The first week of May kicks off with FX traders digesting a whirlwind of central bank surprises and bracing for more volatility ahead. Last week brought a dovish shock from the Bank of England (BoE) – a 25bps rate cut from 4.50% to 4.25% – and a steady-as-she-goes stance from the U.S. Federal Reserve (holding at 4.5%). These policy cross-currents, combined with mixed U.S. labor data, have set a cautious tone. The April U.S. jobs report underscored a slowing but still-resilient labor market: unemployment held at 4.2% as nonfarm payrolls rose by 177,000, beating gloomy forecasts of ~133K. Meanwhile, weekly jobless claims are sending mixed signals – a prior spike to 241K eased back down, suggesting the labor market isn’t rolling over just yet. All of this unfolds against a backdrop of brewing political drama. In Washington, President Trump’s trade tariff gambit is adding a new layer of uncertainty, darkening the global growth outlook even as it stokes U.S. inflation debates. The President wasted no time touting low inflation and “billions pouring in from tariffs,” urging the Fed to “LOWER ITS RATE!!!” on social media. With central bankers and politicians pulling in different directions, the market mood is edgy – setting the stage for some punchy moves in key currency pairs this week.
GBP/USD
GBP/USD 5-minute chart (May 1–2, 2025). The pair whipsawed on the BoE’s rate cut news, spiking above 1.3340 before tumbling back into the 1.32s.
Technicals in Focus
The British pound took a rollercoaster ride late last week. GBP/USD (Cable) initially spiked toward the mid-1.33s after briefly pricing in the BoE decision, then swiftly plunged over 80 pips as traders reacted to the BoE’s dovish pivot. The 5-minute chart shows whipsaw volatility – a sharp jump followed by a sell-off – coinciding with the BoE’s rate announcement and Governor Bailey’s press remarks. With the BoE unexpectedly cutting rates to 4.25% (a move backed by a 9-1 MPC vote for easing), sterling’s bullish attempt was short-lived. By Friday’s close, GBP/USD had carved out a lower high near 1.3340 and drifted back into the 1.3260 area, indicating bearish intraday market structure. Volatility was elevated, and momentum favored the downside as dollar strength crept in post-BoE and amid steady U.S. data. Overall, the pair has entered Monday trading on the back foot, with trend signals turning south and immediate support being tested in the low-1.32s.
Trading Strategy
The outlook for GBP/USD is Neutral-to-Bearish. The BoE’s dovish surprise and ongoing USD firmness suggest rallies may be sold. Traders could look for selling opportunities on bounces: the 1.3330–1.3350 region (last week’s peak) is a key resistance zone. A failure to break higher would reinforce the downtrend. On the downside, initial support lies at 1.3250, last week’s low. A decisive drop below 1.3250 could open the door to a deeper pullback toward the 1.3200 handle.
- Sell Zone (Resistance): 1.3330–1.3350
- Support: 1.3250, with extension to 1.3200 if breached
- Target: 1.3200 on the short side, anticipating follow-through from the BoE-driven decline
- Stop Loss: ~1.3380 (above the week’s highs and key resistance, to avoid a squeeze)
BoE Governor Andrew Bailey is due to speak again later this week, and his tone will be crucial. If Bailey doubles down on dovish rhetoric or highlights Brexit and growth concerns, the pound could see further downside. Conversely, any hint that the BoE might pause cutting if inflation flares up could lend Cable a reprieve. For now, with the U.K. on a bank holiday Monday (thin liquidity) and the BoE firmly in easing mode, sterling looks vulnerable against a U.S. dollar buttressed by relatively solid data.
NZD/USD
NZD/USD 5-minute chart (May 1–2, 2025). The kiwi dollar rebounded from 0.5900 lows, but bullish momentum faded near 0.5975 amid shifting risk appetite.
