A volatile mix of political and economic cross-currents is defining the forex landscape. In Washington, partisan wrangling over new inflation legislation and President Trump’s sweeping tariffs are rekindling inflation fears and global growth risks. The Federal Reserve held rates steady yesterday, brushing off Trump’s demands for cuts even as tariffs inject uncertainty into the outlook. Against this backdrop, the U.S. dollar saw two-way action – weakening early in the week on upbeat data and risk appetite, then finding footing as safe-haven flows and yield advantages returned. Meanwhile, overseas central banks are responding: the Bank of England delivered a rate cut as growth headwinds mount, and the RBNZ’s latest report struck a cautious tone on global volatility despite resilient domestic fundamentals. Below, we break down implications for NZD/USD, USD/JPY, and GBP/USD.
NZD/USD
Market Summary: The New Zealand dollar is clawing back recent losses against the greenback. NZD/USD rebounded off its lows this week as improving risk sentiment and strong commodity demand lent support – the RBNZ noted high agricultural export prices are helping support the economy. The pair briefly pushed above the 0.6000 handle, buoyed by a broadly softer USD on Monday after upbeat U.S. ISM Services data (Apr 51.6 vs 50.6 f’cast) fueled risk appetite. However, upside momentum has been limited by lingering trade-war headwinds. Wellington’s Financial Stability Report warned that U.S. tariffs have heightened market volatility and pose a material risk to global growth, tempering the Kiwi’s advance. With no new policy moves from the RBNZ (Governor Orr struck a watchful tone in his remarks), NZD/USD is consolidating around the 0.6000 mark as traders weigh the opposing forces of improved risk tone versus trade uncertainty.
Technicals in Focus
NZD/USD’s technical bias is tilting modestly bullish in the near term, though signals are not overly strong. The MACD on the daily chart is edging toward a bullish crossover (histogram bars shrinking above the zero line), reflecting improving momentum. The RSI has climbed back above 50, currently in the mid-50s, indicating recovering strength after the recent bounce. Meanwhile, the Stochastic oscillator is rising out of oversold territory, though nearing the upper band – a caution that the pair is losing some upside steam near resistance. Support is visible around 0.5950, the area of this week’s pullback low, with a deeper floor at 0.5900 if trade fears resurface. On the upside, immediate resistance sits at 0.6020, just above today’s highs, with a break above there opening the door toward the 0.6060 region (near late-April highs). The Kiwi’s technical posture suggests a cautiously optimistic tone, as long as 0.5950 holds on dips.
Trading Strategy
We maintain a buy-on-dips approach for NZD/USD given the pair’s resilience above support. A potential entry zone emerges on a pullback to the 0.5960 – 0.5980 area, aiming to ride the upturn. Entry (Buy): 0.5970, Target: 0.6050, Stop: 0.5935. This strategy looks to capitalize on the Kiwi’s positive momentum while keeping risk defined just below the recent support shelf. Upside targets around 0.6050 coincide with the next resistance band, offering an attractive risk-reward if global sentiment remains steady. Traders should stay nimble, however – a drop under 0.5950 would caution that bearish forces (e.g. any escalation in U.S.-China tariff tensions) are regaining control.
USD/JPY
The USD/JPY pair whipped around on event risk but ultimately marched higher, underpinned by yield differentials and a muted yen safe-haven bid. Early on Wednesday, the dollar-yen saw volatility around the Fed decision – the Fed kept policy on hold at 4.50%, citing a difficult mix of rising inflation and unemployment risks from tariffs. After an initial dip, the pair found fresh buying interest as U.S. Treasury yields remained elevated and traders digested the Fed’s cautious stance. Notably, the Japanese yen failed to strengthen despite the uptick in global market uncertainty from the trade war headlines. The Bank of Japan’s ultra-dovish policy (reiterated in minutes released overnight) and Japan’s still-low yields meant the yen offered little refuge. By Thursday the dollar gained the upper hand, with USD/JPY breaking above the ¥143.0 level – its highest in roughly two weeks. The move reflects the stark policy divergence: Fed officials are on hold (for now) rather than cutting, while the BoJ maintains negative rates/YCC, leaving the interest rate gap firmly in the dollar’s favor. Even solid Japanese data (Apr services PMI 52.4, third month of expansion) did little to boost JPY. Overall, dollar-yen is grinding upward on yield tailwinds, though traders remain alert to any sudden safe-haven flows if risk sentiment sours.
Technicals in Focus
USD/JPY’s technical picture has shifted bullish after this week’s rebound. The daily MACD line has crossed above its signal line below zero, pointing to improving upward momentum (though the pair has yet to regain the late-April highs). The RSI is climbing through the 55-60 zone, up from neutral 50 – not overbought yet, but showing renewed bullish momentum as price pushes higher. The Stochastics are flirting with overbought levels (>80) on shorter timeframes, which could imply a pause or minor pullback in the rally if reached. Key resistance now comes in at 144.50, a region of prior pivot highs and near the 50-day EMA. Above that, the 146.00 level looms large – around last month’s peak and a psychological hurdle (also roughly the neckline of a potential double-bottom pattern noted by some analysts). On the downside, initial support lies at 142.00 (the mid-week breakout area), with stronger backing around 140.00 – a level that has formed a triple-bottom in recent months. The uptrend remains intact unless 140 is broken; in the meantime, dips are likely to find buyers.
