Forex News

Societe Generale’s Anatoli Annenkov expects the European Central Bank (ECB) to keep rates unchanged next week as focus shifts toward Euro Area growth and medium-term core inflation. The bank now anticipates 25 bp hikes in June and September, projecting core inflation at 2.6% in 2027, but stresses that downside growth risks and a fluid Middle East backdrop argue for a cautious, neutral-range policy stance.

ECB seen cautious with neutral stance

"We expect the ECB to keep rates unchanged next week, as the situation in the Middle East remains fluid and new economic data will be limited. Instead, it might repeat a similar outlook as in March, with a tilt towards the adverse scenario, and await the Eurosystem staff forecasts that will be prepared for the 11 June meeting."

"After the agile response at the March meeting, where the ECB made it clear it has learnt from the 2021-22 experience, we expect the focus next week to shift towards the growth impact and medium-term core inflation. This should dampen any urgency to hike, with a first hike more likely at the June meeting. We recently moved forward our two existing hikes to June and September due to rising concerns over core inflation."

"In June, we think the ECB will hike by 25bp, followed by another 25bp in September, against the background of rising upside risks to core inflation. This would come against the background of robust private sector balance sheets, a rising need for AI and energy investment and the German fiscal stimulus and would move the policy stance to the ECB’s upper range of neutral."

"For the ECB, it looks like we are currently close to the adverse scenario from March, with core inflation peaking at around 2.8% in 1Q27 (in line with our own forecast). This in turn, begs the question whether the ECB should be considering more hikes than the two hikes included in the baseline. For now, we think not, as the scenarios included assumptions of non-linearities and strong second-round effects based on the 2021-22 experience, which remain uncertain in the current economic context."

"We maintain our view that labour markets will remain tight in the coming years due to demographic trends and add to wage pressures, forcing the ECB to “lean” against these risks by staying in the upper range of its neutral estimates. We also note some measures by governments, such as the German tax-free employer bonus, which could add to the near-term upside risks to wage growth."

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

• EUR/GBP falls to three-week lows as the British Pound gains on firm UK inflation.
• UK CPI accelerates to 3.3% YoY and monthly inflation jumps to 0.7%.
• Technically, EUR/GBP trades with a bearish bias below 100- and 200-day SMAs.

EUR/GBP trades on the back foot on Wednesday as UK inflation data lifts the British Pound (GBP), pressuring the Euro (EUR), with the cross extending losses for the second consecutive day. At the time of writing, EUR/GBP is trading around 0.8680, its lowest level since March 31.

Data released by the UK’s Office for National Statistics showed that the headline Consumer Price Index (CPI) rose to around 3.3% YoY in March from 3% previously, while monthly inflation increased to 0.7% from 0.4%. The rise was mainly driven by higher energy and fuel costs amid ongoing Middle East tensions. However, core CPI eased slightly to 3.1% from 3.2%, suggesting underlying price pressures are not broad-based for now.

As inflation continues to trend above the Bank of England’s 2% target, policymakers may adopt a wait-and-see approach before considering any rate cuts, and could even raise rates if the energy shock leads to second-round inflation effects.

Meanwhile, Eurozone data added to downside pressure on the Euro, with preliminary Consumer Confidence for April falling to -20.6 from -16.3 previously, pointing to weakening household sentiment across the bloc amid ongoing geopolitical tensions and higher energy prices.

Technical Analysis:

In the daily chart, EUR/GBP trades with a bearish near-term bias as spot holds beneath both the 100-day Simple Moving Average (SMA) at 0.8698 and the 200-day SMA at 0.8704.

The pair’s slide below these medium- and long-term averages suggests rallies are likely to be capped while momentum indicators lean soft, with the Relative Strength Index (RSI) hovering below the 50 line and the Moving Average Convergence Divergence (MACD) slipping marginally into negative territory, hinting at waning upside pressure.

On the upside, EUR/GBP faces initial resistance at the overhead SMAs around the 0.8690-0.8705 region, with a break above opening the door toward the April high near 0.8742. On the downside, immediate support is seen around the 0.8680 level, with a break below exposing the 0.8650 region.

ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note that the US Dollar (USD) was largely unmoved by Kevin Warsh’s Senate hearing, as he defended Federal Reserve independence and avoided clear policy guidance. They highlight resilient global equities as a key obstacle to a stronger Dollar and suggest US Dollar Index (DXY) may struggle to revisit 99.0 in the current risk environment.

Warsh hearing leaves Dollar directionless

"Warsh was firm enough on Fed independence to prevent any Treasuries‑USD sell‑off, while remaining sufficiently elusive on policy to avoid any impact on rate expectations."

"The dollar had a couple of fluctuations – mostly on the strong side – during Warsh’s testimony, but was left by and large untouched."

"A key missing link for a more durable dollar rebound remains the equity backdrop."

"In this environment of resilient risk sentiment, DXY may struggle to climb back toward 99.0."

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

Scotiabank strategists Shaun Osborne and Eric Theoret highlight that the Japanese Yen (JPY) is flat against the US Dollar (USD), underperforming G10 peers in subdued trading. USD/JPY price action suggests consolidation in a 157.50–160.50 band, with a flat RSI signaling limited momentum. A weaker trade balance on higher energy imports and Friday’s Consumer Price Index (CPI) release set the tone ahead of next week’s Bank of Japan (BoJ) policy meeting.

