GBP/USD rally falters at key resistance
The GBP/USD pair strengthened over the past week; however, the sharp pullback from the key resistance level of 1.3400 has heightened market attention on the potential for further weakness.
While trade tariff developments faded into the background, market sentiment was instead shaped by renewed tensions between US President Donald Trump and Federal Reserve Chair Jerome Powell. Early in the week, fears that Trump might attempt to remove Powell triggered a decline in the US dollar. However, as these concerns eased, the dollar managed to regain lost ground.
On a technical basis, momentum indicators such as the Relative Strength Index (RSI) are also signalling the possibility of a reversal in the GBP/USD pair.
ECB rate cuts dependent on economic deterioration
Martins Kazaks, a member of the European Central Bank’s Governing Council, has indicated that the ECB should only lower interest rates to an “accommodative” level if the economic outlook worsens materially, according to Bloomberg.
Speaking in Washington over the weekend during the IMF’s spring meetings, Kazaks noted that while US trade policies could slow inflation and potentially lead to a recession, there is still little clarity over future developments. He stressed that cutting rates too much now would unnecessarily limit the ECB’s future policy options.
“The real issue is whether we would need to move significantly below 2.00%, but at the moment we are at 2.25%,” he said. “We will act if necessary, but any further reduction to control inflation would require a clear deterioration in economic conditions.”
EUR/USD has recently retreated from short-term highs. Attention now turns to the 21-day EMA, with the 1.1219 support level proving critical for the next move in the pair.
Looking ahead
The week ahead is set to see inflation data dominate attention across major economies. In Australia, first-quarter CPI figures (due Wednesday) are expected to show a quarterly increase of 0.8% and a year-on-year rise of 2.3%, offering valuable insight into the Reserve Bank of Australia’s future policy direction.
In Europe, preliminary inflation readings from Germany and France (also Wednesday) will shed further light on price pressures within the Eurozone, ahead of Eurozone-wide CPI data scheduled for release on Friday. These reports are likely to influence expectations regarding the European Central Bank’s (ECB) next steps.
Meanwhile, in the United States, Personal Income and Spending data will be published on Thursday alongside the PCE price index—widely viewed as the Federal Reserve’s preferred inflation gauge. These numbers will be closely scrutinised as speculation over the Fed’s next move continues.
Attention will also turn to growth figures. The preliminary estimate for US Q1 GDP, due Wednesday, is expected to show annualised growth of just 0.4%. The Eurozone will release its own first-quarter GDP figures later in the week. These will be accompanied by manufacturing PMI updates from the United States (Thursday) and Europe (Friday), offering further signals on the broader economic landscape.
The Bank of Japan (BoJ) will deliver its policy decision on Thursday, with markets anticipating no change to its benchmark interest rate, which is expected to remain at 0.5%.
Labour market data from the US, out on Friday, will also be closely watched. Nonfarm payrolls are forecast to rise by 123,000 in April, a marked slowdown compared to March’s strong 228,000 reading, while the unemployment rate is expected to hold steady at 4.2%. These figures should offer further clues about the resilience of the US labour market under tighter monetary conditions.
In the United Kingdom, a quieter economic calendar lies ahead, with CBI realised sales on Monday, the BRC shop price index on Tuesday, and loan growth figures due Thursday.
