• The GBP/USD weekly forecast remains slightly subdued as the markets pared partial weekly gains amid dollar recovery and profit-taking.
• Fed’s data dependency and resilient UK economy continue to balance the GBP/USD.
• Market participants eye the US NFP and the BoE interest rate decision to gauge further directional bias.

The GBP/USD price closed its second consecutive week in gains as markets anticipated a cautious Bank of England following resilient UK economic data. Meanwhile, the US dollar slipped to four-year lows amid concerns about geopolitics and the Fed’s independence before finding a mild footing.

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The pair marked fresh highs since October 2021 near 1.3860 before correcting down below mid-1.3700. The downtick triggered on Thursday and Friday was attributed to the deal struck between President Trump and the US Senate to avoid a US government shutdown. Moreover, Trump nominated Kevin Warsh as the next Chair of the Federal Reserve, which further weakened the dollar.

On the data front, the UK economic calendar was light with no major releases, while the US FOMC meeting was the highlight of the week. As broadly expected, the central bank held rates unchanged, while Fed Chair Powell’s press conference brought no clarity to the markets, reiterating a data-dependent approach.

The US PPI data on Friday beat the forecast with monthly Core PPI and PPI coming at 0.7% and 0.5%, respectively. This shows a sticky inflation, further cementing the odds of late cuts.

Meanwhile, geopolitical developments surrounding Iran and the Russia-Ukraine conflict continue to deteriorate the risk sentiment, making the upside path for GBP/USD bumpy.

GBP/USD Major Events Next Week:

Moving ahead, the following major events could significantly impact the pair’s volatility:

• Bank of England Policy Rate and Statement
• US ISM Manufacturing/Services PMI
• JOLTs Job Openings
• ADP Non-Farm Employment Change
• Average Hourly Earnings m/m
• Unemployment Rate
• Prelim Uom Consumer Sentiment
• Prelim Uom Inflation Expectations

With several high-impact events on the list, market participants will be keen to watch the BoE’s policy rate, which is widely expected to remain on hold. However, the MPC vote split could be decisive in gauging sentiment regarding the next rate cut.

On the other hand, the US labor market data remains a vital factor for the Fed to shape up its monetary policy. The NFP numbers are expected to jump from 50k to 75k, while the unemployment rate could remain at 4.4%. Any significant deviation from these forecasts could trigger a sharp move.

GBP/USD Weekly Technical Forecast: Correction Amid Profit-Taking

The GBP/USD daily chart shows a corrective downside after briefly breaking the supply zone above 1.3850. The pair lost more than 100 pips, with the RSI retreating below 50.0, suggesting further losses on the card. However, the 1.3700 level could pause the downside ahead of the next support at 1.3600 (round number) and then supply-tuned demand zone near 1.3500.

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On the upside, the key resistance lies at 1.3800, ahead of the monthly top at 1.3860, and then at 1.3925. The odds of testing 1.4000 are thin for now, as profit-taking has put pressure on the pair. However, the pair could gather buying traction around the major support zones to rally to fresh highs as the broad upside trend remains intact while staying well above the key MAs.

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The CADCHF’s price begins forming sideways waves, taking advantage of forming a new support base at 0.5595 level, to reduce the effect of the negative scenario on the trading this period, activating with stochastic positivity by its rally towards 0.5680.

The stability above the extra support will reinforce the chances of gathering bullish momentum, to expect forming bullish corrective waves, to target 0.5710 level, then pressing on the next barrier at 0.5780, while its decline below the current support and providing negative close will force it to suffer new losses by reaching 0.5510 initially.

The expected trading range for today is between 0.5630 and 0.5710

Trend forecast: Bullish

– Written by


Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: Potential Near-term GBP Consolidation

The Pound to Dollar exchange rate (GBP/USD) has pulled back to around 1.3730 after failing to sustain four-year highs above 1.3850, as a sharp reversal in gold, silver and global equities triggered a bout of defensive dollar demand.

While the move has cooled Sterling’s momentum, banks remain cautious about calling a durable dollar recovery amid lingering concerns over Federal Reserve independence and fading safe-haven credibility.

GBP/USD Forecast: Dollar Stabilisation Masks Deeper Confidence Concerns

The dollar attempted to stabilise on Wednesday but failed to secure a convincing recovery, with underlying sentiment still fragile despite a more cautious tone from the Federal Reserve.

