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Japanese Yen drifts lower vs USD as weak Household Spending data counters hawkish BoJ

  • USD/JPY edges higher as Japan’s disappointing consumer spending data weighs on the JPY.
  • Rising US-Iran tensions underpin the safe-haven USD and also lend support to spot prices.
  • The divergent BoJ-Fed expectations might cap the pair as traders await the US CPI report.

The USD/JPY pair attracts some buyers for the second straight day and advances to a four-day high following the disappointing release of Japan’s Household Spending data this Tuesday. Spot prices, however, lack bullish conviction amid mixed fundamental cues and currently trade just below the mid-157.00s area, up 0.15% for the day.

Japan’s internal affairs ministry reported earlier today that consumer spending fell 2.9% YoY in March, compared to a 1.8% drop in the prior month and missing market estimates. This also marks the fourth consecutive month of decline in personal spending amid persistent inflationary pressure and comes on top of economic concerns stemming from rising US-Iran tensions, which, in turn, undermines the Japanese Yen (JPY). Apart from this, a modest US Dollar (USD) uptick acts as a tailwind for the USD/JPY pair.

The recent optimism over a potential US-Iran peace deal faded rather quickly amid major disagreements over Tehran’s nuclear program and a standoff over the critical Strait of Hormuz. Furthermore, US President Donald Trump said that the ongoing US-Iran ceasefire was “unbelievably weak” and was on “massive life support.” This keeps geopolitical risks in play and underpins the USD’s reserve currency status. The USD bulls, however, opt to wait for the release of the US consumer inflation figures later today.

The crucial data will play a key role in influencing market expectations about the US Federal Reserve’s (Fed) policy outlook and provide some meaningful impetus to the USD. In the meantime, traders have been scaling back their bets for a Fed rate hike in 2026, which marks a significant divergence in comparison to the BoJ’s relatively hawkish outlook. In fact, BoJ’s Summary of Opinions from the April meeting left the door open for an imminent rate hike. This might further contribute to capping the USD/JPY pair.

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AUD/USD Forecast – Eyes nine-day EMA support near 0.7200

  • AUD/USD may test the 0.7277, the highest since June 2022.
  • The 14-day Relative Strength Index of 60 indicates resilient bullish momentum without reaching overbought territory.
  • Initial support lies at the nine-day EMA at 0.7214.

AUD/USD loses ground after two days of gains, trading around 0.7240 during the Asian hours on Monday. The technical analysis of the daily chart indicates that the pair is moving upwards within the ascending channel, suggesting an ongoing bullish bias.

The AUD/USD pair holds a constructive bullish bias as it stays above both the nine-period and 50-period Exponential Moving Averages (EMAs). This positioning suggests the broader uptrend remains supported.

The 14-day Relative Strength Index (RSI) is around 60 points to firm but not overextended upside momentum, keeping buyers in near-term control as long as the price defends these moving average floors.

The AUD/USD pair may test the 0.7277, the highest since June 2022, recorded on May 6. A successful break above this level would support the pair to target the upper boundary of the ascending channel around 0.7460.

On the downside, the AUD/USD pair may test the nine-day EMA at 0.7214, followed by the lower boundary of the ascending channel around 0.7200. Further declines would expose the 50-day EMA at 0.7096. A break below the medium-term average would cause the bearish emergence and put downward pressure on the AUD/USD pair to navigate the region around the three-month low of 0.6833, which was recorded on March 30.

