Forex News

Rabobank Senior FX Strategist Jane Foley discusses EUR/GBP in light of shifting expectations for the European Central Bank (ECB) and Bank of England (BoE). She notes that EUR/GBP has traded with a downside bias recently but sees this fading as spring progresses. With UK growth concerns, political risks and limited BoE tightening, Foley expects EUR/GBP to grind higher towards 0.88 into the autumn.

Rabobank sees downside bias fading

"Since the start of this month, EUR/GBP has been trading in a fairly narrow range, albeit with a downside bias. However, heading further into the spring we see the downside bias as running out of steam and expect the currency pair to turn modestly higher."

"That said, having priced in significant hawkish reactions from most G10 central banks in March, in recent weeks the market has been moderating its collective view regarding the likely reactions of several major central banks including both the ECB and the BoE. The market is still expecting rate hikes from both these central banks on a 1-year view, though less action is now implied by market rates than in March."

"We favour buying dips in EUR/GBP into the May election. We then look for a gradual move higher towards 0.88 into the autumn."

"The downgrade in UK economic prospects adds another challenge for the Labour party headed into the May local elections in England and parliamentary elections in Wales and Scotland. A drubbing for the Labour party does increase the chances of a leadership challenge for the PM Starmer."

"The risk of such an event is likely to keep speculators unwilling to hold long GBP positions into next month. We favour buying dips in EUR/GBP into the May election."

"Given current optimism that the war in the Middle East is coming to an end and optimism that the inflationary impact of the conflict could avoid worst case scenarios, weak UK GDP data could lead to further dampening of BoE rate hike speculation and undermine the value of the pound further."

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

Societe Generale’s Kit Juckes discusses whether the US Dollar’s global dominance is under threat as global imbalances widen and IMF meetings highlight systemic risks. He notes that while the Dollar’s share of global activity should gradually decline as the US share of GDP falls, neither the Euro nor the Chinese yuan currently offers a credible alternative reserve currency.

Dollar supremacy faces slow structural erosion

"“Is the US Dollar’s pre-eminence under threat?” is a frequent question these days."

"As the US share of global GDP falls, it makes sense for the dollar’s share of FX transactions, FX reserves, denomination of bond and equity issuance to fall too, but there isn’t a viable competitor to threaten its position at the heart of the global financial system."

"Suffice to say that dollar dominance has been phenomenal compared to the dominance even of the pound in the 19th century."

"The Chinese yuan, with capital controls and policies which help it remain competitive, isn’t a candidate to replace the dollar, and the euro will only be a competitor when it is the currency of a far more unified economic bloc."

"Until then, the most likely outcome is for GBP to continue fading away and the JPY to do likewise."

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

• AUD/USD strengthens as optimism around renewed talks between Washington and Tehran boosts risk appetite.
• Softer-than-expected US producer inflation data eases pressure on US monetary policy.
• Warnings from Australia’s central bank about stagflation risks temper the economic outlook.

AUD/USD rises on Wednesday and trades around 0.7140 at the time of writing, up 0.28% on the day. The pair benefits from an improved risk environment after reports suggested that new discussions could take place between the United States (US) and Iran before the two-week ceasefire expires.

According to several media reports, US President Donald Trump signaled that negotiations could resume as early as this week. Vice President JD Vance also cited “significant progress” during an initial round of talks held in Pakistan, adding that follow-up meetings could take place in the coming days. Hopes of geopolitical de-escalation are reducing demand for safe-haven assets and supporting risk-sensitive currencies such as the Australian Dollar (AUD).

At the same time, the latest inflation data from the United States weighed on the US currency. The Producer Price Index (PPI) rose 0.5% MoM in March, well below the market consensus of 1.2%. Core PPI increased by just 0.1%. On an annual basis, the headline reading reached 4%, below the expected 4.6%, reinforcing the view that inflationary pressures may be easing.

These figures strengthen expectations that the Federal Reserve (Fed) may not need to tighten monetary policy, which limits the appeal of the US Dollar (USD) and supports AUD/USD gains.

Domestically, the Reserve Bank of Australia (RBA) remains cautious. Deputy Governor Andrew Hauser warned that the months ahead could be challenging for the Australian economy, citing an energy crisis fueled by the Middle East war alongside persistent inflation pressures. According to Hauser, these factors increase the risk of a stagflation-like scenario.

Meanwhile, consumer confidence in Australia deteriorated sharply in April, with the Westpac survey showing a 12.5% drop, reflecting concerns over rising energy costs and global economic uncertainty.

Investors are now turning their attention to upcoming macroeconomic releases, including Australia’s employment report and China’s growth data, which could provide the next major catalysts for the Aussie.

ING strategist Michiel Tukker stresses that current Oil volatility is feeding directly into rate expectations for the European Central Bank (ECB), Federal Reserve (Fed) and Bank of England (BoE). He explains that a $10 move in Oil can quickly shift implied hikes by about 25bp, distorting short-end pricing, widening bid-ask spreads and reducing liquidity as geopolitical headlines hit markets.

Oil volatility distorts rate pricing

"The ECB is clearly not set on raising policy rates this April already, but market expectations remain high for a hike in June. Currently, a full 25bp of hikes is priced in by June and at least one more hike by the end of this year."

"Much will depend on the oil price, however, because for every $10 increase in the oil price, the market’s hiking expectations increase by roughly 25bp."

"Similarly for the Fed, and especially the Bank of England, the correlation between policy expectations and oil prices remains very tight."

"With current volatility in oil markets, a $10 move can materialise in just one day."

"The volatility in short-end rates makes it difficult for market players to take positions, potentially distorting the relationship between actual expectations and market pricing."

"Even if an investor has a high conviction view of a central bank’s reaction function, taking a position is risky, as a single geopolitical headline can trigger a sharp jump in the wrong direction."

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

• USD/JPY returns above 159.00 after bouncing from 158.60 lows on Tuesday.
• The Greenback trims some losses as investors ponder mixed news on Iran.
• Analysts at the UOB bank see the pair likely to test 158.00 in the coming weeks.

The US Dollar (USD) is posting moderate gains against the Japanese Yen (JPY) on Wednesday, returning to levels past 159.00 to partially reverse the 0.5% depreciation witnessed over the last two days. The Greenback is showing a frail recovery against its main peers, as investors consider contradictory news about Iran’s peace process.

US President Trump has shown optimism about the war ending "very soon", following comments suggesting that the US and Iran delegations might return to the conversation table in the coming days.

Later on Wednesday, a report by Associated Press (AP) said that mediators are moving closer to extending the two-week ceasefire that expires next week.

US is considering sending more troops

The US military, on the other hand, announced earlier on the day that the blockade of the Strait of Hormuz had been “fully implemented”, a measure that Iran condemned as “illegal and amounting to piracy.” Apart from that, the Washington Post reported that the US administration is considering the deployment of thousands of additional troops to the Middle East.

Currency analysts at the United Overseas Bank (UOB), however, expect the pair to extend its broader bearish trend, aiming to 158.00 in the coming weeks: "Yesterday, USD broke slightly below 158.70 as it dropped to a low of 158.59. Downward momentum is starting to build, and USD could potentially drop below 158.50 and test 158.00. To sustain the buildup in momentum, USD must hold below the ‘strong resistance’ level, now at 159.50." 

(This story was corrected on April 15 at 12:14 GMT to specify the correct name of the pair as USD/JPY, not USD/JPI.)