An interesting pattern has appeared over the last month across major financial market asset classes. This is most clearly reflected in Top Forex Movers in May and broader CFD performance, including Forex markets. Since the start of May, risk-on assets have dominated performance. In contrast, traditional risk hedges have been overrepresented among underperforming assets.
Part of this shift can be attributed to the pause in military action in the Persian Gulf. It is also linked to hopes of reaching a deal to open the Strait of Hormuz. Brent and WTI were among the worst-performing assets last month. Plenty has been written about crude oil. However, what stands out more is that all precious metals are set to end the month in the red, with silver only just barely avoiding deeper losses. Overall, markets have taken on a strongly pro-risk attitude. This raises the question of whether the trend will continue.
Stocks Up on Tech, How Does That Affect Forex?
Four out of the five top-performing assets last month were stock indices, led by the Nasdaq and the Nikkei. The main driver was a resurgence in demand for AI-backed tech stocks after Q1 earnings were well above already-hyped analyst expectations. Demand for memory superseded chips as a major concern, helping Far East indices rise.
The side effect, beyond a general surge in risk appetite that supported emerging market currencies, was a shift away from industrial-base assets. This left the Euro underperforming. In fact, the Euro was the worst-performing of the major currencies last month, while the dollar was the only major currency in the green.
Rising Yields Flash Warning Signs
The main driver of the uneven currency performance last month is rising yields. This theme is likely to gain more attention in the coming weeks. Higher fuel prices have increased global inflation and may trigger a new round of rate hikes. As a result, markets have already pushed bond yields higher in anticipation, which has created mixed effects across currencies.
However, higher interest rates on sovereign bonds would mean governments would have to pay more interest on their debt, crimping their spending. This is particularly crucial for the UK and Eurozone countries, which are already facing constraints due to budgetary rules. A large proportion of the surge in European assets last year, which helped fuel the Euro’s 17% rise against the dollar in 2025, was based on expectations of increased government spending. Higher yields would reduce governments’ ability to stimulate the economy with deficit spending, putting downward pressure on their currencies.
Precious Metals Under Increasing Stress
Speaking of downward pressure, the underperformance of precious metals merits a mention. Gold is down almost 5% over the last month, a part of which could be attributed to a stronger dollar and unwinding of geopolitical hedging amid the US-Iran ceasefire. But that doesn’t explain the whole of the precious metals complex being lower.
Silver is the exception, being propped up by demand for solar panels, its chief industrial use.
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On the other end, palladium is leading the decline. Analysts see structural oversupply as vehicle trade-ins rise and EV adoption grows.
Overall, rising yields may keep pressure on precious metals in the coming weeks. Central banks are also expected to turn more hawkish.
