GBP/USD Buoyed by Robust UK GDP Data

GBP/USD climbed near 1.3164, following the bearish sentiment around the greenback, stemming from fears of a US recession amid the escalating US-China trade war. On Thursday, China imposed 125% tariffs on US goods in response to Trump’s increased duties on Chinese imports to an unprecedented 145%, affecting the market mood. Last week’s US Consumer Price Index (CPI) inflation rate fell to 2.4% year-over-year, while Core CPI, which excludes food and energy costs, increased by 2.8% annually, down from 3.1% previously. Monthly, the headline CPI declined by 0.1%, while the core CPI rose by 0.1%. The University of Michigan’s sentiment index dropped to 50.8 in April, while one-year inflation expectations surged to 6.7%. The US Producer Price Index (PPI) increased by 2.7% year-over-year in March, down from 3.2% in February, with the core rate easing to 3.3%. Jobless claims rose to 223,000 while continuing claims fell to 1.85 million—indicating a mixed picture in the labour market.

On the policy front, constant concerns over the potential economic fallout continue to fuel speculation that the Federal Reserve (Fed) will resume its rate-cutting cycle. On Sunday, Minneapolis Federal Reserve President Neel Kashkari noted that the intensity of the potential economic fallout from Trump’s trade war will depend on the market’s reaction and the capabilities to resolve the trade uncertainties. Kashkari also remarked, “This is the biggest hit to confidence that I can recall in the 10 years I’ve been at the Fed—except for March 2020 when COVID first hit.” On Monday, Trump announced the semiconductor tariff rate over the next week. He also added, “It will be announced soon, but there has to be some flexibility.”

Sterling remained stable following the rise in UK 10-year gilt yields, reaching 4.76%, despite the ongoing market fluctuations in the global stock market after escalating US-China trade strains. Robust economic data and aggressive market sentiment that the Bank of England (BoE) will reduce rates in the upcoming cycle support the pound. In February, the UK economy expanded by 0.5%, significantly better than January’s flat performance and the market’s prediction of just 0.1% growth. The Index of Services saw a 0.6% growth for the three months compared to January’s 0.4%. Construction output rose by 0.4% from the previous month, outpacing the estimated 0.2% and last month’s decline of -0.3%. Industrial production revealed a notable increase of 1.5% month-over-month, far exceeding the predicted growth of 0.1% and the previous month’s decline of -0.5%. Manufacturing output improved by 2.2% month-over-month, exceeding the expected 0.2% increase and the earlier drop of -1.0%. ​In February 2025, the UK’s goods trade deficit widened to £20.8 billion, surpassing both the forecasted £17.3 billion and January’s £18.2 billion deficit.

In upcoming sessions, amid a lack of key economic data, fears over the global economic outlook, as well as speeches by Federal Reserve Bank of Richmond President Thomas Barkin and Federal Reserve Governor Christopher Waller, will guide the GBP/USD exchange rate.

NZD/USD Climbed on Robust Chinese Trade Data

NZD/USD advanced near 0.5878, following stronger-than-expected Chinese trade figures. China’s trade surplus, measured in yuan, surged to CNY 736.72 billion from CNY 122 billion in February. In USD terms, the surplus climbed to $102.6 billion, surpassing the $77 billion forecast; however, it slightly fell from the previous $170.51 billion. Exports increased by 13.5% year-over-year, up from February’s 3.4%, while imports declined by 3.5%, a smaller decrease than the prior 7.3% drop. While China’s General Administration of Customs noted that the global economic outlook carries challenges, it also assured an optimistic approach via a report that foreign trade has shown both quantitative and qualitative growth.

On the domestic front, the BusinessNZ Performance of Services Index (PSI) printed at 49.1, indicating a slight contraction, slightly above February’s 49.0. Additionally, Trump’s recent announcement hinted at the marginal tariffs on Chinese imports, especially for semiconductors and electronics, supporting the Kiwi. He also suggested that these goods would remain subject to the current 20% tariffs related to fentanyl rather than the previously recommended 145% duties. While last week’s Reserve Bank of New Zealand’s (RBNZ) decision to reduce its benchmark interest rate by 25 basis points aligned with market expectations, traders continue to anticipate that the central bank will introduce further interest rate cuts, which could limit the upside for the New Zealand Dollar (NZD).

On the other hand, the US Dollar Index (DXY) continued its downward traction, reflecting the market reaction to the softer economic data and the Fed’s dovish policy stance. The University of Michigan’s Consumer Sentiment Index declined to 50.8 in April, while one-year inflation expectations climbed to 6.7%. On the inflation front, the US Producer Price Index (PPI) increased 2.7% year-over-year in March, easing from 3.2% in February. Core inflation also slowed to 3.3%. Meanwhile, initial jobless claims pulsed up to 223,000, though continuing claims declined to 1.85 million—exhibiting a mixed view of the labour market. Recent remarks from Minneapolis Federal Reserve President Neel Kashkari emphasised resolving trade conflicts quickly to sustain potential economic fallout.