AUD/USD: Daily Chart

Australian Dollar Price Today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.16%0.14%0.17%0.09%0.20%0.14%0.16%
EUR-0.16%-0.03%0.02%-0.10%0.05%-0.04%0.01%
GBP-0.14%0.03%0.02%-0.09%0.05%-0.02%0.02%
JPY-0.17%-0.02%-0.02%-0.11%0.00%-0.05%-0.03%
CAD-0.09%0.10%0.09%0.11%0.12%0.06%0.08%
AUD-0.20%-0.05%-0.05%-0.00%-0.12%-0.06%-0.04%
NZD-0.14%0.04%0.02%0.05%-0.06%0.06%0.02%
CHF-0.16%-0.01%-0.02%0.03%-0.08%0.04%-0.02%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

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Chart of The Day – GBP/USD

The political crisis surrounding Keir Starmer has become one of the key market drivers for the pound today. The situation is evolving rapidly and is having a direct impact on government bond yields and the value of the pound, with the markets closely monitoring the Prime Minister’s every word. Internal party pressure The scale of Starmer’s problem is best illustrated by a single figure: 42 Labour MPs had already officially called on him to resign by Sunday evening, whilst former Deputy Prime Minister Angela Rayner described the current situation as “Labour’s last chance” to change course.

The emergence of potential challengers, such as Wes Streeting and Andy Burnham, means that the market now views the internal dispute within the Labour Party as a real risk, rather than mere political noise. In his speech on Monday, Starmer focused on several key themes. Firstly, a firm defence of his own position: “I will fight in every internal vote.” Secondly, a political agenda aimed at closer ties with the EU, the nationalisation of British Steel and a new mobility agreement for young people with Europe. The market viewed this speech primarily through the prism of one question: will the Prime Minister stabilise his position sufficiently to halt the sell-off of gilts?

You can watch the UK Prime Minister’s live address here. Source: Sky News, YouTube

Starmer, gilts in pounds

The yield on 10-year gilts rose on Monday morning to 4.954%, an increase of 3 basis points from the previous close, when it stood at 4.904% immediately after Starmer refused to resign on Friday. Economists surveyed by Bloomberg say that were it not for the political component, yields would be 10–15 basis points lower. This shows just how much the market has already begun to price in the risk of political instability, rather than solely macroeconomic fundamentals. The UK currently has the highest debt servicing costs of all G7 countries, a consequence of inflation remaining above target and weak economic growth. The situation is further complicated by the economic fallout from the armed conflict in Iran, which has led to higher energy prices and a further weakening of business activity. In such an environment, any political uncertainty acts as a risk multiplier for funds holding gilts.

Implications for the GBP

The pound finds itself in a difficult position, both technically and fundamentally. On the one hand, structural factors such as the Bank of England’s relatively high interest rates compared to the ECB and the marked inflationary divergence from the rest of Europe may continue to support it in the medium term. On the other hand, the political risk premium, which has just begun to be priced into gilt yields, is a factor that directly affects the currency’s valuation: higher bond yields against a backdrop of a weakening government is a scenario that has historically been negative for the pound, as it suggests a lack of a fiscal anchor. If Starmer survives the coming weeks politically and manages to quell the internal rebellion, the risk premium should gradually decline, and the GBP/USD pair could test higher resistance levels once again. An alternative scenario, namely a genuine battle for party leadership, would, however, mean further rises in gilt yields and pressure on the pound, particularly as global markets are now highly sensitive to any signs of political fiscal instability following the experiences of the Truss era. For sterling traders, therefore, today is a test not so much of Starmer himself as of the resilience of the political risk premium that the market has already priced in.

GBP/USD is trading at 1.3608 on the daily chart, within an uptrend that has been in place since the low around 1.22 at the turn of 2024/2025, and the price remains above the anchored VWAP from early 2025, which runs in the 1.31–1.32 region. The volume profile indicates a Point of Control in the 1.3450–1.3480 zone, where a black horizontal line marks a key support level that has been tested repeatedly on both sides. The RSI(14) at 57.17 suggests neutral-bullish momentum with no signs of overbought conditions, which technically leaves room for further gains towards the 1.3800–1.3850 resistance zone, where the price reversed at the 2025 peak.

