Weak Retail Sales Data Raises Concerns Over U.S. Economic Growth

Investors are closely watching the Federal Reserve’s updated economic projections for clues on the future of interest rates. Any hawkish shift from policymakers could provide some support for the dollar, but recent economic data paints a mixed picture.

The U.S. Census Bureau reported that Retail Sales rose just 0.2% in February, falling short of the expected 0.7% increase. This follows a downward revision of January’s figures, which now show a -1.2% decline, previously estimated at -0.9%. Year-over-year growth slowed to 3.1%, down from a revised 3.9% in January.

These figures indicate slowing consumer spending, raising concerns over economic momentum. With inflation still a key factor in the Fed’s decision-making, the weaker retail sales data has intensified speculation over potential rate cuts, which could weigh on the USD by lowering yield expectations.

Geopolitical Risks and Trade Tariffs to Influence USD Outlook

Beyond economic data, geopolitical risks remain a major driver of USD performance. On Tuesday, Donald Trump and Vladimir Putin agreed to pause strikes on Ukraine’s energy infrastructure for 30 days, but Putin refused a broader ceasefire, keeping tensions elevated.

Meanwhile, Trump confirmed that new tariffs on steel, aluminum, and automobiles will take effect on April 2 with no exemptions. These trade restrictions could fuel market volatility and slow global economic growth, adding another layer of uncertainty to the USD’s trajectory.

With the Federal Reserve decision, trade tensions, and geopolitical risks in focus, investors will be watching closely for clearer direction in the coming days.

• The USD/JPY price analysis indicates a slight decline in BoJ rate hike expectations.

• The Bank of Japan kept interest rates unchanged as expected on Wednesday.

• The dollar held steady as market participants prepared for the FOMC policy meeting.

The USD/JPY price analysis indicates a slight decline in BoJ rate hike expectations after a cautious tone during the central bank’s policy meeting. The ongoing global trade wars have overshadowed recent upbeat data from Japan. Policymakers are now worried about the likely impact of Trump’s tariffs on the local economy. 

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The Bank of Japan kept interest rates unchanged as expected on Wednesday. Moreover, policymakers emphasized the need for time to assess the likely impacts of US trade policies. This means the central bank might be cautious in making any more moves. Nevertheless, Governor Ueda noted that wage growth and consumption were strong. Therefore, economic factors are lining up for more rate hikes. 

The yen has pulled back sharply from recent peaks due to economic concerns. If Trump’s tariffs affect Japan’s economy, the BoJ will be forced to pause its rate hike campaign to preserve growth. 

On the other hand, the dollar held steady as market participants geared up for the FOMC policy meeting. Economists expect the Fed to keep interest rates unchanged. Therefore, traders will focus on the messaging for clues on future moves. Recent downbeat US data has raised expectations for rate cuts. However, Trump’s tariff moves have raised inflation expectations. Therefore, the Fed has to balance growth and inflation.

USD/JPY key events today

• Federal Funds Rate
• FOMC Economic Projections
• FOMC Statement
• FOMC Press Conference

USD/JPY technical price analysis: Rally pauses after new high

On the technical side, the USD/JPY price has paused its rally and pulled back slightly. However, it still sits above the 30-SMA with the RSI above 50, supporting a strong bullish bias. Moreover, the price still trades in a bullish channel.

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The pause might allow the price to retest the channel’s support and the 149.00 level before the rally continues. The next target for bulls is at the 151.01 resistance level. A break above this level will strengthen the bullish bias. 

On the other hand, if bears overpower bulls, they might push the price below the 30-SMA and the channel support. Such an outcome would indicate a bearish shift in sentiment. It would allow USD/JPY to revisit the 147.02 support level.

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• EUR/USD retreats below 1.0900 after closing in positive territory for three consecutive days.
• The Fed is widely expected to leave the policy rate unchanged.
• The revised Summary of Economic Projections and Powell presser could ramp up volatility.

After reaching a multi-month high above 1.0950 on Tuesday, EUR/USD corrects lower and trades below 1.0900 in the European morning on Wednesday. Investors await the Federal Reserve’s (Fed) monetary policy announcements.

EUR/USD registered gains on Tuesday but lost its bullish momentum in the second half of the day as the US Dollar managed to limit its losses following the upbeat macroeconomic data releases. 

Later in the day, the Fed is widely expected to leave its monetary policy settings unchanged. Investors will pay close attention to the changes in the Summary of Economic Projections (SEP), the so-called dot plot.

A downward revision to growth projections could hurt the US Dollar (USD) with the immediate reaction. On the flip side, the USD could rally if the dot plot reveals that policymakers now project only one rate cut this year, down from the two rate cuts reported in December’s publication.

In case Fed Chairman Jerome Powell adopts a cautious tone regarding the economic outlook in the post-meeting press conference, citing the potential negative impact of US President Donald Trump’s tariffs on the activity, the USD could have a difficult time outperforming its rivals. On the flip side, the USD could hold its ground, if Powell downplays growth concerns and puts more emphasis on the uncertainty surrounding the inflation outlook.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart retreated below 50, reflecting a lack of buyer interest. On the downside, the lower limit of the ascending channel aligns as first support at 1.0840 ahead of 1.0800 (round level, static level) and 1.0730 (200-day Simple Moving Average). 