Broader market sentiment around global trade tensions will continue influencing the NZD/USD exchange rate.

AUD/JPY Stabilised Amid US-China Trade War Concerns

AUD/JPY remained steady near 90.60 as optimism over a possible US-Japan trade deal and rising safe-haven demand amid an escalating US-China trade war underpinned the Japanese Yen. On Friday, China announced it would impose a 125% tariff on US goods in retaliation for Trump’s declaration to charge duties on Chinese imports at an unprecedented 145%. This provoked market anxiety about the economic repercussions of the intensifying trade war between the two largest global economies, which could channel some safe-haven investments toward the Japanese Yen. On the domestic front, investor sentiment remains positive regarding the US-Japan trade talks following US Treasury Secretary Scott Bessent’s comments that Japan may be a priority in tariff negotiations.

On Monday, Japanese Prime Minister Shigeru Ishiba warned that “US tariffs have the potential to disrupt the world economic order.” Japan’s Finance Minister Shunichi Kato stated that “the US and Japan share the perspective that excessive FX volatility is undesirable.” Furthermore, Japan’s Economy Minister Ryosei Akazawa remarked that “the FX issues will be dealt with between Finance Minister Kato and US Treasury Secretary Scott Bessent.” Regarding monetary policy, Thursday’s Bank of Japan preliminary report revealed that annual wholesale inflation accelerated to 4.2% in March, indicating cooling inflationary pressure. Easing inflation, coupled with strong wage growth, could impact the market anticipation that the Bank of Japan (BoJ) will continue raising interest rates in 2025.

On the other hand, the Australian Dollar (AUD) strengthened following a positive shift in risk sentiment after US President Donald Trump revealed milder tariffs on Chinese imports, such as semiconductors and electronics, late Sunday. Addressing previous speculation regarding exemptions, Trump clarified that these products will still incur the current 20% tariffs on fentanyl instead of the previously proposed 145% duties. China’s trade balance for March, measured in Chinese Yuan (CNY), recorded a substantial increase to CNY 736.72 billion, rising sharply from CNY 122 billion in the previous month. In US Dollar (USD) terms, the trade surplus also surpassed expectations, arriving at $102.6 billion—well above the forecast of $77 billion, although lower than the prior $170.51 billion. Optimism regarding resumed trade negotiations between Australia and the European Union (EU) continues to support the Aussie.

In tomorrow’s session, the RBA’s Monetary Policy Meeting Minutes and German ZEW Economic Sentiment will shape the market sentiment around the AUD/JPY exchange rate.

EUR/GBP Sinks Despite Improved Risk Sentiment

EUR/GBP hovered around 0.8651 despite improved global risk sentiment. However, the pound remained stable following the rise in UK 10-year gilt yields, reaching 4.76%, despite ongoing fluctuations in the global stock market due to escalating US-China trade tensions. Robust economic data and strong market sentiment that the Bank of England (BoE) will lower rates in the upcoming cycle support the pound. In February, the UK economy expanded by 0.5%, significantly better than January’s flat performance and the market’s prediction of just 0.1% growth. The Index of Services saw a 0.6% increase over the three months compared to January’s 0.4%. Construction output rose by 0.4% from the previous month, exceeding the estimated 0.2% and last month’s decline of -0.3%. Industrial production showed a notable increase of 1.5% month-over-month, far surpassing the predicted growth of 0.1% and the previous month’s decline of -0.5%. Manufacturing output improved by 2.2% month-over-month, surpassing the expected 0.2% increase and the earlier drop of -1.0%. ​In February 2025, the UK’s goods trade deficit widened to £20.8 billion, exceeding both the forecasted £17.3 billion and January’s £18.2 billion deficit.

On the other hand, the greenback declined following US President Donald Trump’s announcement late Sunday regarding less severe tariffs on Chinese imports, including semiconductors and electronics. In an interview with Handelsblatt on Saturday, German Chancellor-in-waiting Friedrich Merz expressed his worries about Trump’s economic approach. He warned, “President Trump’s policies heighten the likelihood that the next financial crisis could arrive sooner than anticipated.” Merz further proposed the establishment of a new transatlantic trade agreement, suggesting, “Zero percent tariffs on all goods would benefit both parties.”

Broader market sentiment regarding the UK’s economic data and escalating trade tensions between the US and China will influence the EUR/GBP movement.