Technicals in Focus
The New Zealand dollar spent last week caught in a choppy range against the USD, as global risk sentiment swung back and forth. Early in the week, NZD/USD slid to about 0.5900 on broad USD strength and risk-off vibes. But by Friday morning it staged a spirited rebound – the pair rallied nearly 80 pips off its lows, peaking just shy of 0.5980. This mid-week bounce coincided with improving market mood (helped in part by the Fed’s decision to hold rates steady and hopes that U.S. data might prompt a later Fed rate cut). However, the kiwi failed to sustain gains above the 0.5960/0.5980 resistance region. On the 5-minute chart, every burst higher met selling pressure. Notably, after the U.S. jobs report release, NZD/USD spiked but then quickly retreated, reflecting trader indecision. The market structure suggests a tentative uptrend (higher lows from Wednesday into Friday), but with lower highs capping the upside – classic consolidation. Volatility was moderate, with NZD/USD now hovering around 0.5940 as of Monday. The pair appears to be in wait-and-see mode, lacking a decisive catalyst from New Zealand domestically, and instead taking cues from U.S. dollar moves and overall risk appetite.
Trading Strategy
The stance for NZD/USD is Neutral-to-Bullish (Range-Buy) as long as support at 0.5900 holds. Kiwi’s high-beta nature means it could benefit if risk sentiment improves or if the USD softens on Fed pause bets. Traders might consider buying dips toward the 0.5900–0.5920 support zone. This area proved to be a floor last week. A rebound from there could target a return to the 0.6000 neighborhood, a psychologically important level just above last week’s highs.
- Buy Zone (Support): 0.5900–0.5920
- Resistance: 0.5975–0.6000 (recent swing high and psychological level)
- Target: 0.6000, with a stretch goal towards 0.6030 if momentum really kicks in
- Stop Loss: ~0.5870 (just below last week’s low, in case risk-off selling resumes)
This strategy leans on the assumption that panic is fading and markets may stabilize after processing the Fed and BoE moves. Indeed, U.S. data showed slowing payroll growth but not a collapse, which eased recession fears and lent some support to risk currencies. However, caution is warranted: any resurgence of risk aversion (perhaps due to trade war headlines or a jump in U.S. yields) could send the kiwi back on the defensive. If NZD/USD instead breaks below 0.5900, the bias would flip bearish, exposing the mid-0.58s. Keep an eye on any comments from RBNZ officials (Governor Orr spoke last week, emphasizing financial stability) and on commodity trends – they can subtly influence NZD. For now, the pair’s range-bound rhythm offers nimble traders opportunities to play the ping-pong between support and resistance.
USD/JPY
USD/JPY 5-minute chart (May 2, 2025). The dollar-yen plunged toward 144.0 on the U.S. jobs data then staged a V-shaped recovery, reflecting its sensitivity to yields and risk flows.
Technicals in Focus
It was a yo-yo week for USD/JPY, with dramatic intraday moves highlighting the tug-of-war between U.S. yield dynamics and safe-haven demand for the yen. On Friday, USD/JPY initially tanked – falling from the mid-145s down to about 144.0 – as the early read of the U.S. jobs report spooked the market and sent traders into the safety of the yen. This sharp drop (visible as a tall red candle cluster on the M5 chart) was quickly followed by a V-shaped rebound. Within hours, USD/JPY roared back above 145.0, erasing most of the losses. By the end of the day, the pair settled around 144.9, still lower than its pre-NFP highs (~145.8) but well off the panic lows. The volatility here was a reminder: dollar-yen is extremely sensitive to interest rate expectations. When U.S. Treasury yields dipped on growth fears, yen-buying kicked in; when markets realized the payrolls were actually better than expected and yields bounced, USD/JPY surged right back. Technically, the 144.0 level emerged as solid support – the pair emphatically rejected sub-144 prices. On the topside, the 145.5-145.8 zone is acting as near-term resistance (also roughly where Japan’s Ministry of Finance tends to start watching nervously for rapid yen weakness). The short-term trend is a bit unclear given those whipsaws, but USD/JPY remains within the broader upward range it’s held as long as the Fed-BoJ policy gap persists. Notably, Japanese data out last week, such as household spending jumping back to growth, had minimal lasting impact on the yen; global factors are driving this pair right now.
