Inflation, Rate Speculation, and FX Volatility: What’s Next for G10 Currencies?

The currency markets remain highly sensitive to macroeconomic developments, with shifting central bank policies and geopolitical events shaping sentiment. Recent moves in G10 FX suggest that risk appetite is in flux, as investors reassess positioning after some big data releases over the week and the surprise from Trump over the weekend (if you’re not sure what happened… don’t worry I got you covered and you can understand everything by clicking HERE and accessing my latest analysis)

EUR ECB Signals Caution

The euro continues to face pressure, as European Central Bank officials adopt a more cautious tone on policy easing. Recent economic indicators suggest sluggish growth, with Germany’s latest GDP figures underscoring ongoing economic stagnation. While some ECB policymakers signal openness to rate cuts later in the year, markets remain sceptical about the timeline for any meaningful policy shift. The EUR/USD pair hovers near key resistance levels, reflecting broader concerns over the region’s economic trajectory.

92% Probability of a 25bp Cut from ECB 

Source: Prime Market Terminal 

GBP: Sticky Inflation Keeps BoE Hawkish

Sterling has shown resilience, supported by persistent inflation that continues to challenge the Bank of England’s policy path. Recent labour market data indicated wage growth remains robust, reinforcing expectations that the BoE will maintain a higher-for-longer stance on interest rates. 

The GBP/USD pair has held firm above key technical levels, with markets awaiting further inflation data for confirmation of the BoE’s next steps.

GBPUSD H1 Chart

JPY: BoJ Policy Speculation Intensifies

The Japanese yen remains under pressure, as speculation over the Bank of Japan’s policy normalization intensifies. While officials have hinted at a potential exit from negative rates, market participants remain cautious about the timing. Yen weakness has been exacerbated by a widening yield differential, with USD/JPY testing multi-decade highs. Any signs of BoJ intervention could lead to short-term volatility.

Commodity Currencies: Mixed Outlook

The Australian dollar has been supported by resilient Chinese economic data, while the Canadian dollar faces headwinds from softer oil prices. The Reserve Bank of Australia remains in a wait-and-see mode, balancing domestic inflation pressures against external risks. Meanwhile, the Bank of Canada has struck a cautious tone, with markets pricing in rate cuts later in the year as growth moderates. I still long on XAUUSD and looking to add more trades on the portfolio is we have pullbacks 

XAUUSD Chart H1 

 With a packed economic calendar ahead, currency markets are likely to remain volatile. US CPI data digestion for the next week and any comments with Powell on that, ECB commentary, and geopolitical developments will be key drivers in the coming sessions. Traders remain focused on potential shifts in central bank rhetoric, as well as broader risk sentiment indicators that could dictate short-term FX flows.

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