EUR / USD
EUR/USD remains under sustained pressure, trading near a one month low around 1.1459 as widening monetary policy divergence continues to favour the US dollar. The Federal Reserve's hawkish hold at 3.50% to 3.75%, combined with nine policymakers still projecting further tightening, stands in contrast to the ECB's more neutral stance following its June rate increase to 2.25%. With markets assigning a high probability to another Fed hike by September while the ECB appears closer to the end of its tightening cycle, we see the interest rate differential remaining a key headwind for the euro.
The technical backdrop remains firmly bearish. The pair is trading below all major moving averages, with the 200 day SMA near 1.17 and the 20 day SMA and 30 day VWAP clustered around 1.16. Daily RSI near 33 highlights stretched conditions, but also reflects the strength of the prevailing downtrend. We expect the March low near 1.1415 to remain an important downside target should selling pressure persist, while any recovery towards 1.1550 to 1.1600 is likely to encounter renewed resistance.
Looking ahead, Thursday's US PCE inflation report is the key event for the week. Consensus expects core PCE at 3.4%, and a stronger reading would reinforce expectations that US rates remain higher for longer. While ongoing US Iran negotiations and oversold technical conditions could support a short term bounce, the broader backdrop continues to favour the dollar.
USD / JPY
USD/JPY remains close to multi decade highs, trading around 161.5 and just below the record high near 162.00. The dominant driver remains the wide yield differential between the United States and Japan, with Federal Reserve policy expectations continuing to support dollar demand and carry trade activity.
Although the Bank of Japan recently increased rates to 1%, the move has done little to reverse yen weakness. We continue to see the US Japan yield gap as the primary force driving the pair, while repeated intervention warnings from Japanese authorities have so far had only a limited impact on market behaviour. Investors remain focused on the prospect of further Federal Reserve tightening and resilient US economic data.
Technically, the pair remains firmly above all major moving averages, with the 200 day SMA at 157.35 and the 20 day SMA at 160.39 providing underlying support. Daily RSI around 75 suggests conditions are becoming increasingly stretched, raising the risk of profit taking or a corrective pullback. However, unless US data begins to soften meaningfully, we expect dips to remain relatively well supported. A break above 162.00 could open the way towards 162.50 to 163.00, while failure to sustain gains near the highs could trigger a move back towards 160.40.
GBP / USD
GBP/USD remains under pressure as a combination of political uncertainty, softer UK fundamentals and broad based dollar strength continues to weigh on sentiment. The pair is trading below all major moving averages clustered around 1.34, while the 20 day and 50 day SMAs continue to trend lower, reinforcing the negative technical outlook.
The policy backdrop also favours the dollar. While the Bank of England voted 7 to 2 to leave rates unchanged at 3.75%, the Federal Reserve remains noticeably more hawkish, with a significant number of policymakers still projecting further tightening this year. We see this divergence in policy expectations continuing to support the dollar, particularly as the US Dollar Index remains close to its strongest levels since May 2025.
Technically, daily RSI near 35 suggests the market is approaching oversold territory and may be vulnerable to periods of consolidation. Some buying interest has emerged around the 1.3185 low, but we do not yet see evidence of a durable trend reversal. Thursday's US PCE inflation data is likely to be the next major catalyst. A stronger inflation reading could reinforce the higher for longer narrative and push GBP/USD below 1.3170, exposing the November 2025 low near 1.3015. Until the outlook for US rates softens materially, rallies are likely to remain limited.