Trading Strategy
We adopt a Neutral-to-Bullish bias on USD/JPY, expecting the dollar to maintain an edge as long as U.S. yields don’t collapse. The pair’s rapid recovery on Friday suggests dip-buyers are active. A possible approach is to buy on dips in the mid-144s, with the 144.0–144.5 area being an attractive support zone to watch (144.0 was last week’s floor). Upside momentum could carry USD/JPY back toward recent highs and beyond, especially if any Fed speak this week leans hawkish or risk sentiment steadies.
- Buy Zone (Support): 144.0–144.50
- Resistance: 145.5 (immediate), then 146.0 and 146.50 (prev. highs and psychological levels)
- Target: 146.0 in the short run, with potential for 147.0 if U.S. rates push higher
- Stop Loss: ~143.8 (below last week’s low – if that breaks, the bullish bias fails as it could signal a deeper yen rally)
One wild card here is the policy stance in Tokyo. Thus far, the Bank of Japan remains ultra-dovish, pinning yields near zero, which fundamentally supports USD/JPY on rallies. However, any jawboning about yen weakness from Japanese officials (or hints of tweaking yield-curve control) could momentarily strengthen JPY. Conversely, U.S. political developments – for instance, if the White House unveils new tariff actions or fiscal measures – might lift safe-haven yen demand. Traders should stay nimble. The path of least resistance, however, still appears to be upward for USD/JPY given interest rate differentials: the Fed may be on hold, but it’s not easing yet, and real U.S. yields remain far higher than Japan’s. This keeps the carry trade in play, making the dollar attractive on dips against the yen.
Market Outlook
Looking ahead, the FX market is poised for a tug-of-war between economic realities and political theatrics. The U.S. dollar enters the week somewhat buoyed by data – after all, job growth outperformed dire expectations and productivity data showed inflationary labor costs climbing, which could keep the Fed’s finger off the rate-cut trigger for now. Fed officials will be hitting the speaking circuit in coming days (with FOMC members like Williams and Vice Chair Barr scheduled to talk), and traders will parse every word for clues. The consensus at the Fed seems to be “higher for longer” caution, especially as core inflation remains sticky. Any hint that June’s meeting could still be live for a hike (or that rate cuts are a distant dream) would support the USD and could pressure pairs like GBP/USD and NZD/USD lower. On the flip side, if the Fed speakers emphasize patience amid global uncertainties – say, acknowledging Trump’s tariffs and slowing growth – that might fuel speculation of eventual easing, which would clip the dollar’s wings.
Across the pond, the pound will remain in focus as markets react to the BoE’s new easing cycle. The BoE’s rate cut and dovish messaging mark a sea change that puts the UK in easing mode ahead of other majors. That divergence could keep GBP under a sell-the-rally regime. However, sterling traders will also keep an eye on upcoming UK data (like Friday’s GDP tracker and production figures) for any signs that the economy is weathering the storm. Surprise strength in UK metrics might temper the BoE’s dovishness, injecting some life back into GBP. Until then, the bias for GBP/USD leans bearish on policy grounds.
For the commodity currencies and risk proxies (NZD, AUD, etc.), much will depend on the broader risk environment. The political backdrop in the U.S. is particularly pivotal: President Trump’s aggressive trade stance is a double-edged sword. On one hand, tariffs funneling into the U.S. Treasury could strengthen the dollar’s appeal (as Trump often touts), but on the other, they threaten global growth and market sentiment, which can spark flight-to-safety flows (paradoxically boosting USD vs. risk FX, while aiding the yen). This week, any new developments out of Washington – be it tariff escalations, fiscal policy announcements, or even presidential tweets – could jolt FX markets. Traders haven’t forgotten how a single Trump comment can whipsaw USD/JPY or AUD/USD in seconds. Now, with the 2025 political landscape in full swing, central bank decisions are increasingly intertwined with politics. The Fed is facing open calls from the President to cut rates, a pressure not seen since the last time Trump was in office. While Jerome Powell’s Fed will publicly stress its independence and data-dependence, markets know that political noise can indirectly influence policy paths (or at least market expectations of them).