,, and major European 10-year sovereign debt yields show declines today ranging from one to four basis points. Their Australian and New Zealand counterparts have sunk today by an even larger 7 and 10 basis points, respective.
The U.S. DOW, SPX and Nasdaq are showing green today. Equities in Asia rose 2.5% in both Japan and Taiwan this Friday, while the South Korean Kospi gained 3.6%. As in the U.S., European stock exchanges are modestly higher.
Bitcoin’s price has dropped 1.3%, while gold’s value has firmed.
Typical of the last business day each month, a lot of data were released around the world. Here are some highlights.
The advance estimate of the U.S. goods trade deficit ($82.4 billion in April versus a tight shot group ranging from $80.9 billion to $86.7 billion in 1Q) has stabilized at a much smaller level than in early 2025 when the monthly average in the first four months was at $137 billion.
Tokyo core consumer price inflation in May of 1.3% excluding fresh food and 1.6% excluding both food and energy was the lowest since March and August of 2022. German consumer price inflation last month settled back from a 27-month high of 2.9% in April to a 3-month low of 2.6% this month. French CPI inflation of 2.4% in May was lower than forecast, as was Spanish CPI inflation of 3.2%. Italian CPI inflation of 3.2% reached a 32-month high but did not surpass expectations.
Price indicators at the producer level have been affected more significantly by what’s happened in the Middle East. Bulgarian PPI inflation nearly doubled to 15.2% in April from 8.1% in March. Singaporean producer price inflation stretched up to 31.6% last month. Belgian PPI inflation climbed to a 37-month high of 8.7%. Similarly, the Greek 12.9% PPI inflation level constituted a 39-month high.
Import prices in Germany increased 1.2% in April, and their 12-month rate of change (+5.3%) exceeded readings of 2.3% in March and -2.3% in February.
Japanese year-on-year changes in April amounted to +2.1% in the case of retail sales, +2.3% for industrial production, +11.4% among housing starts, but -32.3% for construction orders, which was the worst reading in about two decades.
French GDP growth in the first quarter was revised downward into negative territory for the first time since the pandemic(-0.1%). Compared to a year earlier, French GDP rose 0.9%. French household consumption in April was 0.5% lower than in March and down 0.4% from a year earlier.
Italian GDP growth last quarter was revised upward to a quarterly 0.3% increase that left year-on-year growth at 0.8% for the second quarter in a row.
Canadian industrial production fell in March by 0.8% on month and 1.9% on year. Monthly GDP dipped 0.1% and was only 0.4% above its year-earlier level. Quarterly GDP data barely met the quick and dirty definition of a recession, posting negative annualized growth of -1.0% in the final quarter of 2025 and then -0.1% in the first quarter of this year.
At the other end of the spectrum, GDP in Taiwan accelerated to a year-on-year pace of +14.6% last quarter, the most since the third quarter of 1978. This technology powerhouse reveals that Beijing’s aspiration to reacquire Taiwan is about more than restoring historical geography.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Canadian and Taiwanese GDP, French and Italian GDP, U.S. merchandise trade deficit
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