The Pound to Dollar exchange rate (GBP/USD) has retreated to around 1.3730 after briefly surging to four-year highs above 1.3850 earlier in the week, with the move lower coming amid a sharp correction in gold, silver and global equity markets.

The sell-off in precious metals and stocks prompted some defensive dollar demand, curbing Sterling’s momentum even as broader confidence in the US currency remains strained.

According to UoB, consolidation is likely;

“We view the current price movements as part of a range-trading phase, likely between 1.3750 and 1.3850.”

The crucial medium-term psychological level for the pair remains 1.40. BNP Paribas is not backing a break and has an end-2026 GBP/USD forecast of 1.30.

The Federal Reserve held interest rates at 3.75%, in line with strong market expectations. The decision was taken by a 10-2 vote, with Miran and Waller backing a further 25bp rate cut.

The accompanying statement was slightly more optimistic on the economic outlook, with reduced concern over labour-market conditions.

Chair Powell declined to offer meaningful guidance on the timing of future rate cuts and avoided engaging directly on questions surrounding political pressure and Fed independence.

Markets are now pricing in only around a 15% chance of a March rate cut, with expectations centred on two cuts by the end of 2026.

According to Danske Bank;

“The next rate cut is fully priced in by July. We see risks tilted towards faster easing and expect cuts in March and June.”

MUFG expects the dollar’s yield support to fade over time;

“While rate expectations have not been a catalyst for dollar selling in January, positioning in rates should help limit the risk of a rebound in the dollar if or when rate expectations become a bigger influence on FX.”

ING focused on broader headwinds for the US currency;

“The modest USD reaction to the Fed confirms there is very little influence of short-term rates on USD crosses at the moment.”

It added;

“There are no signs that markets are ready to unwind dollar pessimism just yet. We may well be in the middle of a significant increase in USD hedging as the dollar’s safe-haven value deteriorates, and it remains risky to try to pick a bottom when moves are detached from macro fundamentals and rates.”

The issue of Federal Reserve independence remains a key overhang for the dollar, with the Supreme Court still yet to rule on whether the Administration can dismiss Fed Governor Cook.

NAB head of FX strategy Ray Attrill warned;

“Loss of independence is far and away the biggest risk to ongoing dollar hegemony.”

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EUR/USD Forecast: Morgan Stanley’s Bold 1.23 Prediction Signals Major Q2 2025 Shift

Global currency markets face a pivotal moment as Morgan Stanley projects the EUR/USD pair will surge to 1.23 in the second quarter of 2025. This significant forecast, issued from the firm’s London headquarters on March 15, 2025, hinges on a complex interplay of transatlantic monetary policy and shifting economic fundamentals. Consequently, traders and institutional investors are now recalibrating their positions ahead of what analysts describe as a potentially volatile quarter for the world’s most liquid currency pair.

Decoding Morgan Stanley’s EUR/USD Forecast Methodology

Morgan Stanley’s foreign exchange strategy team, led by Chief Currency Strategist James Lord, bases its 1.23 projection on a multi-factor quantitative model. This model primarily analyzes interest rate differentials, purchasing power parity, and capital flow trends. Specifically, the team highlights the growing divergence between the Federal Reserve’s and the European Central Bank’s policy trajectories as the core driver. Furthermore, they incorporate real-time data on trade balances and geopolitical risk premiums into their weekly-adjusted forecasts.

The bank’s historical accuracy in FX predictions lends considerable weight to this outlook. For instance, Morgan Stanley correctly anticipated the euro’s rally against the dollar in the third quarter of 2024. Their research department employs over fifteen econometric indicators, which they synthesize into a coherent narrative for clients. Importantly, the 1.23 target represents the upper bound of their confidence interval for Q2, with a base case of 1.21.

Economic Drivers Behind the Projected Euro Strength

Several macroeconomic forces underpin this optimistic forecast for the euro. First, the European Central Bank has maintained a more hawkish stance than many anticipated, signaling a slower pace of rate cuts despite easing inflation. ECB President Christine Lagarde recently emphasized data dependency, thereby creating policy uncertainty that markets often reward with currency strength. Meanwhile, the Federal Reserve has entered a clear cutting cycle, reducing the dollar’s interest rate advantage.

