EUR/GBP Rebounds Despite Dovish ECB Tone

EUR/GBP continues to fluctuate near 0.8483, as growing expectations of additional interest rate cuts by the European Central Bank (ECB) in June’s policy meeting undermine the euro. While the ECB officials maintain an optimistic stance that inflationary pressure will be under control, concerns over the Eurozone’s economic outlook could deter market sentiment. On the trade policy front, the European Commission has initiated a public consultation to explore possible countermeasures against US tariffs. On Wednesday, European Trade Commissioner Maros Sefcovic stated that the Commission would soon unveil measures to mitigate the economic effects of US tariffs. He added, “Tomorrow we will announce the next preparatory steps, both in the area of possible rebalancing measures and also in areas important for further discussions.” He emphasised that the EU’s main focus continues to be attaining a negotiated agreement with the US, though not at any cost. Germany experienced an unexpected boost in its industrial sector activity during March, with industrial output rising by 3% month-over-month (MoM), as reported by the federal statistics authority, Destatis. This figure exceeded the projected increase of 0.8% and followed a decline of 1.3% in February. On a year-over-year (YoY) basis, industrial production in Germany fell by 0.2% in March, contrasting with February’s drop of -4.1%. Additionally, Germany’s trade surplus surged to EUR 21.1 billion in March, increasing from a revised EUR 17.9 billion in February and surpassing expectations of EUR 19.1 billion. Exports rose by 1.1% MoM to EUR 133.2 billion, marking an 11-month peak, while imports unexpectedly decreased by 1.4% to EUR 112.1 billion.

On the other hand, the Bank of England’s (BoE) hawkish stance to lower its key interest rate by 25 bps, matched with current market anticipations, bolstered the sterling. Seven of the nine members of the Monetary Policy Committee (MPC) favoured reducing interest rates, with Swati Dhingra and Alan Taylor advocating for a substantial cut of 50 basis points. In contrast, MPC member Catherine Mann and Chief Economist Huw Pill preferred maintaining the interest rate at 4.5%. The market had anticipated that only Swati Dhingra would back a larger reduction, while the others would support a 25bps cut. Moreover, President Trump’s announcement of the US-UK trade deal lent support to the sterling.

In the absence of primary economic data from both regions, any development in the US-UK trade agreement and BoE Governor Andrew Bailey’s speech could influence the EUR/GBP exchange rate.

NZD/USD Subdued Following China’s Trade Data

NZD/USD fell to near 0.5895, following the release of the latest Chinese trade data, highlighting a slowdown in external demand. China’s trade surplus decreased to CNY 689.99 billion in April, down from CNY 736.72 billion in March. Exports grew by 9.3% year-on-year, a decline from March’s 13.5% increase, while imports increased by 0.8% YoY, bouncing back from a previous decline of -3.5%. Measured in US Dollars (USD), the trade surplus reached $96.18 billion, exceeding the $89 billion forecast but lower than March’s $102.63 billion. Export growth slowed to 8.1% YoY from 12.4%, yet surpassed the anticipated 1.9%. Imports fell slightly by 0.2% YoY, better than the expected -5.9% and the previous -4.3%. China’s trade surplus with the US decreased to $20.46 billion in April, down from $27.6 billion in March.

On the domestic front, Employment increased by 0.1% compared to the last quarter, aligning with predictions and illustrating a minor recovery from the earlier 0.1% decline. The unemployment rate remained unchanged at 5.1%, consistent with the previous quarter and below the anticipated 5.3%. Wage inflation fell to 0.4% quarter-on-quarter, down from 0.6% last quarter, suggesting a decrease in wage pressures. On Thursday, New Zealand Prime Minister Christopher Luxon remarked that although financial markets experienced a significant decline in early April, they have made a partial recovery, albeit with continuing volatility. He stressed the significance of the global landscape but conveyed confidence in New Zealand’s economic rebound. In contrast, Reserve Bank of New Zealand (RBNZ) Governor Christian Hawkesby cautioned that the country remains at risk due to international trade disruptions caused by US tariff policies. Hawkesby pointed out that weak labour market indicators and persistent dysfunctions in global markets are pressing issues.

The Federal Reserve’s hawkish interest rate decision, along with a larger-than-expected drop in new US jobless claims, continues to bolster the greenback. US Initial Jobless Claims decreased to 228,000 for the week ending May 3, slightly better than predictions and lower than the previous week’s figure of 241,000. The insured unemployment rate remained stable at 1.2%, while the four-week moving average increased to 226,000. Continuing Jobless Claims fell by 29,000 to 1.879 million for the week ending April 26, demonstrating the persistence of labour market strength.

In today’s session, while an anxious market mood dampened the appeal of risk-sensitive currencies, influential speeches from FOMC members could strengthen the US dollar, affecting the movements of NZD/USD.

