EUR/USD
EUR/USD opened on a weaker footing following President Trump’s decision to impose a 25% tariff on imported vehicles, a move that poses a particular risk to the European Union given its strong reliance on automotive exports. However, the pair found solid support above the crucial 200 DMA level at 1.0727, rebounding to close the session at 1.0799.
The introduction of these tariffs, along with the potential for an additional 20% levy on EU goods, has injected significant uncertainty into currency markets. Nonetheless, Germany’s latest fiscal stimulus measures and increased EU defence expenditure have helped cushion the euro’s downside. The ECB now faces a challenging policy environment, having to weigh economic growth concerns against inflationary risks stemming from trade tensions. At the same time, Federal Reserve officials have voiced worries that prolonged tariff-related inflation could delay any future interest rate cuts. Currently, markets are pricing in a 15 basis-point reduction from the ECB, while the Fed is expected to hold rates steady, keeping a lid on EUR/USD’s long-term gains.
Despite ongoing trade tensions and near-term volatility, technical indicators suggest a potential bullish breakout if the pair clears the key resistance level at 1.095. For today, we expect EUR/USD to maintain support above the 200 DMA while attempting to retest resistance around 1.0800. Investors will be closely monitoring US income and spending data, which could offer further insights into consumer behaviour and help shape the pair’s short-term movement.
GBP
GBP/USD displayed resilience yesterday, holding firm in the upper range of its recent trading band, fluctuating between 1.289 and 1.295. From a technical standpoint, the outlook remains positive, with strong support clearly established at 1.287.
The latest UK economic data presents a mixed picture, as inflation fell to 2.8% in February—lower than market expectations. In the near term, the currency pair’s outlook remains cautiously optimistic, with potential to target 1.301 and 1.305, provided it stays above the 20-day SMA at 1.2902.
That said, notable challenges remain as the UK grapples with domestic economic pressures, including sluggish GDP growth of just 0.1% in Q4 and the looming increase in employers’ tax contributions, which could weigh on the pair’s momentum. For now, however, GBP/USD is expected to stay elevated.
Despite softer UK inflation figures and a bond issuance strategy that should have eased concerns about supply at the longer end of the yield curve, gilt yields remain higher than at the beginning of the week. This has intensified concerns over the sustainability of the Chancellor’s spending plans, with the fiscal buffer eroding. A worrying cycle could emerge in which fiscal anxieties push yields higher, further limiting the government’s financial headroom and exacerbating the Treasury’s challenges. While the pound is currently rising alongside gilt yields, this correlation could weaken if investor confidence wavers, as seen earlier in the year.
On the data front, the final UK GDP figures for Q4 2024 confirmed modest growth, with a slight upward revision on an annual basis from 1.4% to 1.5%. Retail sales data for February also surpassed expectations, increasing by 1% month-on-month compared to a forecasted decline of 0.4%. Strong performances in department stores, clothing, and household goods sectors contributed to this unexpected boost. This data raises further questions about how much room the Bank of England has to continue cutting interest rates, which is currently providing additional support for sterling.
AUD
The Australian dollar edged up slightly this morning, showing little reaction to the announcement that a general election will take place on 3 May.
Prime Minister Anthony Albanese followed this week’s federal budget— which included tax cuts, energy subsidies, and university loan relief— with a swift declaration of the upcoming election.
Despite the news, the Aussie remained largely unchanged, with AUD/USD continuing to trade within the narrow 0.6200–0.6400 range that has defined price action throughout much of the March quarter.
