EUR/GBP rebounds following UK GDP data

EUR/GBP increased to near 0.8437, as upbeat UK growth numbers bolstered the sterling. The UK economy expanded by 0.7% QoQ in the three months to March 2025, following a 0.1% increase in the final quarter of 2024, surpassing the estimated 0.6% rise during the reported period. The UK GDP rose 1.3% year-over-year (YoY) in Q1 2025 versus an expected 1.2% and a 1.5% growth in Q4 2024. Monthly UK GDP stood at 0.2% in March, compared to 0.5% growth in February, exceeding the anticipated 0% reading. Meanwhile, the Index of Services (March) recorded 0.7% 3M/3M against a prior figure of 0.6%. Additional data from the UK indicated that Industrial Production and Manufacturing Production decreased by 0.7% and 0.8%, respectively, in March, both falling short of market expectations. The preliminary Total Business Investment for the January to March quarter surged by 5.9%. Furthermore, preliminary quarterly Total Business Investment surged by 5.9% in the January to March quarter. Despite growing optimism about easing price pressures, Bank of England Chief Economist Huw Pill cautioned that inflation may prevail at unexpectedly high levels, potentially reinforcing the necessity to keep interest rates elevated. “I remain concerned that we have seen a sort of structural change in price and wage-setting behaviour, maybe driven by the type of things involved in models of the inflation process from the ’70s and ’80s.” On Wednesday, Catherine Mann, a member of the BoE Monetary Policy Committee (MPC), emphasised the need to maintain current monetary policy levels because of inflationary risks and robust labour market conditions. She noted that although employment data for the three months ending in March revealed slower job growth on Tuesday, the labour market remains strong. “The first observation is that the labour market has been more resilient. Now, yes, we’ve had some prints that are indicative of a slowing labour market, but it is not a non-linear adjustment,” Mann stated.

On the Euro front, growing market anticipation that the European Central Bank (ECB) will reduce the interest rate in the upcoming policy meeting, supported by the confidence that US tariff measures will not significantly raise inflation in the Eurozone, might weigh on the shared currency. On Thursday, German Finance Minister Lars Klingbeil addressed parliament: “We must respond to the US tariffs with unity and determination.” He added, “We expect the negotiations … will lead to a favourable outcome, but I want to emphasise that we are ready to take action if needed.”

In today’s session, broader market sentiment around the UK and Eurozone Gross Domestic Product (GDP) will drive the EUR/GBP exchange rate.

AUD/USD struggles after robust Australian wage growth

AUD/USD weakened to 0.6420, as easing global trade tensions improved risk appetite, coupled with upbeat Australian employment data, boosting demand for risk-sensitive Aussies. On Thursday, the Australian Bureau of Statistics (ABS) issued official data stating that the unemployment rate steadied at 4.1% in April, unchanged from 4.1% in March, aligning with market expectations. The Australian employment change arrived at 89K in April, up from 36.4K in March (revised from 32.2K), compared with the consensus forecast of 20K. The participation rate in Australia increased to 67.1% in April, compared to 66.8% in March. The full-time employment increased by 59.5K during the same period, up from 12.2K in the previous reading (revised from 15K). Australia’s Wage Price Index rose by 3.4% YoY in Q1, up from a 3.2% increase in Q4 2024, beating market forecasts of 3.2%. On a quarterly basis, wages climbed by 0.9%, accelerating from 0.7% in the previous quarter, also above the forecast of 0.8%. The part-time employment increased by 29.5K in April compared to 24.2K in March (revised from 17.2K). Moreover, Australia’s Westpac Consumer Confidence Index climbed 2.2% month-on-month to 92.1 in May, bouncing back from a 6.0% decline the prior month, marking its third increase this year. On the policy front, the market widely anticipates the Reserve Bank of Australia (RBA) reducing the interest rate at its May 20 meeting.

On the other hand, marketers remain cautious about the greenback amid ongoing trade-related uncertainties despite a slight easing in tensions. Federal Reserve Vice Chair Philip Jefferson emphasised that the current monetary policy is well-equipped to address economic changes. He pointed out that inflation data suggests progress toward the 2% target, though future trends remain unclear, particularly due to tariffs. Jefferson mentioned that while tariffs could increase inflation, it is uncertain whether the effects would be temporary or long-lasting. Meanwhile, Mary Daly, President of the Federal Reserve Bank of San Francisco, remarked late Wednesday that the robustness of the US economy enables policymakers to exercise patience as they await further insights into how President Donald Trump’s policies might impact businesses and households.

In today’s session, key US economic data, including PPI, retail sales, jobless claims, and a speech by Fed Chair Jerome Powell, may influence near-term Fed rate expectations and affect the AUD/USD exchange rate.

