EUR/GBP recovers around 0.8373, as sterling strengthens due to the Bank of England's (BoE) cautious stance on rate cuts and its revised inflation peak forecast for the year. On Thursday, the BoE decided to keep its policy rate unchanged at 4.50% during its March meeting. Eight of the nine members of the Monetary Policy Committee (MPC) voted to maintain the current borrowing rates, while policymaker Swati Dhingra advocated for a 25 basis points cut in interest rates. BoE Governor Andrew Bailey has suggested that, despite significant uncertainty, monetary policy is gradually easing. In the February meeting, the BoE announced a 'gradual and cautious' approach to monetary easing after reducing rates by 25 basis points to 4.5%. It also raised the GDP forecast for the current quarter to 0.25%, up from 0.1%.

On the data front, GfK Consumer Confidence rose by one point to -19 in March 2025, marking the second consecutive increase from -22 in January and -20 in February. It exceeded market expectations of -21 but remains negative, reflecting continued consumer caution. The ILO Unemployment Rate in the United Kingdom (UK) held steady at 4.4% for the three months ending in January. The report also showed an increase in unemployment benefit claims, which rose by 44.2K in February, significantly higher than the 2.8K increase in January and lower than the expected 7.9K. Employment Change for January rose by 144K, up from 107K in December. In January, Average Earnings, excluding Bonuses, in the UK increased by 5.9% year-over-year (YoY), consistent with the previous growth rate of 5.9%. Market forecasts had also indicated a 5.9% figure. Furthermore, Average Earnings, including Bonuses, climbed by 5.8% during the same period, following a revised 6.1% increase for the quarter ending in December. This result surpassed market expectations of 5.9%. However, concerns about wage growth lessened due to a potential slowdown in job creation. Business owners contemplated pausing hiring, expressing dissatisfaction with the UK government's choice to increase employers' social security contributions. UK Chancellor Rachel Reeves revealed that employers' National Insurance contributions would rise from 13.8% to 15% as part of the Autumn Budget, starting in April.

The Euro faces pressure from ECB President Christine Lagarde's warnings about economic threats from US tariffs. In her testimony before the European Parliament's Economic and Monetary Affairs Committee, she said 25% tariffs on European imports, as suggested by President Trump, could cut Eurozone growth by about 0.3% in the first year. Lagarde added that EU retaliatory actions and a weakening euro might raise inflation by roughly 0.5%, but this effect is expected to be temporary as reduced economic activity will ease inflationary pressures over time.

In today's session, January's current account balance, March's consumer confidence figures from the Eurozone, and the UK's GfK Consumer Confidence will influence the EUR/GBP exchange rate.

NZD/USD Struggles Following New Zealand's Trade Balance Data

NZD/USD hovers near 0.5755 as robust domestic trade balance data strengthened the New Zealand Dollar (NZD). New Zealand's trade balance revealed a surplus of $510 million in February, turning around last month's deficit of $544 million. Data released on Friday indicated that goods exports rose by 16% to $6.74 billion, while imports experienced a slight increase of 2.1% to $6.23 billion. While robust growth figures for the fourth quarter of 2024 suggest that the economy has emerged from recession, underlying weaknesses still underpin the market-anticipated 60 bps rate reduction. Gross Domestic Product (GDP) rose by 0.7% quarter-on-quarter in the fourth quarter (Q4), in contrast to a contraction of 1.1% (revised from -1.0%) seen in the third quarter. This data, released by Statistics New Zealand on Thursday, exceeded expectations of 0.4%. On an annual basis, GDP for Q4 fell by 1.1%, a drop sharper than the 0.3% decline recorded in Q3 but better than the anticipated decrease of 1.4%. Westpac New Zealand reported a reduction in its confidence index, which dropped to 89.2 in Q1 from 97.5 in the preceding quarter. This represents the lowest level since Q2 2024, influenced by rising trade tensions, persistent cost-of-living pressures, and market volatility.

On the other hand, persistent geopolitical risks arising from new conflicts in the Middle East and the ongoing Russia-Ukraine war boosted a safe-haven flow, strengthening the US dollar. The Fed's decision to keep interest rates unchanged and reaffirm its outlook for two rate cuts later this year could act as a tailwind for the Greenback. On the data front, initial jobless claims rose to 223,000 for the week ending 15 March, slightly below the forecast of 224,000 but surpassing the previous week's revised figure of 221,000. Meanwhile, the March Philadelphia Federal Reserve Manufacturing Survey fell to 12.5 from 18.1 in February, marking a second consecutive monthly decline while remaining above the expected 8.5.

Broader market sentiment around the global trade wars and Trump's tariffs will shape the market sentiment around the NZD/USD exchange rate.