Today’s speech by Starmer and his political survival are factors that will directly determine the short-term direction: government stability paves the way upwards, whilst an escalation of the crisis and a rise in gilt yields would push the pair back towards the POC zone at 1.3450, and, in the event of a deeper sell-off, even towards the VWAP. Technically, the bulls have the upper hand as long as the price remains above 1.34, and the bears will only regain the initiative after a break below this zone with volume. Source: xStation

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Offshore Yuan Extends Rally to Over 3-Year High

The offshore yuan strengthened to around 6.80 per dollar on Thursday, extending its rally for a third straight session and reaching its strongest level since February 2023, as risk sentiment firmed amid growing optimism over a potential diplomatic breakthrough between Washington and Tehran.

Reports indicated that the US and Iran are close to finalizing a one-page memorandum designed to halt weeks of hostilities, paving the way for the reopening of the Strait of Hormuz, easing disruptions to oil flows, and improving global growth prospects. Investors are also watching a highly anticipated summit next week between Trump and Chinese President Xi Jinping, previously postponed amid heightened geopolitical tensions tied to the Middle East war. Meanwhile, China’s financial regulator reportedly told major lenders to suspend new financing to five refineries sanctioned by the US over alleged Iranian oil ties, contrasting with earlier guidance from Beijing urging firms to ignore US sanctions.

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Currency Talk – AUDCAD, GBPUSD, AUDUSD

Key takeaways

  • What is the technical outlook for AUD/CAD, GBP/USD and AUD/USD?

This analysis from the Overbalance series aims to identify three financial instruments, analysed primarily on the daily/four-hour timeframe (D1/H4). The analysis utilises only the Overbalance methodology, which helps to identify points where a trend may continue or where a reversal may occur. Today’s analysis covers three instruments, assessed solely in terms of 1:1 correction structures. AUDCAD After several tests, the AUDCAD exchange rate has broken through the key support level at 0.9755, which, according to the Overbalance methodology, paves the way for a deeper downward correction. A potential target for the downside is the 0.9610 level, where the lower boundary of the large 1:1 pattern is located. Currently, the 0.9755 level is acting as resistance, and only a sustained return of the price above this zone could restore the bullish scenario.

AUDCAD – H4 timeframe. Source: xStation GBPUSD Since the beginning of April, GBPUSD has been trading within a local uptrend, supported by the 1:1 bullish pattern highlighted in green. The key support level remains at 1.3488. A potential bounce at this point could lead to the generation of another upward impulse. Conversely, a break below this level would open the way for a decline towards 1.3360, where the polarity of the previously broken downward pattern lies.

GBPUSD – H4 chart. Source: xStation AUDUSD The AUDUSD pair remains in an uptrend. Recently, the pair reached a new local high, followed by a rapid correction. Should this correction deepen, the key support level is 0.7121, derived from the lower boundary of the 1:1 pattern. As long as this level holds, the base case scenario remains a continuation of the upward trend.

AUDUSD – H4 chart. Source: xStation

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Forecasting The Upcoming Week – NFP, US-Iran peace talks in focus

The US Dollar Index (DXY) fell to a two-week low near the 98.00 price zone on Friday, extending the losses seen the previous day and ending a week in which the world’s most important central banks confirmed a hawkish shift due to rising inflation pressures. Next week, traders’ attention will remain focused on any development regarding potential negotiations between the US and Iran, as well as a streak of US employment data that will culminate with Nonfarm Payrolls.

The economic calendar was light on Friday as many markets around the world were closed due to the Labor Day holiday. Still, in the US, the ISM Manufacturing Purchasing Managers Index (PMI) came in at 52.7, below the expected 53.

In the Middle East, the Islamic Republic of Iran submitted its latest negotiating proposal to Pakistan, acting as the mediator in talks with the United States. It was not immediately clear what was included in the new proposal, but Trump said that he can’t agree to the current demands from Tehran: “Iran wants to make a deal, but I’m not satisfied,” he said.