GBP/JPY sinks on robust UK GDP data

GBP/JPY lost momentum near 193.66, following the release of the better-than-expected UK Gross Domestic Product (GDP) data. The Office for National Statistics (ONS) reported that the UK economy expanded by 0.7% quarter-on-quarter (QoQ) in the three months to March 2025, following a 0.1% increase in the final quarter of 2024, surpassing the estimated 0.6% rise for the reported period. The UK GDP rose by 1.3% year-over-year (YoY) in Q1 2025, compared to an expected 1.2% and a 1.5% growth in Q4 2024. Monthly UK GDP was at 0.2% in March, down from 0.5% growth in February, exceeding the anticipated 0% reading. Meanwhile, the Index of Services in March recorded a 0.7% increase over three months against a prior figure of 0.6%. Further data from the UK revealed that Industrial Production and Manufacturing Production fell by 0.7% and 0.8%, respectively, in March, both below market forecasts. However, the preliminary Total Business Investment for the January to March quarter increased sharply by 5.9%. Meanwhile, the UK Manufacturing and Industrial Production data for March came in weaker than expected. Month-on-month, Manufacturing and Industrial Production data declined by 0.8% and 0.7%, respectively, while both were expected to contract by 0.5%. 

Regarding policy, Catherine Mann, a member of the BoE Monetary Policy Committee (MPC), emphasised that the current monetary policy should remain unchanged due to inflationary risks and robust labour market conditions. She noted that the labour market is performing well, even though the employment data for the three months culminating in March indicated a slowdown in job growth as reported on Tuesday. “The first observation is that the labour market has been more resilient. Now, yes, we’ve had some prints that are indicative of a slowing labour market, but it is not a non-linear adjustment,” Mann explained.

On the other hand, a slight deterioration in global risk sentiment increased the demand for safe-haven assets, thus boosting the demand for the JPY. Additionally, expectations that the Bank of Japan (BoJ) will raise interest rates in 2025, along with hopes for a trade deal with the US, further support the JPY. Japan’s Producer Price Index (PPI) rose 0.2% in April, and the yearly rate came in at 4%, down from 4.2% in the previous month. On Tuesday, Bank of Japan (BoJ) Deputy Governor Shinichi Uchida emphasised that the central bank will open the door for further policy normalisation. However, the central bank will continue raising rates if the economy and prices improve as projected. As overseas economies recover, Uchida added, Japan’s economic growth is expected to slow to around its potential before resuming moderate growth. Japan’s chief trade negotiator Ryosei Akazawa is reportedly scheduled to visit Washington as early as next week for a third round of trade negotiations with the US. Japanese Prime Minister Shigeru Ishiba reiterated that Japan would not accept a preliminary deal that excluded automobile provisions and called on Washington to eliminate the 25% tariff on Japanese car exports.

In upcoming sessions, the UK’s growth numbers, along with optimism over a potential US-Japan trade deal and GDP data, will significantly influence the GBP/JPY exchange rate.

EUR/USD retreats following Eurozone GDP data

EUR/USD recovered near 1.1205 following the release of the preliminary Eurozone Gross Domestic Product (GDP) report for Q1 2025, supporting the shared currency. The Eurozone’s economy grew by 0.3% in the first quarter of 2025 (Q1), slightly lower than the preliminary estimate of 0.4%, as revealed in Eurostat’s second estimate published on Thursday. The region’s Gross Domestic Product (GDP) rose at an annual rate of 1.2% in Q1, aligning with the initial estimates as anticipated. Additionally, Eurozone Employment Change for Q1 was reported at 0.3% quarter-over-quarter (QoQ) and 0.8% year-over-year (YoY). In Germany, wholesale prices increased by 0.8% YoY in April 2025, down from a 1.3% rise in March and a 1.6% increase in February. On a month-over-month basis, prices fell by 0.1% from March to April. Meanwhile, France’s final Consumer Price Index (CPI) experienced a 0.6% month-over-month (m/m) rise, following a 0.2% gain in March.

On the policy front, growing market anticipation that the European Central Bank (ECB) will reduce the interest rate in the upcoming policy meeting, supported by the confidence that US tariff measures will not significantly raise inflation in the Eurozone, might weigh on the shared currency. On Thursday, German Finance Minister Lars Klingbeil addressed parliament: “We must respond to the US tariffs with unity and determination.” He added, “We expect the negotiations… will lead to a favourable outcome, but I want to emphasise that we are ready to take action if needed.” On Wednesday, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel stated that the interest rate decision for June will rely on forthcoming data. He mentioned that the exact effect of tariffs on inflation and the overall economy is still unclear and indicated that new staff projections will be released next month. Nagel emphasised that central banks must adapt to managing uncertainty.

On the other hand, marketers remain cautious about the greenback amid ongoing trade-related uncertainties despite a slight easing in tensions. In April, the Consumer Price Index (CPI) increased by 2.3% compared to the previous year, which is slightly lower than March’s 2.4% and the expectations set by the market, marking the lowest annual headline inflation in three years. Mary Daly, President of the Federal Reserve Bank of San Francisco, stated late Wednesday that the strength of the US economy allows policymakers to remain patient while they await further information on the potential effects of President Donald Trump’s policies on businesses and households. On Thursday, US Treasury Secretary Scott Bessent mentioned, “We are entering a series of negotiations with China to prevent further escalation.” He also emphasised, “We now have a mechanism with our Chinese counterparts.”

In today’s sessions, US Retail Sales and Producer Price Index (PPI), along with Federal Reserve (Fed) Chair Jerome Powell’s speech, will drive the EUR/USD exchange rate.