Insights 
VT 
Alberto Musalem from the Federal Reserve Bank of St Louis has expressed concerns about US trade policy’s potential impact on growth and price volatility. The current monetary policy is positioned well, and a balanced response to inflation and unemployment is possible if inflation expectations remain stable.
However, if these expectations change, the policy should focus on price stability. The US economy shows underlying strength with a stable labour market, although inflation is above the 2% target. Economic policy uncertainty is high, even though tariffs after May 12th de-escalation could soften the labour market and increase prices.
Labor Force Stability
Long-term inflation expectations are stable, but economic activity is affected as businesses and households hesitate due to uncertainty. The labour force continues to grow despite reduced immigration, though some industries face worker shortages.
In other news, AUD/USD remains in a range while US-China trade optimism supports the Aussie. USD/JPY faces pressure amid economic releases and JPY strength. Gold maintains strength, looking to surpass $3,300. Select altcoins, including Aave and Curve DAO, show strong performance following Bitcoin’s trajectory. China’s April slowdown reflects economic uncertainty’s impact, affecting retail and investment but less on manufacturing.
What Musalem effectively laid out is a classic conditional framework—if inflation expectations do not drift too far afield, policy can remain balanced between full employment and controlling prices. But the moment those expectations show signs of detachment from the target, stabilising prices must take precedence. It’s not academic theory; this is a live policy stance with market implications.
So, the takeaway is straightforward. We’re in a phase where the data holds the key—especially indicators tied to wages, employment resilience, and consumer inflation. With the labour market staying relatively strong despite tariff aftershocks and sectors seeing selective shortages, caution will likely guide the Fed’s hand for now. Rate projections may remain anchored unless we see a sudden dislodging of inflation expectations.
Fx Market Sentiment
For those of us trading volatility or looking at correlation spreads, the growing uncertainty from trade policy still matters, primarily because it influences appetite for hiring and investing. That’s where we may see options volume build—short-dated straddles could benefit if uncertainty leads to aggressive repricing in equities and credit.
On the FX side, movements in AUD/USD and USD/JPY are telling us where positioning and macro sentiment are shifting. The former’s range-bound nature suggests many are waiting rather than committing, possibly due to the ongoing push-and-pull from Chinese growth signals and US dollar liquidity. Meanwhile, downward pressure on USD/JPY implies that markets are absorbing a mix of weaker US data and the yen’s status as a destination during turbulence.
These kinds of price zones are not meant to be chased but monitored for breakouts, especially around key speech dates or economic prints. For now, premium sellers may be happy with the lack of direction, but it’s thin ice once broader macro catalysts shift sharply.
Gold’s resilience—we should watch that closely. It’s sticky near recent highs, and that suggests many still see headline risks that aren’t fully reflected in equities. If gold breaches $3,300, that may indicate a stronger wave of defensive positioning. Possible implications for cross-asset hedges, particularly in commodity-linked plays such as energy and base metals, could follow quickly.
Cryptos, particularly the outperformance in Aave and Curve DAO, are again mirroring Bitcoin. That’s worth noting because it shows speculative appetite remains, albeit within familiar technical channels. Without a break in broader economic data or regulation narratives, these coins may continue shadowing Bitcoin rather than setting their own path.
The data flow from China offers a different lens. While retail and investment indicators point to softness, the manufacturing side remains more muted in impact. It suggests fiscal or policy supports may be quietly holding that segment together, at least for now. If further weakness shows up in the next PMI cycles, the impact across commodity currencies and industrial metals could be abrupt.
Now isn’t the time for sentiment-based setups. Reacting to headline shifts too quickly could backfire. Patience, and a firm grip on the data calendar, will be key over the coming sessions. Skewed positioning across rates and commodities is already hinting at upcoming rebalancing. We’d be wise to match that discipline.