Earlier in the day, Iran’s Foreign Minister, Abbas Araghchi, discussed the latest initiatives of the Islamic Republic to end the war during phone calls with counterparts from Saudi Arabia, Qatar, Turkey, Iraq, and Azerbaijan, according to a ministry statement.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD-0.20%-0.12%0.09%-0.03%-0.25%-0.15%-0.27%
EUR0.20%0.07%0.28%0.15%-0.04%0.03%-0.07%
GBP0.12%-0.07%0.21%0.09%-0.12%-0.04%-0.12%
JPY-0.09%-0.28%-0.21%-0.12%-0.34%-0.28%-0.36%
CAD0.03%-0.15%-0.09%0.12%-0.23%-0.14%-0.22%
AUD0.25%0.04%0.12%0.34%0.23%0.08%0.00%
NZD0.15%-0.03%0.04%0.28%0.14%-0.08%-0.09%
CHF0.27%0.07%0.12%0.36%0.22%0.00%0.09%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

EUR/USD rose to an almost two-week high near the 1.1780 level. The pair keeps the rally going for a second straight day after the European Central Bank (ECB) left rates unchanged in Thursday’s meeting. US President Donald Trump announced on Friday that tariffs on the European Union’s cars and trucks would rise to 25% from the current 15%, reviving trade war fears.

GBP/USD rose to the 1.3630 price region. The rise comes as investors move away from the US Dollar (USD) amid an improved risk mood after Iran offered to reach out to the US through Pakistan, aiming to finalize the peace deal once and for all.

USD/JPY steadied after dropping from 160.00 to 156.60 following the Japanese government’s intervention on Thursday. Data released on Friday showed the Tokyo Consumer Price Index (CPI) for April ex Fresh Food at 1.9%, down from last month’s 2.3%. The headline measure was released at 1.5%, up slightly from last month’s 1.4%.

AUD/USD ticked up towards the 0.7220 price zone as traders adopt a wait-and-see approach ahead of the Reserve Bank of Australia (RBA) monetary policy decision scheduled for next Tuesday. Earlier in the day, the Producer Price Index (PPI) was at 3%, below last month’s 3.5%.

Gold trades broadly unchanged at the $4,630 level as investors focus on riskier positions over the week’s end.

WTI West Texas Intermediate (WTI) fell near the $98.50 per barrel amid Iran’s Pakistan-driven US peace deal.

Anticipating economic perspectives: Voices on the horizon

Monday, May 4:

  • Eurogroup Meeting
  • ECB Cipollone speaks
  • Fed Williams speaks
  • ECB Nagel speaks

Tuesday, May 5:

  • RBA Press Conference
  • ECB De Guindos speaks
  • ECB President Lagarde speaks
  • Fed Bowman speaks
  • ECB Lane speaks
  • Fed Barr speaks

Wednesday, May 6:

  • ECB Lane speaks
  • ECB Cipollone speaks
  • Fed Musalem speaks
  • Fed Goolsbee speaks
  • Fed Hammack speaks

Thursday, May 7:

  • ECB De Guindos speaks
  • ECB Elderson speaks
  • ECB Lane speaks
  • ECB Schnabel speaks
  • Fed Hammack speaks
  • Fed Williams speaks

Friday, May 8:

  • ECB President Lagarde speaks
  • ECB De Guindos speaks
  • Fed Cook speaks
  • ECB Cipollone speaks
  • ECB Schnabel speaks
  • ECB Nagel speaks
  • Fed Bowman speaks
  • Fed Goolsbee speaks
  • Fed Waller speaks

Central banks’ meetings and upcoming data releases to shape markets

Monday, May 4:

  • Australian TD-MI Inflation Gauge April YoY
  • Australian Building Permits March MoM
  • Germany, France, Italy, Eurozone HCOB Manufacturing PMI April
  • Eurozone Sentix Investor Confidence May
  • US Factory Orders March MoM
  • Australian S&P PMIs April

Tuesday, May 5:

  • Australian RBA Interest Rate Decision
  • Australian RBA Monetary Policy Statement
  • Australian RBA Rate Statement
  • Chinese Consumer Price Index April MoM YoY
  • US S&P PMIS April
  • US ISM Services PMIS
  • US JOLTS Job Openings March
  • US New Home Sales February and March MoM
  • New Zealand Employment data