AUD/JPY Struggles Following Robust Japanese Economic Data

AUD/JPY hovered near 92.99, as a stronger-than-expected rise in personal spending for March boosted the yen. In March, Japan’s overall household spending rose by 2.1% year-on-year, recovering from a 0.5% decrease in February and exceeding the market expectation of a 0.2% increase. This is the highest growth since December, primarily fuelled by rising utility expenses due to colder weather. Meanwhile, Japan’s labour cash earnings increased by 2.1% YoY in March, down from February’s 2.7% and falling short of the anticipated 2.3%. Additionally, real wages, adjusted for inflation and seen as a significant indicator of purchasing power, declined by 2.1%, marking the third consecutive month of decrease. However, rising consumer inflation raises concerns about Japan’s growth outlook amid uncertainty over US tariffs, ahead of an upcoming first-quarter Gross Domestic Product report, scheduled for next week. Meanwhile, optimism surrounding US-China trade talks and the beginning of the US-China tariff negotiations in Switzerland this week boosts the yen.

Recent minutes from the Bank of Japan’s (BoJ) monetary policy meeting held on March 18-19 revealed that the central bank remains prepared to raise interest rates further if inflation trends continue. However, policymakers emphasised caution due to global volatility arising from increased economic uncertainty related to US tariff policies. Meanwhile, BoJ Governor Kazuo Ueda stated that he is aware of the impact of rising food prices on underlying inflation.

On the other hand, the latest Chinese data and persistent optimism surrounding the US-China trade talks further support the Aussie. China’s trade surplus decreased to CNY 689.99 billion in April, down from CNY 736.72 billion in March. Exports grew by 9.3% year-on-year, a decline from March’s 13.5% increase, while imports increased by 0.8% YoY, bouncing back from a previous decline of -3.5%. Measured in US Dollars (USD), the trade surplus reached $96.18 billion, exceeding the $89 billion forecast but lower than March’s $102.63 billion. Export growth slowed to 8.1% YoY from 12.4%, yet surpassed the anticipated 1.9%. Imports fell slightly by 0.2% YoY, better than the expected -5.9% and the previous -4.3%. China’s trade surplus with the US decreased to $20.46 billion in April, down from $27.6 billion in March. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer have confirmed that they will meet their Chinese counterparts over the weekend, aiming to de-escalate the trade war. President Trump has reiterated a tough stance on China, highlighted by his appointment of a new envoy to Beijing. While discussions on tariff exemptions are underway, Trump stated the US is “not looking for so many exemptions.” In contrast, Chinese Vice Foreign Minister Hua Chunying expressed confidence in China’s ability to manage ongoing trade tensions, asserting that the country remains resilient and fully capable of withstanding external pressures.

Broader market sentiment regarding the US-China trade talks will be a key driver for the AUD/JPY exchange rate.

GBP/USD Wobbled Ahead of US-China Trade Talks

GBP/USD edged higher near 1.3269, as the pound gained following the Bank of England’s (BoE) decision to deliver the market a widely anticipated quarter-point rate cut. Catherine Mann, a member of the Bank of England’s Monetary Policy Committee (MPC), along with Chief Economist Huw Pill, preferred to maintain the current interest rates. In contrast, investors anticipated that all MPC members would advocate for a rate cut. Among the seven MPC members favouring monetary policy easing, two officials, Swati Dhingra and Alan Taylor, supported a more substantial cut of 50 basis points. The monetary policy announcement emphasised a “gradual and careful” approach to easing, accompanied by an upward revision of this year’s Gross Domestic Product (GDP) forecast. The Bank of England projects a quicker economic expansion at 1%, an increase from the 0.75% predicted in February. On Friday, Bank of England Governor Andrew Bailey reaffirmed his steadfast commitment to the 2% inflation target, noting that the “Latest choice of BoE scenarios does not mean inflation risk is skewed in one direction.” Commenting on the recent policy decision, he stated, “Good, we have a diversity of views on the Monetary Policy Committee (MPC). We will maintain a baseline projection based on a staff proposal that a majority of the MPC agrees is reasonable. We will utilise scenarios to explore risks surrounding the baseline and to accommodate differing opinions within the committee.” Regarding ongoing trade talks, he remarked, “The global economic environment is expected to remain challenging and less predictable than before.”

The Federal Reserve’s hawkish interest rate decision and a surprising decline in new jobless claims continue to support the strength of the greenback. Additionally, encouraging developments alleviate market worries that an extensive trade war could lead to a US recession. Furthermore, the Federal Reserve has indicated that it does not plan to cut interest rates shortly, despite increased economic uncertainty, which has propelled the US Dollar to a four-week peak. For the week ending May 3, US Initial Jobless Claims fell to 228,000, slightly outperforming expectations and down from the previous week’s count of 241,000. The insured unemployment rate held steady at 1.2%, while the four-week moving average rose to 226,000. Continuing Jobless Claims dropped by 29,000 to reach 1.879 million for the week ending April 26, highlighting the ongoing strength in the labour market.

In today’s speeches, market sentiment around the US-UK trade deal and influential speeches from FOMC members will influence the GBP/USD exchange rate.