Navigating Volatility: Key Data and Trade Events to Watch in FX and Bonds

The coming week of May 13–17, 2025, will be a critical period for investors, with a dense schedule of U.S. economic data releases, major trade policy announcements, and geopolitical developments set to test FX and bond markets. From inflation readings to trade disputes and central bank dynamics, the week’s events could redefine market sentiment and asset allocations. Let’s dissect the key drivers and their implications.

Key Economic Data Releases: A Crucible for Markets

The week opens with three high-impact U.S. reports that will shape expectations for inflation, consumer demand, and trade dynamics:

1. Consumer Price Index (CPI) – May 13
2. The April CPI report, released at 8:30 AM ET, will provide the latest snapshot of U.S. inflation. Economists forecast a 0.3% month-over-month rise, with core CPI (excluding food and energy) expected at 0.3% as well.

4. A hotter-than-expected reading could reignite hawkish Fed speculation, supporting the USD but pressuring bonds. Conversely, a cooling inflation print might signal the Fed is nearing the end of its tightening cycle, favoring risk assets.

5. Retail Sales – May 15

6. April’s retail sales data (excluding autos) is expected to show a modest 0.4% increase. Weakness here would underscore slowing consumer spending, a key pillar of U.S. growth.

8. A miss could amplify recession fears, driving investors toward safe-haven bonds and weakening the USD against majors like the Yen or Swiss Franc.

9. Trade Balance – May 13

10. March’s trade deficit is projected to narrow to -$85 billion from -$87.6 billion in February. A smaller deficit might ease trade war concerns, but persistent deficits could fuel calls for protectionist policies.

Trade Policy Announcements: The USD’s Next Stress Test

The week’s defining event is the May 16 deadline for the U.S. Customs and Border Protection (CBP) to publish refund procedures for retroactive tariffs imposed since March 4. These tariffs, covering automobiles, steel, and fentanyl-related goods, have burdened importers, and clarity on refunds is critical:

• Scenario 1: If refunds are streamlined, U.S. import costs decline, easing inflation pressures and weakening the USD as Fed rate-cut bets rise.
• Scenario 2: Delays or restrictive criteria could prolong uncertainty, supporting the USD as investors seek safety amid trade disputes.

The announcement also impacts trade-dependent currencies like the Canadian Dollar (CAD) and Mexican Peso (MXN). For example, a resolution might ease pressure on MXN, which has been battered by oil smuggling sanctions targeting Mexican cartels.

Geopolitical Crosscurrents: From China to the Middle East

1. U.S.-China Trade Tensions

2. Beijing’s retaliatory tariffs (up to 125%) and export curbs on rare earth minerals remain unresolved. A diplomatic breakthrough could stabilize Asian currencies (CNY/USD, KRW/USD) and reduce bond market volatility.

3. Middle East Risks

4. May 15 marks Nakba Day, a date historically linked to regional conflicts. Escalating tensions could disrupt oil supplies, boosting crude prices and pressuring emerging market bonds.

5. Philippine Elections (May 13)

6. The ruling party’s expected victory assures policy continuity but raises concerns over delayed infrastructure spending, which could deter foreign bond investors.

Bond Markets: Safe Havens vs. Emerging Risks

The week’s bond dynamics hinge on three pillars:

1. Eurozone Inflation – May 17

2. The ECB’s May 17 CPI Flash Estimate will guide its policy stance. A drop below 0.5% could cement expectations of a July rate cut, flattening the yield curve and boosting peripheral bonds.

3. China’s Monetary Policy

4. Weak domestic demand (April’s 0.8% consumer inflation) may prompt the PBOC to cut rates or lower reserve requirements by mid-May, supporting Asian bonds but signaling economic fragility.

5. U.S. Treasury Demand

6. Geopolitical uncertainty is likely to boost demand for Treasuries, especially if Middle East tensions spike. This could compress yields, benefiting long-dated bonds.

Conclusion: Prioritize Flexibility Amid Uncertainty

Investors must treat this week as a pivot point for both FX and bond markets. Key takeaways:

• FX: The USD’s trajectory hinges on May 16’s tariff refund rules and CPI data. A dovish Fed outcome (via weak inflation) could see USD/JPY dip below 135, while USD/EUR could retreat toward 1.08 if ECB easing is confirmed.
• Bonds: Safe-haven demand remains elevated, but China’s stimulus and Eurozone data could create opportunities in peripheral and emerging market debt—if geopolitical risks stay contained.

The May 16 CBP announcement is the single most critical event: its clarity or ambiguity will determine whether markets stabilize or spiral into further volatility. For now, traders should favor short USD positions if refunds are resolved, pair the Yen and Swiss Franc as hedges, and monitor China’s policy actions for bond allocations. Stay nimble—this week is far from over.