The Pound to Dollar (GBP/USD) exchange rate eased to 1.3576, with the pair consolidating after a recent rally as quieter holiday trading conditions limited volatility.

Scotiabank notes that the British Pound Sterling remains supported by a relatively hawkish Bank of England stance, with Governor Bailey signalling an “active hold” on policy.

“Yield spreads (UK-US) are supportive… offering fundamental upside for the GBP.”

The bank highlights that UK-US yield differentials remain near multi-year highs, underpinning the pound and suggesting scope for further gains, particularly as markets are only lightly pricing tightening at the June BoE meeting.

Scotiabank adds that improving sentiment and fading geopolitical concerns could allow sterling to extend its recovery, although UK political uncertainty remains a lingering risk ahead of upcoming local elections.

Scotiabank expects the Pound to Dollar exchange rate (GBP/USD) to trend higher towards the 1.38 area in the near-term, supported by favourable yield spreads and a constructive policy backdrop.

Technical signals are also supportive, with momentum indicators strengthening and the pair clearing key retracement levels.

“Bullish… we note the absence of any material resistance ahead of the January high in the mid/upper-1.38s.”

In the near term, Scotiabank sees the Pound top US Dollar exchange rate (GBP/USD) trading within a 1.3550 to 1.3650 range before attempting further upside.

Disclaimer: For information only, not investment advice. This GBP to USD forecast summarises and interprets third-party research; views expressed are those of the original source and may not fully reflect the source’s complete analysis. Neither the source nor we accept liability for reliance on this interpretation.

The Dollar to Yen (USD/JPY) exchange rate traded at 157.07, holding below recent highs after failing to sustain gains above the 160 level amid intervention risks and shifting policy expectations.

Rabobank notes that the Japanese Yen remains one of the weakest G10 performers this year, with the currency still widely used as a funding currency for carry trades.

“The JPY has remained a poor performer in the year to date, with the JPY struggling to throw off its funding currency reputation.”

The bank highlights that while intervention may slow moves, it is unlikely to reverse the broader trend unless supported by fundamentals, suggesting any pullbacks could attract renewed buying interest.

Rabobank expects the outlook to gradually shift in favour of the yen, supported by structural changes in Japan’s economy, a more hawkish Bank of Japan and expectations for Federal Reserve rate cuts later this year.

Rabobank forecasts the Dollar to Yen exchange rate (USD/JPY) will fall to 158 over the next 3 months and to 145 over a 12-month horizon, assuming further BoJ tightening and a more accommodative Fed policy stance.

The bank adds that geopolitical risks, particularly the energy shock linked to the Strait of Hormuz, may delay yen recovery in the near term but should not derail the broader trend.

“On the assumption that the timeframe for the gradual re-opening of the Strait of Hormuz will be in the weeks ahead, rather than in several months’ time, we are sticking with our forecast of USD/JPY ending the year at lower levels.”

The near-term dollar forecast took a hit yesterday on the back of the Japanese intervention and hawkish-leaning ECB and BoE meetings. But the US dollar need not fall too far from here. If anything, I am expecting a swift recovery especially against currencies of economies that rely on oil imports. Crude prices have resumed higher after yesterday’s drop halted a sharp rally. But with the Strait of Hormuz still shut, this should keep crude prices elevated and undermine the EUR/USD forecast.

EUR/USD forecast remains tiled to downside: here’s why

The move higher in EUR/USD off the back of chatter around a June hike from the European Central Bank felt a touch overdone to me. If anything, it had more to do with dollar softness in the wake of the intervention drama in USD/JPY than genuine euro strength. That leaves the breakout looking a bit vulnerable.

The broader backdrop in the eurozone isn’t exactly reassuring. The data flow has started to lean in a stagflationary direction—growth is losing momentum while inflation expectations remain sticky. You can see that in the slump in Germany’s consumer sentiment and softer business surveys across the bloc. Add in elevated energy costs, and it’s not hard to see why the outlook feels a bit fragile.

In normal circumstances, rising rate expectations would give the currency a decent lift. But this isn’t a normal cycle. If the European Central Bank tightens into a weakening growth backdrop, it risks doing more harm than good. That’s not exactly a recipe for sustained euro strength, even if the market starts leaning towards a more hawkish path.

From a tactical point of view, I’m watching that 1.1750 area on the EUR/USD chart quite closely. If the pair struggles to hold above there it could unwind fairly quickly. A move back through 1.1670 wouldn’t surprise in that scenario. That said, given the strength we’ve seen intraday, I’d want clearer signs of buyers getting caught out before leaning too heavily into that view.

Looking ahead: Key US data set to impact EUR/USD forecast

Among the data highlights will be the ISM Services PMI on Tuesday. This is one of the most important gauges of US economic activity, covering the largest part of the economy: services. It’s widely tracked because it can shift expectations for growth and Fed policy, and as it is forward-looking. Through its employment component it offers some pre-NFP leading indication, too.

Speaking of US Nonfarm Payrolls, this will be released on Friday, May 8.  The report is the headline event of the week and typically the biggest market mover. The current narrative of low-hire, low-fire has kept the US stock markets ticking along nicely, with investors not yet too concerned about the inflationary implications of the energy shock on the world economy. Following last month’s big surprise of 178K, are we going to see another surprise? A strong print will be bearish for the EUR/USD forecast, while a weak number should provide it support.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

The British pound has broken out against the US dollar and now we’re in a new regime. I think we will probably go looking to the 1.37 level given enough time after the action this week. We’ll just have to wait and see how that plays out. Clearly, traders think that the Bank of England is going to stay tight for longer than originally anticipated and that should reflect a higher valued British pound.

Short-term pullbacks, I’ll be looking to see if there’s support near the 1.3550 level, although we’ve sliced through it enough times that may not be the case going forward. Ultimately, this is a market that continues, I think, to look to the upside.