GBP/USD traded near 1.2905, as the US dollar gained ground on the robust S&P Services PMI data and cautious remarks from Federal Reserve officials. In March, the S&P Global US Composite PMI rose to 53.5, recovering from February's 10-month low of 51.6 and signalling the most robust expansion since December 2024. This upward trend was primarily driven by the services sector, which saw a significant increase in business activity. The S&P Global US Services PMI surged to a three-month high of 54.3 in March, up from 51.0 in February, exceeding market expectations of 50.8. Conversely, the Manufacturing PMI declined to 49.8 from 52.7, falling short of the anticipated 51.8. This decline followed February's strongest manufacturing growth in nearly three years. The Chicago Fed National Activity Index for February was unexpectedly reported at 0.18, surpassing the previous figure of -0.03, which was revised further down to -0.08.

On the policy front, recent hawkish remarks from Fed Chair Jerome Powell, "Labour market conditions are solid, and inflation has moved closer to our 2% longer-run goal, though it remains somewhat elevated." On Monday, Atlanta Fed President Raphael Bostic stated that he expects slower progress on inflation in the coming months and believes that the central bank will reduce the benchmark interest rate by only a quarter of a percentage point by the end of this year. On Monday, President Donald Trump steered the market sentiment by commenting on the potential for "a lot" of countries to get exemptions from his planned tariffs, which are slated to come into effect on April 2.

On the other hand, positive market sentiment around the UK's latest PMI reports buoyed the sterling. The S&P Global Services PMI increased to 53.2, a significant rise from last month's final figure of 51. Furthermore, the composite PMI was reported at 52, up from February's 50.5, representing the largest growth in six months. This improvement somewhat countered the disappointing Manufacturing PMI, which fell to 44.6 in March from the previous 46. The rising demand for financial and consumer services has led to significant growth in the services sector, spurring market speculation that supports a quarter-point interest rate cut by the Bank of England (BoE) in May.

In today's session, the Confederation of British Industry's (CBI) distributive trends index, along with the US economic docket- including the US Conference Board's Consumer Confidence gauge, New Home Sales and the Richmond Fed Manufacturing Index - will significantly impact the GBP/USD exchange rate.

AUD/JPY Stumbles following hawkish BoJ Meeting Minutes

AUD/JPY weakened near 94.65, as the hawkish Bank of Japan (BoJ) meeting minutes indicated discussions regarding the conditions for further interest rate hikes, which supported the yen. The minutes from the Bank of Japan's (BoJ) January policy meeting revealed that most members concurred that the chances of achieving the 2% inflation target were increasing. In addition, policymakers discussed the pace of potential further interest rate hikes. BoJ Governor Kazuo Ueda emphasised in Parliament on Monday that the aim of our policy is to ensure stable prices and that the central bank will modify the level of monetary easing should the chances of reaching the 2% inflation target improve. Growing acknowledgement that increased wage growth may lead to heightened domestic price pressures, supporting the prospect of additional interest rate increases by the BoJ, which could help alleviate further losses for the JPY.

On the data front, Japan's Jibun Bank Services PMI fell to 49.5 in March, down from February's six-month high of 53.7. This marks the first contraction since October and the most significant drop in nine months. At the same time, the Manufacturing PMI decreased to 48.3 in March, down from February's 49.0 and below the anticipated 49.2, extending its contraction streak to nine consecutive months. The Composite PMI also declined, dropping from 52.0 in February to 48.5 in March.

The Australian Dollar edged higher amid optimism that the US may introduce more moderate reciprocal tariffs on April 2, enhancing market sentiment and eliminating concerns regarding potential global trade conflicts. Australia's preliminary PMIs for March exceeded expectations, with the manufacturing component rising to a 29-month high of 52.6 and the services print reaching a two-month peak of 51.2. The Composite index increased to 51.3, its strongest reading since August. Additionally, the rise in private sector employment suggested that February's disappointing labour market report may not indicate a prolonged downturn.

On the global front, President Trump hinted at the possibility of "talks" on trade issues with China, expressing optimism about a future meeting with Chinese President Xi Jinping. Meanwhile, China's ruling Communist Party (CCP) central committee and State Council have unveiled ambitious plans to "vigorously boost consumption" by raising wages and alleviating financial pressures. This new initiative aims to restore consumer confidence and rejuvenate the country's sluggish economy. The positive outlook for China could bolster the Australian dollar, given Australia's heavy reliance on commodity exports to its largest trading partner.

In the absence of the key economic data from Australia, broader market sentiment around the Bank of Japan (BoJ) meeting minutes, US trade tariffs, progress on a Russia-Ukraine peace deal, and China's economic stimulus measures will drive the AUD/JPY exchange rate.

