The forex market is digesting a pivotal week of central bank decisions and data. The U.S. Federal Reserve held its benchmark rate steady (around 4.50%) and signaled a cautious pause amid mixed economic signals. Fed Chair Jerome Powell emphasized a “wait-and-see” stance as uncertainty looms – notably warning that President Trump’s recent tariff policies could push inflation higher even as growth slows. Indeed, U.S. data painted a complex picture: initial jobless claims edged down to 232K, indicating labor market resilience, but Q1 nonfarm productivity fell -0.4% while unit labor costs surged 5.3%, underscoring persistent wage-driven inflation pressure. This stagflationary undercurrent is stirring policy tension in Washington, where inflation remains a hot-button issue. Lawmakers and the White House are at odds over how to tame price growth – from tariff-driven trade strategy to fiscal belt-tightening – adding another layer of uncertainty to market sentiment.
Across the Atlantic, the Bank of England delivered a widely expected 25 bps rate cut to 4.25%, its first reduction since last year. The decision (passed by a 9–1 vote) was accompanied by an Inflation Letter as UK CPI, though down to ~2.6% recently, remains above target and was projected to temporarily rise above 3% in Q2. BoE Governor Andrew Bailey nevertheless struck a cautiously optimistic tone that inflation will gradually ease toward the 2% goal later in the year as previous tightening and lower energy costs work through. The BoE’s easing bias comes amid a subdued growth outlook at home and global headwinds from trade frictions. Notably, officials cited Trump’s tariffs darkening the global outlook as a factor warranting “gradual and careful” rate cuts. However, with UK wage growth running near 6% (roughly double the pace consistent with target inflation), the MPC may be wary of cutting too aggressively. This policy divergence – a patient Fed versus an easing BoE – has been a key driver for forex this week.
Against this backdrop, the U.S. dollar is on the back foot, having retreated broadly in recent sessions. Commodity currencies like the NZD found support as risk sentiment improved modestly after the Fed’s hold, while the safe-haven JPY also firmed on a combination of lower U.S. yields and upbeat domestic data. Meanwhile, the British pound swung higher into the BoE decision before paring gains. Below we break down the action and outlook for NZD/USD, USD/JPY, and GBP/USD, with a look at technicals and trading setups for each.
NZD/USD
NZD/USD (5-minute chart) rebounded from 0.5945 lows toward the 0.6000 handle.
The New Zealand dollar is modestly higher, buoyed by a weaker USD and a tentative pickup in risk appetite. After dipping to multi-week lows around $0.5945, NZD/USD reversed sharply, climbing back above the psychological $0.6000 level. The absence of any fresh NZ-specific economic shocks kept the Kiwi trading off broader themes – chiefly the USD side. The Fed’s steady rate stance and cooler U.S. data have slightly eased U.S. yield pressures, helping high-beta currencies like NZD. Additionally, China-sensitive currencies got a lift from hopes that tariff uncertainties might eventually resolve, although sentiment remains cautious. The RBNZ’s Financial Stability Report (released Tuesday) was largely neutral, and Governor Orr’s speech offered no surprises, so domestic influences were limited. Overall, NZD/USD price action suggests short-term momentum flipping upward as traders reposition after the recent USD strength faltered.
Technicals in Focus
The momentum bias has turned upward on intraday charts. The MACD on the 4H is curling above its signal line from deeply negative territory, hinting at a bottoming-out. The RSI recovered from oversold sub-30 readings and now lies around the mid-50s, reflecting improving bullish momentum without being overbought. Similarly, the Stochastic oscillator has exited oversold levels and is pointing higher, supporting the rebound scenario. On the price level side, immediate support is seen at 0.5980 (recent pullback low), with stronger support at the 0.5940–50 zone (this week’s trough). Resistance is evident at 0.6010–0.6020 (recent swing highs); a break above that could open the door toward 0.6050 next, whereas failure to clear 0.6000 convincingly may keep NZD/USD range-bound.
Trading Strategy
Bias is cautiously bullish as long as the pair holds above 0.5980 support. Buy on dips could be considered:
- Entry: Around 0.5990, on a minor pullback toward support.
- Target: 0.6040, with a stretch goal to 0.6075 if momentum persists. (Tight initial resistance at 0.6010 must clear to inspire confidence toward these targets.)
- Stop Loss: 0.5960, just below the recent base, to guard against a false breakout that reverses the upturn.
