Forex News

• GBP/JPY weakens for a second straight day as political turmoil in the UK pressures the Pound.
• Expectations of a wider BoE-BoJ rate gap keep GBP/JPY tilted to the upside despite near-term losses.
• Technically, GBP/JPY shows weakening bullish momentum on the daily chart, with sellers defending the 20-day SMA near 214.30.

GBP/JPY extends losses for the second consecutive day on Wednesday as the British Pound (GBP) comes under broad pressure, weighed down by rising political uncertainty in the United Kingdom. At the time of writing, the cross is trading around 213.08, easing from an intraday high near 213.70 and down roughly 0.15% on the day.

Political pressure on UK Prime Minister Keir Starmer intensified after the Labour Party suffered heavy losses in last week’s local elections. Reports suggest that more than 80 Labour MPs have called on Starmer to resign, while four cabinet ministers have already stepped down amid mounting pressure.

UK Health Secretary Wes Streeting is reportedly emerging as a potential leadership challenger. Starmer has confirmed that he will not resign from his post, while allies close to the Prime Minister reportedly said he is prepared to face Streeting in any potential leadership contest.

However, losses in GBP/JPY remain relatively contained as the Japanese Yen (JPY) struggles to gain traction amid ongoing tensions in the Middle East. Elevated Oil prices continue to cloud Japan’s economic outlook, given the country’s heavy reliance on energy imports from the region.

Meanwhile, rising Oil-driven inflation risks are increasing pressure on central banks to raise interest rates further. Traders are currently pricing in two additional rate hikes from the Bank of England (BoE) by year-end, while the Bank of Japan (BoJ) is expected to remain on its gradual tightening path as the energy shock could limit its ability to normalize policy more aggressively.

This could further widen the interest rate differential between the BoE and the BoJ, keeping GBP/JPY tilted to the upside despite the near-term weakness.

Technical Analysis:

In the daily chart, GBP/JPY is slipping back toward the lower Bollinger Band, with price holding beneath the 20-day Simple Moving Average (the Bollinger middle band) at roughly 214.30 and further capped by the upper band near 216.66, keeping the near-term bias tilted bearish despite the broader uptrend structure.

The Relative Strength Index (RSI) has eased back toward mid-40s, hinting that upside momentum has faded as the Average Directional Index (ADX) around the mid‑20s suggests a moderating but still present trend.

On the topside, initial resistance emerges at the Bollinger middle band around 214.29, with a break there exposing the upper band near 216.66 as the next hurdle.

On the downside, the lower Bollinger Band at approximately 211.94 offers the first notable support; a daily close below this zone would open the door to a deeper corrective slide within the broader range.

(The technical analysis of this story was written with the help of an AI tool.)

• Producer inflation in the US rose at a stronger pace than expected in April.
• The US Dollar Index stays in positive territory at around 98.50.

Producer inflation in the United States, as measured by the change in the Producer Price Index (PPI), rose to 6% on a yearly basis in April from 4.3% in March, the US Bureau of Labor Statistics (BLS) reported on Wednesday. This reading surpassed the market expectation of 4.9% by a wide margin and it was the highest since December 2022.

On a monthly basis, the PPI rose 1.4%, following the 0.7% increase recorded in March and coming in well above analysts' estimate of 0.5%.

Other details of the report showed that the PPI ex Food & Energy was up 5.2% YoY in April, compared to the market forecast of 4.3%.

Market reaction

The US Dollar (USD) Index continues to push higher in the early American session and was last seen rising 0.26% on the day at 98.55.

TD Securities’ Global Strategy Team says Australia’s 2026/27 Budget is slightly stimulatory, with looser fiscal policy and more upbeat Treasury forecasts than the RBA. They also note Q1 wages matched expectations and remain contained for now, but higher short‑term inflation expectations could lift wage bargaining, leaving the RBA with potential for further policy tightening if Treasury’s outlook proves accurate.

Budget and wages keep RBA on tightening watch

"The 2026/27 Budget papers reveal a significant improvement in the underlying cash balance of A$45b over the forward estimates. "

"This budget is slightly stimulatory. The headline deficit increases from a deficit 1.6% of GDP in 2025/26 to 2.1% in 2026/27 and the headline cash deficit is projected to deteriorate vs the underlying over the next few years by roughly A$6.4b vs prior estimates. It's not substantial, but the implication is that fiscal policy is a touch looser over the forecast horizon."

