Sample Category Title

The GBP/USD pair continues its upward trajectory, reaching 1.3429 by Thursday. It is now trading just below yesterday’s peak, its highest level since February 2022.

Key drivers behind GBP/USD’s rise

The rally follows the release of stronger-than-expected UK inflation data. The annual Consumer Price Index (CPI) accelerated to 3.5% in April, the highest reading since January 2024, exceeding both market forecasts (3.3%) and the Bank of England’s projection (3.4%). Contributing factors included:

• An increase in Ofgem’s energy price cap
• Higher vehicle tax rates

Notably, services sector inflation surged from 4.7% to 5.4%, signalling persistent underlying price pressures.

Market expectations for monetary policy easing have adjusted significantly. Investors now anticipate just one 25-basis-point rate cut by the end of 2025. The likelihood of a rate cut in August has fallen from 60% to 40%.

The Bank of England reduced interest rates by 25 basis points in May, although policymakers were divided on the decision.

Technical analysis: GBP/USD

H4 Chart:

• The GBP/USD pair completed an upward wave, peaking at 1.3466
• Today, we expect consolidation below this level
• A downward breakout could initiate a decline towards 1.3131, with 1.3300 acting as the first target
• The MACD indicator supports this view, with its signal line exiting the histogram zone and trending lower

H1 Chart:

• The pair reached 1.3466 before correcting to 1.3388, establishing a consolidation range
• A downward breakout today could see a move towards 1.3300
• The Stochastic oscillator confirms this scenario, with its signal line below 80 and pointing decisively downward towards 20

Conclusion

Sterling’s strength persists amid weaker US dollar dynamics and persistent UK inflation. While technical indicators suggest a potential pullback, the broader trend remains influenced by monetary policy expectations and economic data.

UK PMI Services rose modestly from 49.0 to 50.2, while Manufacturing PMI edged lower from 45.4 to 45.1. As a result, the Composite PMI ticked up from 48.5 to 49.4, still below the 50-mark that separates expansion from contraction.

According to S&P Global’s Chris Williamson, business confidence has improved since April, helped in part by easing trade tensions. However, output across the private sector shrank for a second consecutive month, suggesting that the UK economy may be slipping into contraction for Q2.

On a more encouraging note, inflationary pressures appear to have cooled significantly from April’s spike. This moderation in price growth, combined with lackluster output and emerging job losses, strengthens the case for further monetary easing by BoE in the coming months.

Full UK PMI flash release here.

Germany’s Ifo Business Climate Index rose to 87.5 in May, up from 86.9 in April, offering cautious optimism that the economy may be stabilizing.

The improvement was driven by a notable rise in the Expectations Index, which climbed from 87.4 to 89.9, a sign that firms are growing more confident about future conditions. However, the Current Situation Index dipped slightly from 86.4 to 86.1.

The Ifo Institute noted that "sentiment among German companies has improved" and that the recent surge in uncertainty has begun to ease.

Full German Ifo release here.

Eurozone’s private sector returned to contraction in May, with PMI Composite falling from 50.4 to 49.5, a six-month low. The drag came from the services sector, where the PMI dropped from 50.1 to 48.9, its weakest reading in 16 months. While the manufacturing index rose modestly from 49.0 to 49.4, marking a 33-month high, it remained in contractionary territory.

According to HCOB Chief Economist Cyrus de la Rubia, the region’s economy “cannot seem to find its footing,” as growth signals remain elusive and sentiment subdued.

The modest improvement in manufacturing may reflect front-loaded activity as firms seek to get ahead of US tariffs, rather than underlying demand strength. However, the downturn in services, typically more domestically oriented and less exposed to global trade, raises concern about internal demand softness.

For the ECB, the numbers are "likely to leave it with mixed feelings". While service sector inflation appears to be moderating, input costs — likely driven by wages — are ticking higher again. Manufacturing purchase prices, by contrast, continue to fall.

Full Eurozone PMI flash release here.

Markets

Yesterday’s US 20-yr $16bn bond sale was a rough one. The auction tailed 1.2 bps vs the 5.035% WI yield with lower-than-average demand. US yields ripped higher, extending earlier gains. Net daily changes varied between +4.8 bps in the 2-yr to 12.9 bps for the 20-yr. The US 30-yr yield added 12.3 bps to 5.09% and rapidly closes in on the 2023 high of 5.17%. The 5% coupon, the highest since the 20-yr tenor was reintroduced in 2020, wasn’t considered enough and is a writing on the wall. Investors shun long-term US debt given fiscal risks to an already unsustainable deficit situation. Conditions ahead of the auction were suboptimal, to put it mildly. Shortly before the sale, House Speaker Mike Johnson said there was agreement on one of the last remaining hurdles (SALT, Medicaid), potentially paving the way for Trump’s bill to be approved by the House later today. Adding to the negative vibes was a Japanese sale that flopped on Tuesday. The tenor was the same, market concerns similar. It launched Japanese yields with maturities from 20 year on to the highest levels since at least 25 years. That prompted calls on the Bank of Japan to revise its bond buying taper plans, specifically those affecting the long end of the curve. But one of the most dovish BoJ board members said this morning he currently sees no need to. In the plan laid out last year and which is up for an interim review at June’s policy meeting, monthly buying should halve to JPY 3tn by March 2026. Japanese yield again add several bps. The bad US auction weighed on Wall Street with losses mounting to 2% (Dow Jones) as well as on the dollar. The trade-weighted index closed sub 100, EUR/USD rose to 1.133. USD/JPY eased to 143.7 and drops further to 143.3 in Asian trading this morning. JPY largely ignores an understanding between finance minister Kato and his US counterpart Bessent that FX rates should be determined by the market. Both met in the sidelines of the G7 summit in Canada and ongoing FX talks with the likes of South Korea and Taiwan is fueling speculation of the US using tariffs to arm-wrestle the broader region in letting local currencies strengthen.