This setup bets on the Kiwi extending its relief bounce, aided by a softer USD and steady risk tone. Conversely, a drop back below 0.5980 would caution that bearish pressure is returning, in which case a neutral stance is warranted.
USD/JPY
USD/JPY (5-minute chart) slid to one-week lows around 142.50 as the yen gained ground.
The dollar-yen pair has fallen notably, reflecting a mix of dollar weakness and yen strength. After probing above ¥144 earlier in the week, USD/JPY turned south and accelerated downward, hitting the mid-142s. A key driver has been the retreat in U.S. Treasury yields post-Fed: with the Fed on hold and hinting at patience, the benchmark 10-year yield eased, undermining one pillar of USD/JPY’s prior rally. Safe-haven demand for the yen also emerged amid lingering trade-policy jitters and volatile equities – a dynamic where yen often benefits from risk-off moves. Supporting the yen’s tone, Japan’s latest data has been relatively upbeat: notably, services PMI jumped to 52.2 in April (from 50.0) signaling renewed growth. Additionally, March household spending surprised to the upside (3.5% MoM), hinting at resilient domestic demand. While the Bank of Japan remains ultra-accommodative (as reiterated in minutes this week), the yen drew strength as market focus shifted to global factors and as traders unwound carry trades. Net result: USD/JPY’s uptrend paused, and the pair is consolidating near its lows as participants assess the new equilibrium between Fed and BoJ policy expectations.
Technicals in Focus
The short-term technical bias for USD/JPY has flipped bearish. MACD on the 1H/4H charts has crossed below zero, with expanding negative histograms reflecting building downward momentum. RSI readings have dipped into the 40s, and even briefly into the 30s during the sharp sell-off – not yet extreme oversold, but certainly highlighting dominant selling pressure. The Stochastic oscillator is buried in oversold territory (<20) after the swift drop, suggesting the pace of decline may moderate soon or see an interim bounce. Key support is observed at 142.20 (recent low and a level of congestion last week); a break below could expose the 141.50 region. On the upside, initial resistance lies around 143.30, where the market found support on the way down; beyond that, the 144.00 mark looms as a significant resistance (and the recent peak area). The pair is trading below its 50-period moving averages on short-term charts, reinforcing the near-term downtrend bias.
Trading Strategy
Bias is bearish/defensive for USD/JPY in the near term, given the momentum shift. The strategy favored is to sell into any relief rallies:
- Entry: 143.0 – 143.3 zone, if upticks occur from current levels. This area near former support-turned-resistance could attract sellers.
- Target: 142.00, with a secondary target at 141.50 if downside extends on risk-off moves. These levels correspond to the next support floors mentioned.
- Stop Loss: 143.60, just above the 143.5 minor swing high and well above the 50-MA, to cap risk in case of a sharper rebound.
Traders should monitor U.S. bond yield moves and risk sentiment closely – any sudden jump in yields or easing of market fears could spur a USD/JPY bounce. Conversely, escalation in U.S.–China trade tensions or equity pullbacks may accelerate yen gains beyond our targets.
GBP/USD
GBP/USD (5-minute chart) spiked above 1.3400 before the BoE decision, then stabilized near mid-1.33s.
The British pound saw a two-way reaction this week, initially surging against the dollar before tempering its gains. GBP/USD jumped from the low-$1.33 range to a peak around $1.3410 as traders positioned ahead of the Bank of England meeting, perhaps expecting a cautious tone or pricing in USD softness. In the event, the BoE’s quarter-point rate cut to 4.25% was in line with expectations, and Governor Bailey’s commentary, while acknowledging still-high inflation, suggested confidence that price growth will fall later in 2025. This outcome prompted a classic “buy the rumor, sell the fact” response – sterling’s rally cooled off after the announcement, as the focus shifted to the BoE’s dovish pivot. U.S. factors also played a role: the dollar’s pullback (post-Fed) aided cable’s rise, but strong U.S. unit labor cost data limited USD’s decline, keeping GBP/USD from extending too far beyond 1.34. On net, sterling holds a mild gain on the week, underpinned by the Fed-BoE policy divergence (Fed steady vs. BoE easing). However, upside momentum has waned as markets digest what could be the start of a BoE rate-cutting cycle. Traders are now gauging if the pound’s yield advantage erodes going forward, which could cap further GBP/USD appreciation despite a weaker USD backdrop.