Wednesday, May 6:

  • Chinese Caixin Services PMI April
  • Germany, France, Italy, Eurozone HCOB Services PMI April
  • Eurozone Producer Price Index March MoM YoY
  • US ADP Employment Change April
  • Canadian Ivey PMI April
  • Japanese Labor Cash Earnings March YoY
  • Japanese BoJ Monetary Policy Meeting Minutes

Thursday, May 7:

  • Australian Trade Balance
  • Germany Factory Orders March MoM YoY
  • Eurozone Retail Sales March MoM YoY
  • US Challenger Job Cuts April
  • US Initial Jobless Claims
  • US Nonfarm Productivity Q1 Prel
  • US Unit Labor Costs Q1 Prel

Friday, May 8:

  • Germany Industrial Production March MoM YoY
  • Eurozone Trade Balance March
  • Canadian Employment data
  • US NFP report
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EUR/USD nears 1.1700 despite high Eurozone inflation and low growth data

  • EUR/USD returns to levels near 1.1700 following Eurozone GDP and inflation figures.
  • The HICP accelerated to 3% in the 12 months to April.
  • The focus now shifts to the ECB’s monetary policy decision.

The Euro (EUR) is picking up against US Dollar (USD) on Thursday, returning to levels right below 1.1700 at the time of writing, despite Eurozone macroeconomic data, which has confirmed the picture of a sluggish economy and soaring inflationary pressures.

Eurozone’s Preliminary Harmonized Index of Consumer Prices (HICP) figures have shown that inflation surged to a 3% year on-on-year rate, its highest level since September 2023, from 2.6% in March and above the 2.9% anticiparted by the market consensus. Excluding food and energy prices, the Core HICP eased to a 2.2% y-o-y rate from 2.3% in March.

At the same time, Gross Domestic Product (GDP) figures released by Eurostat revealed that economic growth slowed down to a 0.1% growth in Q1, from 0.2% in the last quarter of 2025, against expectations of a steady 0.2% growth.

These figures pose a significant challenge for the European Central Bank (ECB), which is expected to disclose its monetary policy decision later on Thursday. The bank is widely expected to leave its benchmark rate unchanged, but it will have to fine-tune its monetary policy to fight inflation without crushing an ailing growth.

The Fed moves away from monetary easing

On Wednesday, the Fed left rates on hold at the 3.50%-3.75% band, as expected, yet with the most divided committee since 1992, as three policymakers argued that the “easing bias” phrase is no longer appropriate given the spike in energy prices.

The market has priced out the chance of a Fed rate cut this year, according to the CME FedWatch Tool, and now prices in a nearly 50% chance of a rate hike in June next year. This has given US Treasury yields a fresh boost, providing additional support for the US Dollar.

Beyond that, Fed Chairman Jerome Powell, who ends his term on May 15, affirmed that he will remain at the bank as Governor, due to the legal actions taken against him by US President Donald Trump. Powell will replace Stephen Miran, who was appointed by Trump in 2025 and voted for a rate cut on Wednesday, and is likely to counter pressure from the administration on the next Chair, Kevin Warsh, to ease monetary policy.

Technical Analysis: Euro hoversa above a key support zone

EUR/USD Chart Analysis

EUR/USD remains under pressure with price action supported above a cluster of supports, above 1.1645, which held bears several times in mid-April and whose upper limit is the neckline of a bearish “Head & Shoulders” (H&S) pattern at 1.1675.

Technical indicators on the 4-hour show a neutral-to-bearish trend. The Relative Strength Index (RSI) remains below the 50 level, highlighting moderate downside pressure, and the Moving Average Convergence Divergence (MACD) remains below zero.

Bears need to breach the mentioned neckline at 1.1675 and the April 8 intraday low, in the area of 1.1645, to confirm the H&S formation. The pair might find some support at the 1.1630 area, where the 50% Fibonacci support of the March-April rally meets late March and early April highs. The 61.8% Fibonacci retracement is at 1.1583. The H&S’s measured target is coincident with the April 6 low near 1.1500.