Flat momentum inside 157.50–160.50 band

"The yen is entering Wednesday’s NA session unchanged vs. the USD and a relative underperformer among the G10 in overall quiet trade."

"The price action for USD/JPY leans toward consolidation and a flat local range roughly bound between 157.50 and 160.50."

"The RSI is flat, and offers little in terms of momentum."

"Fundamental releases have included a disappointing trade release, with a smaller balance dragged down by higher (energy) imports in March."

"Near-term risk lies with Friday’s March CPI release, the last major data point ahead of next week’s BoJ policy decision."

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

Rabobank strategists argue that the Iran war delivers a stagflationary shock to the Eurozone, lifting inflation and depressing Gross Domestic Product (GDP). They expect Eurozone inflation to stay above pre-war projections through 2027 and see growth slowing sharply in 2026, with only a modest recovery in 2027 despite government support.

War shock lifts prices and hits growth

"As a net energy importer, the Eurozone is highly exposed to rising energy prices. Higher prices deteriorate the bloc’s terms of trade and weigh on consumption and investment by eroding real incomes, squeezing margins, and dampening confidence. Together with support measures, this puts pressure on public finances."

"Higher risk and inflation premia, and expectations of policy rate hikes, lift long-term interest rates, further restraining investment. We currently assume one rate hike this year; the market prices two. The 10-year EUR swap rate has risen by about 30 basis points since end-February."

"Based on our current energy price forecasts, we expect Eurozone inflation to average 3.1% in 2026 before easing to 2.5% in 2027, still above pre-war projections. Cumulative inflation over these two years would be 1.7 percentage points higher than we forecasted previously. Growth is projected to slow from 1.5% in 2025 to 0.6% this year, followed by a modest rebound to 0.9% next year."

"The window for a milder scenario –in which the Strait opens and energy flows resume faster– is essentially closed, while the risk of a more severe scenario is still very much present. If the situation in the Gulf region worsens or persists for longer, the risk of ‘non-linear’ effects increases. That includes severe demand destruction, de-industrialization, and widening credit and sovereign risk premiums."

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

TD Securities notes UK headline CPI matched expectations at 3.3% year-on-year in March, reflecting early post-conflict price effects, especially from motor fuels. Services inflation surprised higher at 4.5%, led by transport and airfares, while core inflation edged down to 3.1% on stronger discounting in core goods. The mixed picture underpins the Bank of England’s cautious stance for next week’s meeting.

Services strength offsets softer core goods

"UK CPI headline measure came in in line with market expectations at 3.3% y/y (TDS/mkt: 3.3%; BoE: "close to 3.5%"), with March being the first month showcasing the post conflict onset pricing."

"Energy was, of course, a main contributor, largely on the motor fuels side."

"Looking beyond headline, services surprised to the upside at 4.5% y/y (TDS: 4.4%; mkt: 4.3%; prior: 4.3%) with transport (specifically, airfaires) being the main story, as higher fuel prices start to feed through to this sector."

"Core services (excl. non-private rents, airfares, and accommodation) remained unchanged at 4.6%, suggesting more stability in the broader economy."

"This mixed release supports the MPC's cautious stance for next week's meeting."

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

• A majority of economists surveyed by Reuters expect the Fed to keep rates unchanged through September.
• Inflation expectations, as measured by the PCE index, have been revised higher for the coming quarters.
• Despite this short-term caution, most economists still expect at least one rate cut this year.

The latest Reuters surveys of economists suggest a notable shift in expectations regarding the trajectory of US monetary policy, with the timing of potential easing likely to come later than previously anticipated.

According to the poll, 56 of the 103 economists surveyed expect the Federal Reserve (Fed) to keep its policy rate within the current 3.5%-3.75% range at least through September. This represents a clear shift from a similar survey conducted in late March, when a majority of economists expected at least one rate cut by that time.

At the same time, inflation forecasts have been revised higher. Economists now expect the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, to average 3.7% in the second quarter, 3.4% in the third quarter and 3.2% in the fourth quarter. These projections are above those from the previous March poll, which stood at 3.3%, 3.1% and 2.9%, respectively.

Despite the upward revisions to inflation and expectations of a prolonged policy hold in the near term, the consensus still points to monetary easing later in the year. A total of 71 out of 103 economists believe the Fed will deliver at least one rate cut before the end of the year, suggesting that the anticipated gradual slowdown in inflation could eventually allow the central bank to ease monetary conditions.

These results highlight the delicate balance faced by the Fed, caught between inflation that remains above target and signs that price pressures could gradually moderate over the coming quarters.

Citing United States (US) President Donald Trump and Pakistani sources on Wednesday, the New York Post reported that the second round of talks between the US and Iran could take place as soon as this Friday.

Iran's Tasnim news agency said that Iran has yet to decide whether to attend the talks. Meanwhile, Fox News reported that a White House official said that President Trump extended the ceasefire with Iran for 3-5 days.

Market reaction

These developments don't seem to be having a significant impact on market mood. At the time of press, the US Dollar (USD) Index was virtually unchanged on the day near 98.40.