USD/CHF Buoyed by SNB Rate Decision

USD/CHF edges higher near 0.8835, following the Swiss National Bank's (SNB) interest rate decision. SNB trimmed its benchmark Sight Deposit Rate by 25 bps to 0.25% from 0.50% at the end of its monetary policy assessment for the March quarter. The central bank announced that it will closely monitor the situation and modify its monetary policy as needed due to the low inflationary pressure and increased downside risks to inflation. The SNB avoided committing to a specific policy, noting that lower borrowing costs are required to match monetary conditions with low inflationary pressures. In a post-policy meeting press conference, Swiss National Bank (SNB) Vice Chairman Antoine Martin explained the interest rate decision with comments, "Inflationary pressure should continue to ease gradually over next quarters, particularly in Europe. A high level of uncertainty around trade policy is likely to weigh on investment. Increasing trade barriers could weaken global economic development." SNB governing board member Petra Tschudin indicated, "Expect Swiss unemployment to rise slightly. Moderate economic activity abroad will have a dampening effect on foreign trade. Domestic demand will benefit from rising wages and monetary policy easing."

On the other hand, Federal Reserve Chair Jerome Powell downplayed the economic risks from President Trump's fluctuating tariff threats, describing them as existing in a vague state. He acknowledged that these uncertainties have heightened downside risks but asserted that US economic data remains healthy despite recent declines. The Philadelphia Federal Reserve Bank's Manufacturing Survey for March decreased to 12.5 month-over-month, down from last month's 18.1. This marks a second consecutive decline, although it fell short of the median market prediction of 8.5. Meanwhile, US weekly Initial Jobless Claims rose slightly less than anticipated, totalling 223,000 new jobless benefit applicants, compared to the previous week's 220,000. Analysts had projected a figure of 224,000. Additionally, US Existing Home Sales exceeded expectations, rising by nearly 300,000 transactions to reach 4.26 million units sold in February, up from January's revised figure of 4.09 million. Forecasters had anticipated a modest dip to 3.95 million.

Investors will keenly watch for any significant development in the Ukraine peace deals and global trades for further direction to the USD/CHF exchange rate.

GBP/JPY Stumbles on BoE's Interest Rate Decision

GBP/JPY traded near 193.19, following Japan's National Consumer Price Index (CPI) data. The National Consumer Price Index (CPI) increased by 3.7% year-on-year in February, slower than the 4% recorded in the previous month. At the same time, the nationwide core CPI, excluding fresh food items, rose by 3% in the reported month compared to a year earlier, a slight decrease from the 3.2% in January, although this figure was marginally above the anticipated 2.9%. The initial outcomes from Japan's spring labour negotiations indicate that companies have largely complied with unions' requests for substantial wage increases for the third consecutive year. According to Rengo, the largest trade union organisation, the second-round data from this year's annual labour talks (Shunto) reveals that Japanese companies have agreed to raise salaries by 5.4%. This figure is slightly lower than in the first round, which reported an average wage increase of 5.46% for fiscal 2025, surpassing last year's average of 5.1%. This marks the second consecutive year that wage increases have exceeded 5%. Consequently, increased consumer spending is anticipated, which could further intensify inflationary pressures in Japan, giving the Bank of Japan room to continue raising interest rates.

On Wednesday, the Bank of Japan (BoJ) (BoC) decided to maintain its policy rate during its March meeting, stating, "There are still significant uncertainties related to Japan's economy and prices, especially concerning the changing dynamics of trade and policies across different jurisdictions." At the press conference, BoJ Governor Kazuo Ueda stated that the central bank is focused on achieving its price target and will adjust monetary easing as necessary. Japan's trade balance showed a surplus of ¥584.5 billion in February, recovering from a ¥415.43 billion deficit last year due to an 11.4% increase in exports and a 0.7% decline in imports. However, machinery orders fell 3.5% in January 2025, compared to a 1.2% drop the previous month, but increased 4.4% year-on-year, slightly above December's 4.3% yet below the expected 6.9%.

The pound strengthened after the Bank of England (BoE) decided to keep its policy rate steady at 4.50% in March. Despite considerable uncertainty, BoE Governor Andrew Bailey indicated that monetary policy is slowly easing. In February, the BoE adopted a 'gradual and cautious' strategy for monetary easing, reducing rates by 25 basis points to 4.5%. It also increased the current quarter's GDP forecast from 0.1% to 0.25%. On the consumer front, GfK Consumer Confidence rose by one point to -19 in March 2025, showing a second consecutive increase from -22 in January and -20 in February. This surpasses market predictions of -21, although it remains in negative territory, indicating ongoing consumer caution.

In the upcoming sessions, market anticipation around the Bank of Japan (BoJ) policy outlook, and escalation of geopolitical tensions in the Middle East, will shape the market sentiment around the GBP/JPY exchange rate.

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