Looking north, first resistance could be spotted at 1.0950 (static level), 1.1000-1.1020 (round level, mid-point of the ascending channel) and 1.1100 (round level, static level).

The EUR/USD pair managed to close higher for the third straight session, tackling the pivotal and stubborn resistance of  $1.0945, with support due to trading above the 50-day SMA, and amid the dominance of the main upward trend, while the price trades within a secondary price channel in the intraday levels.

March 18, 2025 – Written by James Fuller

STORY LINK Pound Sterling Forecast vs Euro Ranges: Strong Support on Dips to 1.177

On Tuesday, the German parliament (Bundestag) approved the constitutional change to exempt defence and security spending from the debt brake. The huge German spending commitment is in stark contrast to UK pressure to tighten policy.

The Euro had priced in the approval, limiting scope for further buying, but did secure limited further support following the vote and the Pound to Euro (GBP/EUR) exchange rate settled around 1.1880.

Risk appetite took another dip lower which also limited wider Pound support.

Rabobank expects the Pound will be resilient close to current levels with strong GBP/EUR support on any dips to 1.1770.

ING also expects GBP/EUR support at 1.1765.

The Bundestag secured 512 votes in favour of the change, above the two-thirds majority of 489 needed.

As well as increased defence spending, there was also approval for a EUR500bn infrastructure fund.

The Bundesrat upper house will vote on Friday to approve the legislation formally.

According to Rabobank; “This should allow for greater spending on defence in addition to setting the stage for a EUR500 bln debt-financed infrastructure fund and allowing the German states to run modest budget deficits.”

The German ZEW investor confidence index strengthened sharply to 51.6 for March from 26.0 previously and above consensus forecasts of 48.0.

The current conditions index, however, improved only slightly to -87.6 from -88.5 in February and compared with expectations of -80.5, illustrating that there are still very important concerns over the outlook.

Attention will move towards UK fiscal policy with the budget statement on the 26th. The government announced welfare reform plans on Tuesday amid pressure to control spending.

According to the Resolution Foundation, Chancellor Reeves has a £4.4bn shortfall in meeting the fiscal rules compared with a £10bn surplus in October.

The OECD lowered its forecast for British growth this year to 1.4% from its December forecast of 1.7% ahead of the budget update, illustrating structural concerns.

According to Credit Agricole; “the UK Chancellor could be forced to unleash spending cuts in order to meet her own long-term budget rules. That contrasts quite starkly with the recent spending plans announced by the EU to in particular boost defence spending, which could then put the UK macro outlook at risk of falling behind most of Europe in the coming years.”

It added; “While more details and confirmation still awaits, the GBP may then only rely on its carry advantage and reduced geopolitical/tariff threats to eventually fare better than the EUR.”

Rabobank does consider that the Pound will need stronger growth to make any headway; “Hopes for a better growth outlook in the Eurozone have altered the dynamic for EUR/GBP. Our year end forecast of EUR/GBP0.83 assumes that UK growth can recover during the course of the year and most recent UK GDP indications have not been encouraging.”

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TAGS: Currency Predictions Pound Euro Forecasts

Created on March 18, 2025

• The US dollar has been rather bullish during the trading session on Monday against the Japanese yen as we continue to see plenty of noise.
• But I also recognize that at this juncture, we are starting to see a little bit of a recovery, and this does make sense because both of these central banks have interest rate decisions this week.
• And the last thing somebody wants to do is get caught ahead of that with the wrong position.

Short Covering?

So, I think you are starting to see a little bit of short covering. It does make quite a bit of sense. And I think that ultimately, we could make a run towards the 150 yen level. Whether or not we can break above there, that might be a different question altogether, but I do recognize that this is a scenario where traders are most certainly going to be looking at this through the prism of the differential between statements from Japan and the United States.

If this USD/JPY pair can break above the 50 day EMA, then it’s very likely that what we will then see is a significant run towards the 155 yen level. I don’t expect that to happen easily because quite frankly, most things are working against the US dollar at the moment. And of course, you never know what’s going to happen with the FOMC.

That being said, a short-term pullback at this point in time does make a certain amount of sense as well. And I think we’re supported all the way down to about 147 yen. Anything below there has his pair running to the145 yen. level, but it must be stated that the session on Monday was rather impressive in favor of the US dollar. But again, I think a lot of what you’re seeing here is short covering.

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Created on March 17, 2025

• During the Friday session we have seen the British pound rallied against the Japanese yen, touching the 200 Day EMA before pulling back a bit.
• This is a market that has been going sideways for a while, and there doesn’t seem to be much changing at the moment.
• This does make a certain amount of sense, because despite the fact that the Japanese yen has been relatively strong against most currencies as of late, the reality is that the interest rate differential between these 2 economies is massive, despite the fact that Japan might actually raise rates later this year.