Secondly, the Eurozone’s current account surplus continues to provide structural support for the currency. The bloc exported €310 billion more in goods and services than it imported in 2024, according to Eurostat. This surplus generates constant euro demand in global markets. Additionally, recovering manufacturing data from Germany and France suggests the region may avoid a prolonged recession, boosting investor confidence.

The Critical Role of Central Bank Policy Divergence

Central bank actions will likely determine whether the 1.23 target becomes reality. The Federal Reserve’s dual mandate focuses on maximum employment and price stability. With U.S. inflation cooling to 2.4% annually, the Fed has room for accommodative policy. Conversely, the ECB prioritizes price stability alone, and Eurozone inflation remains stubbornly above target at 2.6%. This fundamental difference creates the policy divergence that currency markets exploit.

Morgan Stanley analysts project the Fed will cut rates by 75 basis points before July, while the ECB will deliver only 25 basis points of easing. This 50-basis-point differential directly supports their euro bullish thesis. Historical correlation analysis shows that similar differentials have produced an average 4.2% EUR/USD appreciation over subsequent quarters since 2010.

Technical Analysis and Market Positioning Context

Technical indicators largely corroborate the fundamental outlook. The EUR/USD pair recently broke above its 200-day moving average, a key bullish signal watched by algorithmic traders. Moreover, the currency pair has formed a clear “double bottom” pattern on weekly charts, suggesting the downtrend from 2022 has reversed. Resistance levels now cluster around 1.15 and 1.18, with 1.23 representing a multi-year high not seen since early 2022.

Market positioning data from the Commodity Futures Trading Commission reveals that speculative accounts remain net short euros, creating potential for a significant short-covering rally. When overly pessimistic positioning meets positive fundamental catalysts, sharp upward moves often occur. The following table summarizes key technical levels:

Potential Impacts on Global Trade and Investment

A stronger euro carries substantial implications for multinational corporations and international investors. European exporters, particularly German automakers and French luxury goods manufacturers, would face competitive headwinds in dollar-denominated markets. Conversely, U.S. companies with significant European earnings would benefit from favorable translation effects. For global asset allocators, euro appreciation could trigger portfolio rebalancing toward European equities, which often trade at valuation discounts to U.S. counterparts.

The currency move would also affect commodity markets, as a weaker dollar typically supports oil and gold prices. Additionally, emerging market economies with dollar-denominated debt would experience relief through improved debt servicing capacity. However, the European tourism industry might see reduced spending from American visitors, creating sector-specific challenges.

Risk Factors That Could Derail the Forecast

Morgan Stanley acknowledges several risk scenarios that could prevent EUR/USD from reaching 1.23. Firstly, an unexpected resurgence in U.S. inflation could halt the Fed’s cutting cycle, thereby restoring dollar strength. Secondly, geopolitical tensions in Eastern Europe or the Middle East might trigger safe-haven dollar flows. Thirdly, a deeper-than-expected Eurozone recession could force the ECB into aggressive easing. Finally, political uncertainty surrounding upcoming EU parliamentary elections in June may temporarily suppress euro demand.

The bank’s risk assessment framework assigns a 35% probability to these downside scenarios. Their analysts recommend hedging strategies for corporations with significant currency exposure, particularly through option structures that limit downside while allowing participation in the projected rally.

Comparative Analysis with Other Institutional Forecasts

Morgan Stanley’s outlook stands at the bullish extreme among major banks. Goldman Sachs maintains a year-end target of 1.15, citing resilient U.S. growth. Meanwhile, JPMorgan projects 1.18 by mid-2025, and Citigroup remains neutral around 1.12. This dispersion reflects genuine uncertainty about the pace of policy normalization. However, the consensus has gradually shifted toward euro strength over the past quarter, with the median forecast rising from 1.10 to 1.14.

Independent research firms offer additional perspectives. The Institute of International Finance emphasizes capital flow dynamics, while BCA Research focuses on relative productivity trends. These varied methodologies highlight the complexity of currency forecasting, where multiple valid approaches can yield different conclusions.