EUR/USD Sinks Following European Business Sentiment

EUR/USD fell near 1.0795 as mixed European Purchasing Managers Index (PMI) data undermined the euro. The HCOB flash composite output index increased to 50.4 in March from 50.2 in February, indicating expansion above the 50.0 threshold for the third consecutive month. However, the flash services PMI unexpectedly dropped to a four-month low of 50.4, down from 50.6 in February, missing the forecasted increase to 51.2. Meanwhile, the flash factory PMI reached a 26-month high of 48.7, rising from 47.6 in February and exceeding expectations of 48.3. Germany's private sector experienced its fastest growth in ten months, with the flash HCOB composite output index climbing to 50.9 in March from 50.4 in February. Manufacturing production saw a robust rebound, but the services sector lost momentum as the services PMI declined to 50.2 from 51.1. The manufacturing PMI improved to 48.3 from 46.5, surpassing the expected 47.1. In France, the economic downturn slowed in March, driven by tentative improvements in the manufacturing sector. The HCOB composite output index reached a two-month high of 47.0, up from 45.1 in February. The services PMI rose more than expected to 46.6 from 45.3, while the manufacturing PMI surged to 48.9, the highest in 26 months, increasing from 45.8.

The Ifo Business Climate Index for Germany, a gauge of sentiment among German businesses regarding current conditions and future expectations, rose to 86.7 points in March from 85.2 in February, slightly below the anticipated 86.8. While the flash PMI indicated a rise in Eurozone business activity, it has also reinforced market anticipation of more aggressive policy easing by the European Central Bank (ECB) , injecting volatility into the shared currency. Germany's upper parliamentary house approved a debt reform plan, boosting the euro. On Friday, the Bundesrat greenlit a spending package to invest billions in defence, infrastructure, and climate protection. Concerns about Trump's tariffs hindering Eurozone growth could challenge the currency.

The US dollar strengthened due to robust S&P Services PMI data and cautious remarks from the Federal Reserve. The S&P Global US Composite PMI rose to 53.5 in March from February's 10-month low of 51.6, indicating the best expansion since December 2024. This uptick was driven by the services sector, as the S&P Global US Services PMI reached a three-month high of 54.3 in March, up from 51.0 in February and exceeding market expectations of 50.8. In contrast, the Manufacturing PMI fell to 49.8 from 52.7, missing the forecast of 51.8 and following February's strongest growth in nearly three years. The Chicago Fed National Activity Index for February unexpectedly rose to 0.18 from a revised -0.08. In terms of policy, Fed Chair Jerome Powell highlighted solid labour market conditions and inflation approaching the 2% target, while Atlanta Fed President Raphael Bostic suggested that progress on inflation will be slow, forecasting only a quarter-point rate reduction by year-end. On the same day, President Donald Trump affected markets by discussing potential exemptions from his planned tariffs set for April 2.

Broader market sentiment regarding key economic data such as the CB Consumer Confidence Index, the Richmond Manufacturing Index, and the Belgian NBB Business Climate, along with speeches from influential FOMC members and German Buba President Nagel, will drive the EUR/USD exchange rate.

NZD/USD Struggles as US Tariffs Loom

NZD/USD weakened near 0.5720 as the New Zealand Dollar (NZD) weakened due to concerns regarding the impending April 2 deadline for US reciprocal tariffs. On Monday night, Trump said he would announce tariffs on automobile imports in the coming days and suggested that certain countries might receive exemptions from reciprocal tariffs on April 2. He indicated that the tariff plans could be "flexible," allowing some trading partners potential exemptions or reductions. On the data front, New Zealand's trade balance recorded a surplus of $510 million in February, reversing the previous month's deficit of $544 million. Data released on Friday revealed a 16% increase in goods exports, reaching $6.74 billion, while imports rose slightly by 2.1% to $6.23 billion. Despite positive growth in the fourth quarter of 2024, with GDP rising by 0.7% quarter-on-quarter (compared to a revised contraction of 1.1% in Q3), underlying weaknesses persist. Market expectations indicate a 60 bps rate cut by the Reserve Bank of New Zealand (RBNZ) in the near future, which could place additional pressure on the New Zealand Dollar (NZD). However, China's new stimulus measures, aimed at boosting consumption by increasing wages and easing financial burdens, may provide some support for the Kiwi, given China's significant role as New Zealand's largest trading partner.

On the other hand, the Greenback gained after strong S&P Services PMI data and cautious Federal Reserve comments. The S&P Global US Composite PMI rose to 53.5 in March, driven by a three-month high in the services sector. However, the Manufacturing PMI fell to 49.8. The Chicago Fed National Activity Index rose to 0.18. Fed Chair Powell noted strong labour market conditions and inflation near 2%, while Atlanta Fed President Bostic predicted a quarter-point rate cut by year-end.

In the upcoming sessions, any significant development in the trade tariffs and talks between China and the US could influence the NZD/USD's movements.

Stay Ahead in the Currency Game

Whether you're a daily FX trader or handle international transactions regularly, our 'Currency Pulse' newsletter delivers the news you need to make more informed decisions. Receive concise updates and in-depth insights directly in your LinkedIn feed.

Subscribe to 'Currency Pulse' now and never miss a beat in the currency markets!

Ready to act on today’s insights? Get a free quote or give us a call on: +44 (0)20 7740 0000 to connect with a dedicated portfolio manager for tailored support.

Important: This blog is for informational purposes only and should not be considered financial advice. Currency Solutions does not consider individual investment goals, financial circumstances, or specific requirements of readers. We do not endorse or recommend any particular financial strategies or products discussed. Currency Solutions provides this content as is, without any guarantees of completeness, accuracy, or timeliness.