The forex markets are ending the week in a sluggish and indecisive mood, despite a flurry of notable economic data releases. The highlight was the hotter-than-expected US core PCE inflation, which firmed expectations that Fed will hold rates steady in May, with market pricing now around 90% chance. However, expectations for a June rate cut remain relatively resilient at around 65%.
Yet, Dollar showed little appetite to capitalize on the data. It briefly lost ground against Euro and Sterling earlier in the session but quickly settled back into tight ranges. Similarly, stronger-than-expected Canadian GDP data failed to meaningfully support Loonie, which remains on the softer side for the day. Sterling, too, couldn’t hold onto gains despite upbeat retail sales figures, suggesting broader market hesitancy.
The overall restrained price action suggests that traders are simply not ready to make big moves ahead of next week’s “reciprocal tariff” announcement from the US.
Looking at weekly performance, Australian Dollar leads the pack, while Canadian Dollar and British Pound follow. On the flip side, Japanese Yen remains the weakest, even after a brief bounce on Tokyo CPI figures, followed by Euro and New Zealand Dollar. Dollar and Swiss Franc are holding in the middle of the performance board.
In Europe, at the time of writing, FTSE is up 0.07%. DAX is down -0.83%. CAC is down -0.79%. UK 10-year yield is down -0.062 at 4.729. Germany 10-year yield is down -0.028 at 2.753. Earlier in Asia, Nikkei fell -1.80%. Hong Kong HSI fell -0.65%. China Shanghai SSE fell – 0.67%. Singapore Strait Times fell -0.23%. Japan 10-year JGB yield fell -0.038 to 1.554.
US core PCE accelerates to 2.8% in Feb, above expectations
US PCE inflation data for February came in largely in with notable surprises. Headline PCE rose 0.3% mom and held steady at 2.5% yoy, both matched expectations. However, core PCE, excluding food and energy, rose by 0.4% mom, slightly hotter than expected 0.3% mom. That pushed , pushing the annual core PCE rate up to 2.8% from 2.7%, also above forecasts.
On the household side, personal income surged by 0.8% mom, significantly outpacing expectations of 0.4% mom, reflecting strong wage growth and robust labor market. But personal spending only rose 0.4% mom, slightly below forecasts of 0.5% mom, hinting at a more measured pace of consumption.
Canadian GDP grows 0.4% mom in Jan, but Feb flatline tempers momentum
Canada’s GDP expanded by 0.4% mom in January, outpacing expectations of a 0.3% mom gain. Growth was broad-based, with 13 of 20 sectors contributing.
Goods-producing industries led the charge, rising 1.1% mom, the strongest monthly gain since October 2021, as all major components saw expansion. Services-producing industries posted a more modest 0.1% mom increase.
However, early estimates for February point to a flat reading, suggesting a pause in momentum. Strength in manufacturing and financial services was offset by pullbacks in real estate, oil and gas, and retail trade.
Swiss KOF rises to 103.9, robust economic outlook
Switzerland’s KOF Economic Barometer rose to 103.9 in March, beating expectations of 102.6 and up from revised 102.6 in February. The index has remained above its medium-term average since the start of the year, reinforcing the view that the Swiss economy “remains robust”.
KOF noted that improvements were broad-based, with stronger signals coming from manufacturing, services, and construction. Private consumption indicators also showed improvement while foreign demand remains unchanged.
UK retail rales rises 1% mom in Feb with broad-based gains
UK retail sales volumes jumped 1.0% mom in February, far surpassing market expectations for -0.3% mom decline.
The gain was driven by strong performances across all non-food store categories, including department stores, clothing, and household goods, suggesting consumers were more willing to spend on discretionary items. The only notable drag came from supermarkets, where sales volumes dipped slightly following a solid increase in January.
Looking at the broader trend, sales volumes rose 0.3% in the three months to February compared to the previous three-month period, and were up 2.0% from the same period a year earlier.
German Gfk consumer sentiment improves marginally to -24.5
Germany’s GfK Consumer Sentiment for April ticked up slightly from -24.6 to -24.5, falling short of expectations at -22.2.
According to Rolf Bürkl of the NIM, the minor improvement may reflect “lessened pessimism” following recent elections and the hope for a stable new government. However, willingness to save continues to signal significant uncertainty among German households.
Bürkl emphasized that “fast formation of a government and the early adoption” could play a key role in boosting consumer confidence and spending ahead.
Tokyo CPI core rises to 2.4%, driven by soaring food and rent prices
In Japan, Tokyo’s CPI core, which excludes fresh food, rose from 2.2% yoy to 2.4% yoy in March, surpassing expectations of 2.2% yoy. Even more notable was the rise in the core, core measure, which strips out both food and energy—climbing from 1.9% yoy to 2.2% yoy, signaling broader-based inflation. Headline inflation also ticked higher to 2.9% yoy from 2.8% yoy.
The key driver behind the spike was food prices, which surged 5.6% yoy, the fastest pace since January 2024. A standout was the massive 92.4% yoy jump in rice prices, the steepest rise since 1976.
Adding to the inflationary pressure was the services sector, where prices rose 0.8% yoy, up from 0.6% yoy in February. Rent prices, a key component, increased by 1.1% yoy, the sharpest rise since 1994.
BoJ opinions highlight tariff risks, but path to further hikes still intact
The Summary of Opinions from BoJ’s March monetary policy meeting revealed growing concerns over the fallout from US trade policy, particularly the risk that new tariffs could negatively impact Japan’s real economy.
One board member warned that downside risks from the US have “rapidly heightened”. I f tariff issues worsen, it could have a “negative impact” on Japan’s real economy. BoJ should be “particularly cautious” when considering further interest rate hikes if trade tensions escalate.
Other members echoed similar concerns, citing elevated uncertainty from tariff threats, global supply chain disruptions, and stiff competition from low-priced Chinese products.
The tone suggests policymakers are carefully monitoring how these factors affect inflation expectations, wage growth, and investment—particularly among SMEs.
A separate opinion suggested that as underlying CPI inflation edges closer to the 2% target, BoJ should prepare to shift from accommodative to “neutral” policy.
Overall, BoJ still sees a path toward rate normalization—contingent on its inflation outlook materializing—but recent developments in global trade and domestic firm performance will dictate the pace and timing of the next move.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.2883; (P) 1.2937; (R1) 1.3004; More…
GBP/USD is still bounded in range below 1.3013 and intraday bias remains neutral. Consolidation from 1.3013 could extend. In case of another fall, downside should be contained by 38.2% retracement of 1.2248 to 1.3013 at 1.2721 to bring rebound. On the upside, break of 1.3013 will resume the rally from 1.2099 towards 1.3433 high.
In the bigger picture, up trend from 1.3051 (2022 low) is not completed. Resumption is expected after corrective pattern from 1.3433 completes. Next target will be 1.4248 key resistance. This will now remain the favored case as long as 1.2099 support holds.