Conclusion

Morgan Stanley’s EUR/USD forecast of 1.23 for Q2 2025 presents a compelling narrative built on policy divergence, economic rebalancing, and technical momentum. While not guaranteed, this projection reflects thorough analysis of verifiable economic data and historical patterns. Currency markets will closely monitor upcoming Fed and ECB meetings for confirmation of the projected policy paths. Ultimately, the EUR/USD trajectory will influence global trade patterns, corporate earnings, and investment returns across asset classes throughout 2025.

FAQs

Q1: What specific timeframe does Morgan Stanley’s Q2 2025 EUR/USD forecast cover?
The forecast specifically targets the EUR/USD exchange rate reaching 1.23 during the second quarter of 2025, which encompasses April, May, and June.

Q2: How does interest rate policy affect the EUR/USD exchange rate?
Higher interest rates in a region typically attract foreign capital, increasing demand for that currency. Morgan Stanley projects the interest rate differential between the Eurozone and U.S. will narrow, supporting euro strength.

Q3: What are the main risks to this EUR/USD forecast?
Key risks include stronger-than-expected U.S. economic data delaying Fed rate cuts, renewed Eurozone recession fears, escalating geopolitical tensions favoring the dollar as a safe haven, and unexpected shifts in ECB communication.

Q4: How accurate have Morgan Stanley’s previous currency forecasts been?
The bank has demonstrated above-average accuracy in recent years, particularly in identifying major turning points. However, like all forecasts, they carry inherent uncertainty and should inform rather than dictate investment decisions.

Q5: What does a stronger euro mean for European consumers and businesses?
European consumers benefit from lower prices on imported goods, particularly energy. However, exporters face reduced competitiveness, potentially impacting corporate earnings for multinational firms that generate significant revenue outside the Eurozone.

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Despite the EURJPY pair’s price being affected yesterday by the dominance of the sideways bias and providing mixed trading, but its stability above the bullish channel’s support at 182.20 represents a main factor to confirm the bullish scenario of the upcoming trading, therefore, we will keep waiting for gathering positive momentum, to ease the mission of surpassing the barrier at 184.00, then begin recording new gains by reaching 184.55 and 184.85.

Note that the price attempt to settle below the mentioned bullish support will cancel the bullish scenario, to expect forming bearish corrective waves, to target 181.55 and 180.40 initially.

The expected trading range for today is between 182.80 and 184.00

Trend forecast: Bullish

Created on January 30, 2026

• The USD/JPY pair currently looks as if it is trying to find a floor in the market, near the crucial 200-day EMA.

The US dollar continues its attempt to stabilize against the Japanese yen during trading on Thursday as we have seen a lot of noise in this general vicinity. All things being equal, this is a market that I think will continue to look at the 200-day EMA just below as a potential floor in the market, which is currently sitting at the 152 yen level. As long as we stay above that area, I do think you start to talk about the possibility of the market turning things around. If and when it does, then I think a move back toward the 50-day EMA makes quite a bit of sense.

There were some grumblings about the Bank of Japan intervening and that wouldn’t be a huge surprise. But at this juncture, I also recognize that market participants are looking at this as a market that pays interest at the end of the day and a lot of people will continue to try to take advantage of the carry trade if in fact it is available to them.

Market Volatility and Support Levels

With this, I believe the volatility that we are seeing during the trading session is just a function of market participants trying to fight back. I do think that the US dollar is oversold, and I believe this is a potential bottom just waiting to happen. I also recognize that there are a lot of questions about the US dollar at the moment, so I don’t think this is something that you want to get extraordinarily aggressive on.

Rather, treat it more or less as a part of your diversified portfolio that pays your dividends occasionally or in this case daily and just helps pad returns for the year. The Japanese yen is not a currency I want to own, and the US dollar is oversold. You probably get more traction using a different currency against the yen, maybe such as the Australian dollar, but the market certainly looks like one that I think is setting up for some consolidation and a bigger move. All we have to do is wait to see which direction.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

– Written by


David Woodsmith

STORY LINK GBP/USD Forecast: Pound Sterling Reclaims Ground Above $1.38

The Pound to US Dollar exchange rate (GBP/USD) edged higher on Thursday, with the pairing moving back towards the four-year high reached earlier in the week.

At the time of writing, GBP/USD was trading near $1.3844, up roughly 0.2% from the start of Thursday’s session.

