EUR / USD
The euro weakened last week, falling to test the 50 SMA support of 1.11 on the back of encouraging news from US trade deals with China. Despite the current weakness, the euro remains historically resilient due to ongoing uncertainty surrounding the 90-day tariff pause for the rest of the world and whether these tariffs will be reinstated in early July. The ECB sees this as an opportunity to strengthen the euro's international role, with officials pushing for deeper European integration and unified capital markets.
At the same time, Europe is increasingly perceived as a stable economic zone with strong institutions and an independent central bank, contrasting with concerns about US fiscal management and trade policy volatility. Domestic inflation in the eurozone continues to moderate while economic indicators suggest resilient growth, supporting the euro's positive trajectory.
The pair's moves are expected to be influenced by continued challenges facing the US economy. With both countries' economic calendars appearing relatively sparse, technical support, particularly at the 50 SMA, is expected to play a significant role in guiding the EUR/USD pair throughout the upcoming week.
USD / JPY
While the recent US-China trade truce has increased risk sentiment, the yen's overall strength remains positive.
Japan's economic landscape faces mounting challenges. The services PMI is expected to decline from 52.4 to 51.2 in May, potentially signalling economic weakness and influencing Bank of Japan policy decisions. Japanese inflation is forecasted to tick higher to 3.7% in April from 3.6% in March, remaining well above the BOJ's 2% target and maintaining pressure for potential monetary policy adjustments.
The Bank of Japan's policy stance remains a critical factor, with markets closely monitoring signals for a possible rate hike in Q3 2025, though this remains contingent on economic performance and trade developments. Trade relations between the US and Japan are particularly significant as negotiations advance, with Japanese export performance becoming increasingly crucial for the economic outlook. External demand remains vulnerable, highlighted by the 0.8% quarter-on-quarter decline in Q1 2025.
The currency pair's trajectory will likely be heavily influenced by upcoming US services PMI and jobless claims data, as these releases could impact Federal Reserve policy expectations and broader dollar demand.
GBP / USD
The pound remains resilient amid supportive economic and trade deal data. The UK economy showed unexpected strength in Q1 2025 with 0.7% growth. At the same time, the UK and the US have reached a limited trade agreement, reducing some barriers, particularly in automobiles and agriculture.
Despite recent resilience, the Bank of England remains cautious about growth prospects, suggesting potential headwinds for sterling. The Federal Reserve's wait-and-see approach to monetary policy amid tariff uncertainties adds another layer of complexity to the currency pair's outlook.
The underlying fundamentals point to continued resilience in GBP/USD as markets digest the impact of trade deals and their effect on global trade flows.
Economic Calendar