Trading Strategy
With fundamentals favoring the dollar, our bias is to buy USD/JPY on pullbacks. An attractive setup could be a dip toward the previous breakout zone. Entry (Buy): 142.50, Target: 145.50, Stop: 141.50. This plan seeks to ride the yield-driven uptrend, aiming for a retest of the 145 handle while keeping a stop under near-term support. Alternatively, momentum traders might watch for a clear break above 144.00 to add to longs, looking for follow-through toward 146. In all cases, awareness of event risk is key – any surprise headlines (for instance, abrupt changes in trade negotiations or central bank rhetoric) can spark yen strength, so position sizing and stop discipline remain important.
GBP/USD
Sterling’s rally hit a wall as the focus shifted to the Bank of England’s dovish turn. Earlier in the week, GBP/USD climbed toward 1.33+ on broad dollar weakness, but the pound lost momentum heading into the BoE meeting. On Thursday, the BoE cut interest rates by 25 bps to 4.25% as widely expected – its second consecutive cut – and signaled growing concern over the economy. Governor Bailey emphasized heightened risks from the global trade war (Trump’s tariffs have “darkened the global growth outlook”) and a cooling domestic backdrop. Indeed, recent data shows the UK recovery sputtering: a key gauge of UK private-sector activity sank in April to its lowest since late 2022, and housing indicators (Halifax HPI +0.2% m/m) point to only tepid growth. With inflation off its peak and expected to ease, the BoE struck a cautious tone about the pace of further rate cuts. The policy statement removed prior guidance about “gradual” easing, opening the door to a potentially faster cutting cycle if needed. The immediate reaction saw GBP/USD slide – the pair fell from the mid-1.3300s down through 1.3200 as traders digested the prospect of a more accommodative BoE. The dollar, meanwhile, found some support from the Fed holding firm and U.S. political uncertainty, exacerbating sterling’s pullback. By the New York session, GBP/USD hovered around 1.3180, firmly lower on the day and at risk of revisiting last week’s lows if bearish momentum continues.
Technicals in Focus
The technical tone for cable has turned cautiously bearish in the short term. The MACD has flipped below its signal line near the zero axis, reflecting the loss of positive momentum after the pair’s failure to sustain levels above 1.3300. The daily RSI has rolled over from the 60s and is trending toward 40-45, showing building downside momentum but not yet oversold. Similarly, Stochastic readings have fallen out of overbought territory, confirming the shift in bias to the downside without reaching extreme lows. Sterling’s pullback has brought key levels into view – immediate support is seen around 1.3130, roughly the late-April swing low and a level highlighted by analysts ahead of the BoE as pivotal. A firm break below 1.3127/1.3130 could trigger an acceleration toward the psychological 1.3000 threshold. On the upside, what was support now turns into resistance: the 1.3240 – 1.3300 zone (former range floor and round-number) is the first cap on any rebound. Beyond that, the 1.3400 figure marks a significant hurdle (last week’s high). Given the fresh bearish crossovers and expanding volatility, GBP/USD may continue to trade on its back foot, with sellers eyeing that 1.31 support closely.
Trading Strategy
In light of the BoE’s dovish shift, we favor a sell-on-strength strategy for GBP/USD. A corrective bounce toward the mid-1.3200s may offer a better risk-reward entry to join the downmove. Entry (Sell): 1.3240, Target: 1.3100, Stop: 1.3310. This sets an initial target just above the noted 1.3127 support reference, banking profits ahead of a potential congestion area, while a stop above 1.3300 contains risk in case of a sharper relief rally. If bearish momentum persists, a secondary push toward the 1.3000 handle is possible in coming sessions, though we would reassess near 1.3100. Traders should monitor any post-BoE commentary or data surprises – hints of economic resilience or hawkish dissent could spark a short-covering bounce. For now, rallies appear to be selling opportunities as long as the dollar retains an edge and the market prices in additional BoE easing.
Market Outlook
Looking ahead to the coming trading session, all eyes remain on the interplay between policy signals and political developments. In the U.S., any new tariff announcements or progress on inflation legislation will be critical – trade headlines could whipsaw risk sentiment and USD demand in either direction. With the Fed in data-dependent mode, upcoming inflation readings and labor market data (like weekly jobless claims due later on Thursday) may see outsized attention as markets gauge the odds of Fed rate cuts later in the year. Meanwhile, traders will parse comments from Fed officials and any BoE follow-up remarks for clarity on each central bank’s reaction function amid these cross-currents. Global growth signals are also in focus; for the Kiwi and yen especially, news out of China (trade data or stimulus measures) could shift the balance. Overall, expect trading to stay event-driven – volatility may remain elevated as FX participants navigate the ongoing U.S. political brinkmanship, tariff impacts, and central bank pressures that have defined this week. Staying agile and informed will be key as we head into the next session, with support/resistance levels and stop-loss discipline more important than ever in this headline-driven market.