The US Dollar (USD) remained on the back foot at the beginning of European trade on Thursday, extending a late-session retreat from the previous day.

After enduring sustained selling pressure for much of the past fortnight, the greenback had shown tentative signs of stabilising ahead of the Federal Reserve’s latest policy announcement on Wednesday.

As expected, the Fed left interest rates unchanged at its first meeting of 2026 and adopted a relatively firm tone, reinforcing expectations that borrowing costs will also remain on hold through at least March and April.

However, rather than restoring confidence in the currency, the decision appeared to underscore the Dollar’s current vulnerability. Investors continued to view the USD through a pessimistic lens, allowing selling pressure to resume.

Although Sterling managed to advance against the US Dollar, it failed to build similar gains versus other major currencies on Thursday.

The Pound remained rangebound, with thin trading conditions persisting amid a continued lack of impactful UK economic releases.

GBP/USD Forecast: Fed Chair Speculation to Drive Volatility?

Looking ahead, the Pound to US Dollar exchange rate could see heightened volatility towards the end of the week if President Trump reveals his nominee to succeed Jerome Powell as Fed Chair.

Earlier comments from Trump suggested an announcement could come ‘soon’, alongside claims that interest rates will ‘come down a lot’ once his preferred candidate takes charge.

If no announcement materialises, attention is likely to shift to the latest US producer price index, where signs of easing factory gate inflation could apply fresh pressure to the US Dollar.

Meanwhile, in the continued absence of meaningful UK data, the Pound may struggle to develop a clear directional bias as the week draws to a close.

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The Japanese yen has staged a strong comeback in the past few days as investors focused on its potential intervention and the latest actions by the Federal Reserve. The USD/JPY pair was trading at 153, down by 4% from its highest level this year.

Concerns about Japanese yen intervention remain

The USD/JPY exchange rate has been in focus in the past few weeks as concerns about the Japanese economy continued. It crashed last week after media reports suggested that Donald Trump’s administration was willing to help Japan intervene.

The pair then rose slightly this week after Scott Bessent announced that the US will not intervene. This is notable as Bessent is a well-known figure in the forex industry because of his role in collapsing the British pound in the early 1990s.

Market participants are concerned on whether Japan will succeed in going solo in intervening in the forex market. In a note, an analyst from CBA said:

“Without US involvement, any intervention by the Ministry of Finance  alone would be far less effective in countering downward pressure on the yen, meaning any post-intervention gains are likely to fade quickly.”

Why the Japanese yen needs intervention 

The Japanese yen has been in a freefall in the past few months, with the USD/JPY exchange rate soaring from a low of 139 in April last year to a high of 160 this year.

This performance accelerated after Sanae Takaichi became the prime minister and embraced Shinzo Abe-like policies. Her initial policy was a large stimulus program that she aimed at solving the inflation situation. She now plans more stimulus, including tax cuts if she wins the election in February.

Takaichi also took a more hawkish stance on China, a top trading partner. She vowed that her government would step in to help Taiwan if Beijing attacked, a move that infuriated Beijing.

The Japanese yen has crashed despite the ongoing divergence between the Federal Reserve and the Bank of Japan (BoJ). The BoJ has embraced a more hawkish tone and hiked interest rates to the highest level in three decades. It has hinted its willingness to continue hiking rates this year.

The Federal Reserve, on the other hand, left interest rates unchanged on Wednesday, and analysts believe that its next move will be lower. Besides, Donald Trump will soon announce the potential Jerome Powell replacement. He has maintained that the potential replacement will be one who will be willing to cut rates aggressively.

USD/JPY technical analysis

The daily timeframe chart shows that the USD/JPY exchange rate has suffered a harsh reversal in the past few days, moving from a high of 159.40 to 153 today. It remains below the crucial support level at 154.3, its lowest level in December last year.

The pair has crashed below the 23.6% Fibonacci Retracement level. It also moved below the 50-day and 100-day Exponential Moving Averages, and is now in the process of forming a bearish flag or pennant pattern.

Therefore, the most likely scenario is where it continues falling, potentially to the 50% retracement level at 150.

The post USD/JPY forecast: What next for the soaring Japanese yen? appeared first on Invezz