The calendar has the sole important economic data for this week on offer: PMI business confidence indicators. We suspect the European reading to come in to the better side of expectations as trade fever eased over the last couple of weeks. We keep a close eye at the price subseries. Input cost increased slowed last month but selling prices continued to pick up. The combination of improving economic conditions and still-strong price pressures keeps European yields supported. They have been joining the broader move higher, particularly at the long end of the curve. The 30-yr swap is the one to watch for today, with the yield currently testing the 1.5 year high seen in March. We expect EUR/USD to move higher with 1.1573 (April high) serving as the first technical resistance level.

News & Views

Lower growth than previously expected slowed the efforts of fiscal consolidation by New Zealand, the proposal of the new budget showed this morning. The government expects a budget deficit at 2.6% of GDP in the fiscal year 2025/2026 (NZD 12.1 bln), compared to the expected 2.3% at in December last year. The government intends to return to a budget balance in the fiscal year 2028/29. Treasury takes a 1.2% growth into account for 2025 (from 2.1%) before accelerating to 3.1% in 2026. Both are still higher than the projections of the central bank. The lower deficit reduction plan also slowed the decline in the government debt ratio. This is expected to peak at 46.0% in 2027/28. In a first comment after the budget presentation, rating agency S&P indicated that the elevated fiscal and current account deficits weigh on the credit rating. S&P nevertheless expects that the country’s public debt will stabilize at a favourable level compared to most rating peers. New-Zealand has AA+ rating with a stable outlook. The kiwi dollar eases slightly this morning against the dollar to NZD/USD 0.5925.

The Japanese composite PMI in May slipped back in contraction territory, from 51.2 in April to 49.8 in May. The decline in the overall index was driven by a further contraction in out in the manufacturing sector (48.0 from 48.9) while activity in the services sector slowed materially from 524 to 50.4. S&P Global comments that demand conditions looked more fragile, with new business across both manufacturing and service sectors falling for the first time in nearly a year and foreign demand declining for the second straight month. Cost pressures remained elevated in May, but there were tentative signs that input price inflation is cooling. Business confidence is the second lowest recorded since the initial wave of the COVID-19 pandemic, due to uncertainty on the future trade environment and foreign demand clouding the outlook for the year ahead.

Daily Pivots: (S1) 192.34; (P) 193.03; (R1) 193.49; More...

Intraday bias in GBP/JPY stays neutral. While deeper pullback might be seen, further rally is expected as long as 190.22 structural support holds. On the upside, above 194.18 minor resistance will turn bias back to the upside for 196.38 resistance. However, sustained break of 190.22 will indicate near term reversal.

In the bigger picture, price actions from 208.09 are seen as a correction to rally from 123.94 (2020 low). Strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. However, sustained break of 175.94 will bring deeper fall even still as a correction.

Daily Pivots: (S1) 162.50; (P) 162.90; (R1) 163.19; More...

Intraday bias in EUR/JPY remains neutral for the moment, and more consolidations could be seen. Further rally is in favor as long as 161.57 support holds. Break of 165.19 will resume the rise from 154.77 to 166.67 resistance. However, firm break of 161.57 will indicate near term reversal, and turn bias back to the downside.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.

Daily Pivots: (S1) 0.8425; (P) 0.8442; (R1) 0.8462; More...

Intraday bias in EUR/GBP remains neutral and more consolidations could be seen above 0.8392 temporary low. Further decline remains in favor as long as 0.8539 resistance holds. Below 0.8392 will resume the fall from 0.8737 to 0.8221/8239 support zone.

In the bigger picture, current development suggests that price actions from 0.8221 medium term bottom are merely forming a corrective pattern. However, there is no clear momentum to break through 0.8201 key support (2022 low) yet. Hence, range trading is expected between 0.8221/8737 for now.

Daily Pivots: (S1) 1.7547; (P) 1.7586; (R1) 1.7639; More...

Intraday bias in EUR/AUD remains neutral for the moment. On the upside, firm break of 1.7628 resistance will suggest that fall from 1.8554 as completed as a correction, and retain larger bullishness. Intraday bias will be back on the upside for stronger rebound. However, below 1.7245 will resume the fall to 61.8% retracement of 1.5963 to 1.8554 at 1.6953.

In the bigger picture, as long as 1.7062 resistance turned support (2023 high) holds, up trend from 1.4281 (2022 low) should still be in progress. Break of 1.8554 will target 100% projection of 1.4281 to 1.7062 from 1.5963 at 1.8744. However, sustained break of 1.7062 will confirm medium term topping and bring deeper fall back to 1.5963 support.

Daily Pivots: (S1) 0.9322; (P) 0.9343; (R1) 0.9372; More....

EUR/CHF is still bounded in sideway trading and intraday bias remains neutral. Price actions from 0.9218 are seen as either a corrective move or the third leg of the pattern from 0.9204. On the upside, break of 0.9419 will resume the rise from 0.9218 through 0.9445 resistance. However, break of 0.9296 support will bring retest of 0.9218 low.

In the bigger picture, prior rejection by long-term falling channel resistance (now at 0.9548) retains medium term bearishness. That is, down trend from 1.2004 (2018 high) is still in progress. Firm break of 0.9204 (2024 low) will confirm resumption. This will remain the favored case as long as 0.9660 resistance holds.