EUR / USD
The ECB kept its deposit facility rate unchanged at 2.00% during the 30 April meeting, but adopted a distinctly hawkish stance as eurozone CPI rose to 3.0% year-on-year, mainly driven by a 10.9% jump in energy costs attributed to the Strait of Hormuz blockade. Core inflation, meanwhile, remained relatively subdued at 2.2%. Several ECB officials indicated they may raise rates at the June meeting should energy prices not ease and the Iran conflict persist, with swaps markets now reflecting an 89% chance of a 25-basis-point hike. However, this hawkishness is limited by an economy that grew just 0.1% in Q1, falling short of expectations.
This stagflationary dilemma—persistent inflation alongside weak growth—places the ECB in a particularly challenging situation, as aggressive tightening risks triggering a recession while passivity could allow inflation to become entrenched. The divergence from the U.S. economy, which enjoys advantages in energy independence and robust labour markets despite mixed data, such as a softer Q1 GDP reading of 2.0%, continues to influence the broader EUR/USD narrative.
EUR/USD rebounded sharply in the past session, climbing roughly 0.5% to settle near 1.1730, buoyed by the ECB’s hawkish tone and broad dollar weakness following disappointing U.S. growth figures, with the price rallying past the clustered 200-day and 20-day SMAs at 1.17, now acting as key support. Nevertheless, analysts warn that a June rate hike may not prove bullish for the euro in a stagflationary climate, as tightening during slowing growth could ultimately limit the currency's upside, leaving the pair’s trajectory dependent on developments in Middle East energy supply and the relative policies of the Fed and ECB.
USD / JPY
The USD/JPY pair is at a pivotal point after Japan's first official currency intervention in almost two years, prompted when the pair exceeded 160 and resulting in a dramatic 3.3% drop from a high near 161 to a low around 156 on 30 April. The steep fall has left the daily RSI near 38, indicating oversold conditions, while the price at 157 sits below resistance from the converging 20-day and 50-day SMAs around 159, though it remains above key support at the 200-day SMA at 155.
Despite the short-term impact of intervention, the underlying drivers of yen weakness persist: the wide interest rate gap between the BOJ at 0.75% and the hawkish Federal Reserve, and Japan’s significant energy vulnerability—importing about 95% of its oil from the Middle East—continue to widen the trade deficit as elevated crude prices are linked to the U.S.-Iran conflict. The BOJ's policy conundrum is central to the pair’s outlook, as even with a potential June rate hike suggested, the pace of normalisation remains too slow to substantially narrow the yield gap, and weaker-than-expected Tokyo CPI figures further complicate the case for robust tightening.
From a tactical standpoint, thin liquidity during Japan’s Golden Week holidays increases the risk of exaggerated speculative swings in either direction, with authorities warning they are prepared to intervene again if necessary. The future direction depends on whether the 200-day SMA at 155 holds as support—potentially enabling a recovery towards the 159 resistance area led by mean-reversion flows, especially if market participants conclude, as history suggests, that intervention without fundamental policy change offers only temporary respite.
GBP / USD
The Bank of England’s hawkish hold, with a 7-2 vote to keep rates steady and a firm stance against early cut expectations, theoretically provides a yield-based floor for sterling. However, the pound faces considerable structural challenges from sluggish GDP growth, declining business investment, and supply-side inflation shocks that monetary policy cannot effectively address. On the U.S. side, the dollar continues to find support from safe-haven flows, robust economic data including 2.8% annualised Q1 GDP growth, and a Federal Reserve maintaining a restrictive posture amid elevated PCE inflation at 3.5%.
Despite these fundamental factors favouring dollar strength, GBP/USD jumped around 1% to trade near 1.3592, breaking decisively above the 50-day and 200-day simple moving averages clustered near 1.34 and the 20-day SMA at 1.35. The constructive technical picture suggests trend-following flows could aim for the late January swing high near 1.3848 if the pair consolidates above 1.3590, though a daily RSI of about 60 implies momentum is not yet stretched.
However, the disconnect between deteriorating UK fundamentals—including political uncertainty, a widening current account deficit, and falling foreign direct investment—and the pair’s elevated levels, exposes it to the risk of a corrective retreat towards the 1.35 level and potentially the 1.3410 congestion zone.