"Further, Treasury's economic forecasts are more upbeat than the RBA's. If Treasury's forecasts are closer to the mark, then the RBA may have more policy tightening to deliver. Meanwhile, conservative commodity options leave room for narrower deficits."

"Australia Q1 wages came in as widely expected at 0.8% q/q, (cons: 0.8%, TD: 0.8%) with annual wages coming in at 3.3% y/y. The result was in line with RBA's May SoMP forecast and explains the muted reaction in markets."

"Despite rising inflation pressures and a tight labour market, wage pressures are still contained for now though that may shift soon."

"The RBA expects that higher short-term inflation expectations will be a factor in wage bargaining over the next year as workers seek to preserve real wages."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• EUR/USD picks up to levels right above 1.1700 after bouncing from 1.1695 session lows.
• The focus on Wednesday is on the US PPI and Trump's visit to China.
• Eurozone GDP and Industrial Production figures have added pressure on the Euro.

The Euro (EUR) has bounced up to levels above 1.1700 against the Dollar (USD) but remains nearly 0.6% below Tuesday's high at 1.1787, as the US Dollar is supported by hot inflation figures on Wednesday. In Europe, data released earlier on the day has failed to boost the Euro, and the focus is now on the US Producer Price Index (PPI) and the meeting between US President Donald Trump and Chinese President Xi Jinping.

US producer prices are expected to follow the path of the CPI data released on Tuesday and confirm the inflationary impact of the Middle East war. Market volatility, however, is likely to remain subdued as investors await news from the Trump-Xi meeting. The US President will try to seek support from his Chinese counterpart to solve the stalemate in Iran, and push his agenda for lower restrictions on US agricultural products and exports of rare earths. Xi, instead, might bring Taiwan's status to the table. The outcome of the meeting is likely to set the market sentiment for the end of the week.

In Europe, the second estimate of the Eurozone’s GDP confirmed that the economy grew at a meager 0.1% pace in the first three months of the year, and 0.8% in the previous 12 months, down from 0.2% and 1.3%, respectively, in Q4. Beyond that, Eurozone Industrial Production figures have shown a 0.2% growth in March, below the 0.3% market forecast, and February’s figures have been revised down to 0.2% from the previously estimated 0.4% rise. Year-on-year, factory output has accelerated its contraction, to -2.1% in March, from -0.8% in the previous month.

The US Dollar remains buoyed by the inflationary surprise revealed by April’s Consumer Price Index (CPI) figures released on Tuesday. A nearly three-year high year-on-year CPI rate has crushed hopes of further Federal Reserve (Fed) rate cuts in the foreseeable future, boosting US Treasury yields and the Greenback with them.

Technical Analysis: Approaching key support below 1.1675

EUR/USD shows a growing bearish tone in 4-hour charts, with momentum indicators reinforcing the downside bias. The Relative Strength Index (RSI) has bounced from levels close to oversold territory but remains below 50, and the Moving Average Convergence Divergence (MACD) histogram is slipping further into negative territory, suggesting persistent selling pressure.

Bears have gained momentum after breaching weekly lows near 1.1720 and are heading to a key support area between 1.1645 and 1.1675, which contained downside attempts several times in April. A confirmation below those levels would bring April's bottom, near 1.1510, into focus.

On the topside, the intra-day highs, near 1.1740, are likely to offer resistance to a potential bullish reaction, ahead of the May 6, 8, and 11 highs above 1.1790 and the April 17 high, at 1.1851.

(The technical analysis of this story was written with the help of an AI tool.)

Commerzbank’s Antje Praefcke notes that rising US inflation and elevated energy prices complicate incoming Fed Chair Kevin Warsh’s efforts to secure early rate cuts. She highlights that persistent price pressures and a closed Strait of Hormuz could force a more hawkish FOMC stance, limiting scope for easing. This environment leaves the Dollar supported as markets reassess Fed policy risks.

Warsh faces hawkish inflation dilemma

"For the moment, central banks around the world may still be looking through the energy price shock as a temporary effect."

"But especially if the inflation rate in the US continues to rise – a clear risk scenario if the Strait of Hormuz remains closed for longer and energy prices stay elevated or increase further – or if inflation expectations pick up, this is likely to be a difficult undertaking for Warsh, not least because some FOMC members have already expressed concern about inflationary pressures."

"Yet the longer the inflation rate remains high, the harder it will be for him to push through rate cuts."

"Everything ultimately hinges on the Strait of Hormuz."

"In light of yesterday’s inflation data, however, I am increasingly doubtful that Warsh will be able to prevail, at least in the short term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)