Oil prices rallied to a seven-week high on Wednesday as markets assess the results of the US-China trade talks, and amid pessimism about the US-Iran nuclear negotiations. 

Strong Gains

Brent futures rose 1.2% to $67.69 a barrel, while US West Texas futures added 1.5% to $65.94 a barrel.

The US and China reached a trade framework in London after two days of intensive negotiations, with representatives waiting for the final approval of Trump and Xi Jinping to move forward. 

This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.

 Iran Pessimism 

On the other hand, US President Trump expressed his lack of confidence in the chances of reaching a nuclear deal with Iran that would stop uranium enrichment. 

Iran threatened to hit US bases in the Middle East if the US attempted an attack on Iranian infrastructure. 

OPEC+ Output

OPEC+ has decided to raise output by 411 thousand bpd in July, heaping more pressure on the prices.

Now traders await the weekly US inventory report from the Energy Information Administration later today, after initial data showed the stocks fell by 370 thousand barrels last week. 

Both the US dollar and the yuan stabilized on Wednesday after progress in the US-China trade talks in London, paving the way for calming the recent trade war. 

The US and China reached a trade framework in London after two days of intensive negotiations, with representatives waiting for the final approval of Trump and Xi Jinping to move forward. 

This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.

Limited Movements for Global Currencies 

The US dollar edged up 0.7% against the dollar following the news to $1.141, while the yen stabilized at 144.91.

The yuan was little changed as well at 7.1873.

Ongoing Concerns

Despite the deal, analysts caution that tariffs remain much higher than their levels last year, and remain a burden on the global economy.

Investors are clearly losing confidence in US assets, with the dollar losing over 8% of its value since the start of the year.

Focus on UK Spending Plans

Markets are focusing on the UK Government’s distribution of over 2 trillion pounds of government spending between 2026 and 2029.

The pound shed 0.1% to $1.3483.

Markets will analyse the new US inflation data released today to gauge the likelihood of future Fed rate cuts.

They’re also closely monitoring an auction of US 10-year treasury yields worth $39 billion to gauge investor interest in US debt. 

Risky-linked assets lost ground today, with the Australian dollar down 0.25% to $0.6505, while the New Zealand dollar shed 0.33% to $0.6033.

Gold prices rose in European trade on Wednesday on track for the second profit in three days as the dollar declined against major rivals. 

The US and China reached a trade framework in London after two days of intensive negotiations, with representatives waiting for the final approval of Trump and Xi Jinping to move forward. 

Now global markets await major US inflation data later today for May to gather more clues on potential Fed rate cuts in the second half of the year.

The Price

Gold prices rose 0.75% to $3348 an ounce, with a session-low at $3315.

On Tuesday, gold slipped 0.1%, resuming losses and approaching a week low at $3293.

US Dollar

The US dollar index fell 0.1% on Wednesday against a basket of major rivals, providing more support to gold futures.

Trade Agreement 

US and Chinese trade representatives said a trade framework has been reached, with both sides seeking approval from Trump and Xi Jinping to carry on discussions. 

This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.

The most crucial items of the initial agreement is reducing limits on US chip exports, and China’s rare-earth minerals and magnet exports.

US Rates

According to the Fedwatch tool, the odds of a 0.25% Fed June rate cut stood at just 1%, and at 17% for a July rate cut.

According to the London Securities Exchange data, traders now expect 50 basis points of US interest rate cuts overall this year, likely starting in October.

SPDR

Gold holdings at the SPDR Gold Trust fell 0.31 tons yesterday to a total of 935.91 tons, away from May 13 highs at 936.22 tons.

The euro fell in European trade on Wednesday on track for the first loss in three days against the dollar, as recession concerns diminished following an initial US-China trade agreement in China. 

The odds of an ECB interest rate cut in July dropped, with the eyes now focused on US inflation data later today to gauge the likelihood of Fed rate cuts in the second half of the year.

The Price

The EUR/USD price fell 0.15% today to $1.1405, with a session-high at $1.1439.

The euro rose 0.1% on Tuesday against the dollar, the second profit in a row. 

US Dollar

The dollar index rose 0.1% on Wednesday against a basket of major rivals as US recession fears took a back seat. 

Trade Agreement 

US and Chinese trade representatives said a trade framework has been reached, with both sides seeking approval from Trump and Xi Jinping to carry on discussions. 

This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.

The most crucial items of the initial agreement is reducing limits on US chip exports, and China’s rare-earth minerals and magnet exports.

European Rates

ECB President Christine Lagarde hinted at the possible end of the current cycle of policy easing, which was in response to a combined shock such as the Covid 19 pandemic, the Ukrainian war, and the energy crisis.

According to a Reuters source, most ECB members now aim at holding interest rates unchanged in July, with the global markets now expecting just an additional 25 basis points of rate cuts by the end of the year.  

The odds of a 0.25% ECB rate cut in July now stood below 30%, with traders awaiting more eurozone data and remarks by ECB officials to gather more clues.