Forex News

Brown Brothers Harriman’s (BBH) Elias Haddad observes GBP/USD trading directionless near its 200-day moving average around 1.3423, with downside risks from potential United Kingdom (UK) swaps curve repricing and a possible leftward shift under a Labour government. Weaker-than-expected April retail sales and an overly aggressive Bank of England (BoE) tightening path versus a projected negative output gap weigh on the Pound outlook.

Pound pressured by weak data and BoE pricing

"GBP/USD is directionless near its 200-day moving average at 1.3423. Scope for a downward adjustment to the UK swaps curve alongside the rising likelihood the Labour government pivots further leftwards can further undermine GBP."

"UK retail sales fell more than expected in April. Total retail sales volumes declined -1.3% m/m (consensus: -0.6%) vs. 0.6% in March (revised down from 0.7%) driven by fuel sales. Total retail sales, excluding automotive fuel, dropped -0.4% m/m (consensus: -0.3%) vs. 0.1% in March (revised down from 0.2%) dragged down by both clothing and non-store retailers."

"The swaps curve continues to imply a full 50bps of Bank of England (BoE) rate hikes to 4.25% in the next twelve months. That’s too aggressive given the BOE estimates a negative output gap between -1.5% and -1.7% GDP in 2026, and leading indicators point to a contraction in private sector activity over Q2."

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

Commerzbank’s Thu Lan Nguyen notes that Gold briefly slipped below USD 4,500 per ounce as markets priced a prolonged Iran conflict and sharply higher US rate expectations. With Fed cuts largely priced out and even hikes being discussed after strong producer prices and hawkish minutes, the bank sees growing potential for a setback in Gold if Middle East tensions escalate again.

Higher rate expectations weigh on bullion

"The price of gold briefly fell below the USD 4,500 per troy ounce mark late last week after the market once again began to price in a prolonged conflict with Iran. A key factor weighing on the market was that interest rate expectations for the US were revised significantly higher."

"Before the outbreak of the war, interest rate cuts by the US Federal Reserve had been anticipated for this year. However, these expectations have largely been priced out of the market in recent weeks. Most recently, there has even been a shift toward the possibility of interest rate hikes."

"These expectations were also fueled by a surprisingly sharp rise in US producer prices in April, which suggests a stronger surge in inflation than previously assumed."

"In addition, the minutes of the last Fed meeting revealed that a majority on the Open Market Committee warned that interest rate hikes would have to be considered should inflation remain above the 2% target."

"With this reassessment of Fed policy, the potential for a setback for gold is now rising in the event of a renewed escalation of the crisis in the Middle East."

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

• USD/JPY advances beyond 159.00, after rallying about 1.6% over the last two weeks.
• The Dollar has retraced about two-thirds of the reversal triggered by the alleged April 30 intervention.
• High Oil prices and the relatively low Japanese bond yields are keeping the yen on the defensive.

The US Dollar (USD) remains moderately bid against the Japanese Yen (JPY) on Friday, crawling up above 159.00, and nearing 160.00, allegedly the limit of tolerable JPY weakness for Tokyo. The pair trades at 159.12 at the time of writing, after rallying about 1.6% over the last two weeks, retracing two-thirds of the ground lost after a likely intervention on April 30.

Traders are aware that Japanese authorities are resolved to stem speculative moves against the Yen, but high Oil prices and comparatively lower Japanese Bond (JGB) yields are throwing JPY to the wolves.

US Treasury Secretary Scott Beseent encouraged the Bank of Japan (BoJ) to keep hiking interest rates to support the Japanese Yen after a visit to Tokyo earlier this week, but Japanese inflation data throws a spanner in the BoJ’s tightening plans.

Japan’s National Consumer Price Index (CPI) figures released earlier on Friday revealed that inflationary pressures abated in April, with the National CPI easing to a yearly rate of 1.4% from 1.5% in March, and the key core CPI slowing down to a 1.4% growth in the 12 months to April, well below the 1.7% expected,, following a 1.8% increase in March.

To make things worse, the minutes of April’s US Federal Market Open Committee (FOMC) released earlier this week showed an increasing openness to hike interest rates if inflationary risks keep rising. Recent US data, namely the strong manufacturing activity released on Thursday, endorses this view and supports the wide US-Japan yield gap that is crushing the JPY.

• British Pound rises against its peers even as the UK fiscal concerns have escalated.
• UK Public Sector Net Borrowings increased to GBP 24.343 billion vs. GBP 20 billion estimates.
• UK Retail Sales declined by 1.3% MoM in April vs. -0.6% estimates.

The British Pound (GBP) is up against its major currency peers, but is marginally down to near 1.3420 against the US Dollar (USD) during the European trading session on Friday. The British currency rises even as concerns over United Kingdom (UK) public finances have escalated.

Earlier in the day, the Office for National Statistics (ONS) reported that Public Sector Net Borrowings jumped to GBP 24.343 billion, higher than GBP 20 billion estimates and more than double from the March reading of GBP 11.483 billion, revised lower from 12.605 billion.

“Borrowing this month was substantially higher than in April last year and although receipts increased compared with April 2025, this was more than offset by higher spending on benefits and other costs,” Grant Fitzner, the ONS chief economist, said.

Higher UK debt levels are expected to prompt borrowing costs, which were already increased significantly due to political uncertainty, following the setback of Labour Party in local elections and higher payment obligations towards elevated energy prices. 10-year yields on gilt securities surged to 5.2% earlier this week, the highest level seen beyond the subprime crisis, but has corrected to near 4.91% on Friday.

Meanwhile, weak UK Retail Sales data for April has also raised concerns over the British Pound’s price outlook. The ONS reported that monthly Retail Sales, a key measure of consumer spending, declined by 1.3%, while it was expected to contract by 0.6%.

Going forward, investors will focus on fresh developments towards the United States (US)-Iran peace proposal. So far we know, Iran has stated that the final draft the peace deal with the US has been finalized, but Tehran is still adamant on keeping uranium stockpiles and a recognition of its authority over the Strait of Hormuz.

OCBC’s Christopher Wong says USD/JPY’s recent rally is moderating as UST yields and the Dollar ease, but the pair remains elevated. The bank warns Ministry of Finance intervention risk could rise if USD/JPY breaks into the 160–161 area in thin holiday liquidity. More durable Japanese Yen recovery would still require further BoJ tightening and a friendlier external backdrop.

Yen gains need more than intervention

"The recent run-up in USDJPY is starting to moderate slightly amid the pullback in UST yields and USD. Risk of MoF intervention may potentially rise if USDJPY pushes through the 160/161 area in coming sessions, especially during thin mkt liquidity with both US and UK markets out on Mon."

"Thin markets can amplify the impact of intervention, but intervention alone is unlikely to change the broader direction of travel for JPY. At best, it can slow the pace of depreciation and send a clear signal that policymakers are uncomfortable with disorderly moves around those levels"

"For JPY to recover more meaningfully, it would take more than just leaning against the wind. The BoJ likely needs to tighten further to get back ahead of the curve, while the external backdrop also needs to improve (i.e. geopolitical risks de-escalate, oil prices ease and US yields pull back)."

"Mild bullish momentum on daily chart intact while rise in RSI moderated. 2-way risks likely from here."

"Resistance at 160, 160.70 (previous high). Support at 157.50 (100 DMA, 38.2% fibo), 156.40 (50% fibo retracement of 2026 low to high)."

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