On the topside, immediate resistance is at Wednesday’s high at 1.1720 ahead of the mentioned weekly high at 1.1755.

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Bank of England – Preview

H is for hawk The Bank of England will announce its latest policy decision at midday on Thursday. The market is expecting no change in rates from the Bank, and we expect an 8-1 vote split, with one of the noted hawks at the bank voting to increase rates.

The backdrop to this meeting is a deeply uncertain global outlook and the threat of a bigger inflation spike after another surge in the oil price, which has risen to a fresh war-time high on Thursday morning to more than $123 per barrel for Brent, as the blockade in the Strait of Hormuz looks like it will be in place for the long term and as Donald Trump mulls ending the ceasefire with Iran. We expect the BOE to remain as calm and composed as possible considering the backdrop, and to stress the uncertain outlook, however, now that the oil price is rising again and oil supply is likely to remain constrained for the long term, the BOE may find it hard to avoid straying into hawkish territory as it balances growth risks with inflation concerns.

We expect the Bank will stress the need to watch for second round inflation effects, for example wage growth. So far, the survey data does not suggest that firms are likely to raise wages, and the labor market is still soft, even if the unemployment rate fell below 5% in the 3 months to February. The latest DMP survey shows that expectations for wage growth this year are unchanged at 3.5%. The Bank may also address the increase in inflation expectations, which rose by 2.1% in March, according to the latest Citi-YouGov survey. This suggests that consumers are concerned about a 2022-style energy price shock, even if the Bank has been keen to stress that the economic backdrop is different this time.

Assessing the chance of a hawkish shock at the BOE

A hawkish shock would be a larger number of MPC members voting for a rate hike, especially since signals coming from the March data have been resilient so far. If we get a 6-3 split, then this could open the door to a June rate hike. That might sound hasty, however, an early hike could nip in the bud any threat of second round inflation effects, especially if the blockade of the Strait of Hormuz lasts for the long term and the oil price stays in triple figures.

What will the BOE do next

Although we do not expect any forward guidance from the BOE at today’s meeting, the market is convinced that the next move from the BOE is a rate hike. There is roughly an 84% chance of two rate hikes from the BOE this year, and the market expects rates to rise to 4.25% to combat the threat of rising inflation caused by the energy price spike. The market is expecting the BOE to signal that rates will remain higher for longer, and for now, UK inflation is expected to peak at 4% this year.

Fed’s hawkish tilt

Today’s BOE meeting follows Wednesday night’s Fed meeting. The Fed did not change policy, but it is worth noting that its policy decision was the most divided since 1992. On the back of the Fed meeting, traders now see a rate hike as more likely than a rate cut for this year, following the Fed’s hawkish hold on Jerome Powell’s last meeting as chair. There is now an 11% chance of a hike from the Fed this year, up from 5% prior to the meeting. The Fed did not change the language used in its statement at this meeting, which suggests that cuts could still be on the cards for US interest rates. However, Powell suggested that this language could be adapted in future if elevated oil prices persist and three Fed governors opposed the current language used in the statement.

The market reacted to the hawkish tone at the Fed. The Dow Jones slumped 250 points, the dollar ticked higher and US stock index futures are also pointing to losses for the S&P 500 on Thursday. We think that the market reaction to the BOE meeting is likely to be mostly felt in the bond market. UK 2-year yields rose by 8 bps on Wednesday, and yields are higher by 26bps in the past month. The 2-year yield is now trading at 4.55%, so a lot of BOE hawkishness is already priced into UK bonds. We think that the oil price is more important for the direction of UK yields and sentiment towards UK assets more generally. UK stocks have slipped behind their US counterparts in recent weeks, and until there is a rotation out of US tech stocks and into defense names like BAE Systems and Rolls Royce, we could see the UK index may continue to struggle.

Chart 1: FTSE 100 and the S&P 500

Source: XTB