Technical Analysis

We are currently trading right around the 50 Day EMA as well as the 200 Day EMA indicator. These are flat, and it suggests that the market is probably going to continue to be somewhat range bound, which I think makes a certain amount of sense. I would pay close attention to the candlestick from the Wednesday session, because if we can break above there, it’s likely that we could go looking to the ¥195 level.

If we were to break down below the bottom of the candlestick from the Thursday session, then we will almost certainly test the ¥190 level, which of course is a large, round, psychologically significant figure that will attract a lot of attention in and of itself. Anything below there opens up the possibility of a move to the ¥188 level, which has served as a bit of a floor in the market over the last several weeks.

I do think at this point in time we are more likely than not going to see a return of the average “carry trader” as the interest rate differential is just too big to ignore. After all, nobody likes paying swap at the end of the day to get short of currency pair, and this is especially true when you are talking about larger positions which can add up quite drastically while holding.

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March 18, 2025 – Written by James Fuller

STORY LINK Pound Sterling Forecast vs Euro Ranges: Strong Support on Dips to 1.177

On Tuesday, the German parliament (Bundestag) approved the constitutional change to exempt defence and security spending from the debt brake. The huge German spending commitment is in stark contrast to UK pressure to tighten policy.

The Euro had priced in the approval, limiting scope for further buying, but did secure limited further support following the vote and the Pound to Euro (GBP/EUR) exchange rate settled around 1.1880.

Risk appetite took another dip lower which also limited wider Pound support.

Rabobank expects the Pound will be resilient close to current levels with strong GBP/EUR support on any dips to 1.1770.

ING also expects GBP/EUR support at 1.1765.

The Bundestag secured 512 votes in favour of the change, above the two-thirds majority of 489 needed.

As well as increased defence spending, there was also approval for a EUR500bn infrastructure fund.

The Bundesrat upper house will vote on Friday to approve the legislation formally.

According to Rabobank; “This should allow for greater spending on defence in addition to setting the stage for a EUR500 bln debt-financed infrastructure fund and allowing the German states to run modest budget deficits.”

The German ZEW investor confidence index strengthened sharply to 51.6 for March from 26.0 previously and above consensus forecasts of 48.0.

The current conditions index, however, improved only slightly to -87.6 from -88.5 in February and compared with expectations of -80.5, illustrating that there are still very important concerns over the outlook.

Attention will move towards UK fiscal policy with the budget statement on the 26th. The government announced welfare reform plans on Tuesday amid pressure to control spending.

According to the Resolution Foundation, Chancellor Reeves has a £4.4bn shortfall in meeting the fiscal rules compared with a £10bn surplus in October.

The OECD lowered its forecast for British growth this year to 1.4% from its December forecast of 1.7% ahead of the budget update, illustrating structural concerns.

According to Credit Agricole; “the UK Chancellor could be forced to unleash spending cuts in order to meet her own long-term budget rules. That contrasts quite starkly with the recent spending plans announced by the EU to in particular boost defence spending, which could then put the UK macro outlook at risk of falling behind most of Europe in the coming years.”

It added; “While more details and confirmation still awaits, the GBP may then only rely on its carry advantage and reduced geopolitical/tariff threats to eventually fare better than the EUR.”

Rabobank does consider that the Pound will need stronger growth to make any headway; “Hopes for a better growth outlook in the Eurozone have altered the dynamic for EUR/GBP. Our year end forecast of EUR/GBP0.83 assumes that UK growth can recover during the course of the year and most recent UK GDP indications have not been encouraging.”

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TAGS: Currency Predictions Pound Euro Forecasts

Created on March 18, 2025

• The British pound has rallied rather significantly during the trading session on Monday, as we continue to see this market threaten the 1.30 level.
• The 1.30 level is a large, round, psychologically significant figure that a lot of people will be paying close attention to, so it does warrant a certain amount of attention from traders on both sides of the equation.

You can make an argument that the 1.30 level is difficult to get above, and I certainly think that there is a certain amount of psychology here, but I also recognize that we have been in a strong uptrend for a while, and therefore it’s difficult to fight its without some type of fundamental shift. We could potentially get that fundamental shift this week, as the Federal Reserve has an interest rate decision and press conference coming out, but until that comes, you are just simply speculating that something bad could happen at this point.

Sideways Grind?

You could make an argument for a bit of a sideways grind at this point, perhaps trying to work off some of the excess froth that we had seen in this market. Underneath the current trading, we have the 1.29 level offering support. If we break down below there, then the 1.2750 level is an area that a lot of people would be paying attention to, as it has been important multiple times in the past, and of course we have the 200 Day EMA, as well as the 50 Day EMA heading toward that area.

Speaking of the moving averages, we are getting fairly close to the idea of forming a “golden cross”, when the 50 Day EMA breaks above the 200 Day EMA, which is a signal that a lot of the longer-term traders tend to like. This could kick off some algorithmic trading, although I’m the first to say that it is normally a very late signal indeed.

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