Technicals in Focus
GBP/USD’s short-term trend turned bullish into the BoE decision, but indicators now show mixed signals as momentum eases. MACD on the 4-hour chart is still above zero but has leveled off, with the latest histogram bars shrinking – a sign that bullish momentum has stalled. RSI reached into the 60s during the spike but has since dipped to around 50-55, reflecting the pullback from highs and a more neutral stance at present. Stochastics had entered overbought territory (>80) during the rally and are now crossing down, indicating a possible correction or at least consolidation phase for sterling. In terms of price levels, immediate support lies at 1.3330 (former minor resistance and around the 50-period MA). Below that, stronger support is at 1.3290–1.3300 (where sterling based before the recent run-up). On the topside, resistance is firm at 1.3400–1.3410 (this week’s high); a clear break above would be needed to reignite the uptrend, targeting the mid-1.34s. Given the pair is midpoint in its week’s range, the next directional cue may come from fundamental news rather than purely technical impetus.
Trading Strategy
Bias for GBP/USD is neutral-to-bearish in the aftermath of the BoE’s dovish move. We prefer an opportunistic short on rallies, fading sterling strength until a clearer uptrend resumes:
- Entry: 1.3370 area, if price bounces back toward the post-BoE highs. This level is just below the 1.3400 resistance and offers a favorable risk-reward to short.
- Target: 1.3300, with a potential extension to 1.3250 if dollar strength returns. These targets align with the support levels identified (round-number support at 1.33 and deeper support near last week’s lows).
- Stop Loss: 1.3430, above the key 1.3400/10 resistance zone. A move beyond 1.3430 would likely signal a bullish breakout, invalidating the short bias.
This strategy plays into the expectation that the pound’s uptick may fade as the BoE’s easing cycle becomes a dominant theme. Still, one should stay nimble: a surprisingly hawkish comment from BoE speakers or a stumble in U.S. data could flip GBP/USD higher, in which case flipping to a buy-on-dips approach above 1.3400 might be warranted.
Market Outlook
Heading into the latter part of the week, traders will closely watch upcoming economic releases and political developments. On Friday, the UK’s industrial and manufacturing production data for March will be in focus – strong numbers could lend some support to sterling, while weak output might reinforce the dovish BoE narrative. In the U.S., although no major data releases are due until next week, markets remain sensitive to the weekly jobless claims trend and any hints of labor market cooling. Moreover, a slate of Fed speakers (including FOMC members Williams and Barr on Friday) could offer guidance on how the Fed is interpreting the latest wage and inflation metrics. Any rhetoric about the need to combat inflation “for longer” might buoy the dollar, whereas hints at discomfort with tightening too much could keep USD on the defensive.
On the political front, inflation-focused policy tensions in Washington bear watching. President Trump’s trade agenda – particularly the new tariffs and international negotiations – continues to create cross-currents. These policies are adding to short-term price pressures (tariffs on imports have lifted input costs) even as they threaten growth, a combination that central bankers are openly wary of. Any headlines about tariff rollbacks or escalations could swiftly alter risk sentiment and currency direction. Likewise, domestic U.S. budget debates, if they intensify, might inject volatility if a government shutdown or debt ceiling standoff resurfaces as a risk factor.
In summary, the forex market tone is cautious going into the weekend. The U.S. dollar’s trend will hinge on whether investors see the Fed’s pause as a prelude to eventual easing (dollar bearish) or a steadfast inflation-fighting stance (dollar bullish). Meanwhile, currencies like the NZD and GBP will trade off how their central banks’ dovish tilts balance against local economic resilience. The JPY stands to gain on any risk-off waves or further declines in global yields. Expect choppy range-bound trading to persist for now, with event risk from both data and politics keeping traders alert. As always, prudent position sizing and close attention to key levels are advised in these headline-driven markets.
Overall, this week’s developments underscore a growing divergence: the Fed is on hold watching data, the BoE has begun cutting, and the policy path uncertainty is high as U.S. trade policy adds a wildcard. This sets the stage for potentially larger moves ahead once clarity emerges. For the time being, short-term traders should continue to lean on technicals for entry/exit decisions, but remain ready to adjust as macro news hits. The ability to stay flexible and manage risk amid the flux will be crucial in navigating the forex landscape in the days to come.