GBP/USD fell to 1.2972 as the greenback remained under pressure, weighed down by falling yields after the Federal Reserve (Fed) reaffirmed its outlook for two rate cuts later this year. The Fed's monetary policy statement, explaining the interest rate decision, indicated that labour market conditions remain solid but emphasised that inflation remains "somewhat" elevated. Fed Chair Jerome Powell stated during the press conference that the tariff policy implemented by President Donald Trump has created an "unusually elevated" level of uncertainty regarding the US economic outlook. This uncertainty is expected to lead to lower growth and higher inflation. As a result, the Federal Reserve has revised its forecast for core Personal Consumption Expenditures (PCE) inflation this year to 2.8%, an increase from the 2.5% projected in December. Additionally, the Fed updated its forecast for Gross Domestic Product (GDP) growth this year to 1.7%, down from the previous estimate of 2.1%. Meanwhile, Donald Trump commented via his social media account, "The Fed would be much better off cutting rates as US tariffs start to transition (ease!) their way into the economy. Do the right thing," emphasising the Fed should have cut interest rates as the impact of tariffs has started to blend into the economy.

On the other hand, strong employment numbers and steady wage growth failed to strengthen the pound. Concerns over wage growth decreased because of a possible slowdown in employment growth. Business owners considered halting hiring because they were dissatisfied with the UK government's decision to raise employers' contributions to social security. UK Chancellor Rachel Reeves announced a rise in employers' National Insurance contributions from 13.8% to 15% as part of the Autumn Budget, effective April.

On the data front, the United Kingdom's (UK) ILO Unemployment Rate remained steady at 4.4% for the three months leading up to January, according to data released by the Office for National Statistics (ONS) on Thursday. This aligned with market expectations for the same rate. The report also indicated an increase in the number of individuals claiming unemployment benefits, which rose by 44.2K in February, a significant jump from the 2.8K increase in January and well below the anticipated 7.9K figure. Employment Change data for January increased by 144K, compared to 107K in December. Meanwhile, Average Earnings, excluding Bonuses, in the UK grew by 5.9% year-over-year (YoY) in January, matching the previous growth of 5.9%. Market forecasts had also predicted a 5.9% figure. Additionally, Average Earnings, including Bonuses, rose 5.8% during the same timeframe, following a revised 6.1% increase in the quarter ending in December. This data outperformed the market expectation of 5.9%. In today's session, the Bank of England's (BoE) interest rate decision and BoE Governor Andrew Bailey’s speech will drive the GBP/USD exchange rate.

AUD/JPY Declines Following Disappointing Australia's Employment Change

AUD/JPY lost ground near 93.76, as the Australian Dollar (AUD) faces challenges after downbeat domestic employment data. In February, Australia's Employment Change reported a decline of 52.8K jobs, down from an increase of 30.5K in January (revised from 44K). This figure fell short of the consensus forecast of 30K. The participation rate also dropped to 66.8% in February, compared to 67.2% in January (revised from 67.3%). Full-time employment decreased by 35.7K in February, following a rise of 36.9K in the previous reading (revised from 54.1K). Part-time employment fell by 17K this month, compared to a decline of 6.5K in January (revised from -10.1K). Despite these changes, the seasonally adjusted unemployment rate held steady at 4.1%, aligning with market expectations.

On the global front, a key trading partner for Australia, the People's Bank of China's (PBOC) decision to maintain its Loan Prime Rates (LPRs), with the one-year rate at 3.10% and the five-year rate at 3.60%, injected market volatility to China-proxy AUD. On Monday, Sarah Hunter, the Assistant Governor (Economic) of the Reserve Bank of Australia (RBA), reinforced the central bank's cautious approach regarding interest rate cuts. The RBA's statement in February indicated a more conservative stance than the market had anticipated, emphasising the importance of monitoring US policy decisions and their possible effects on Australia's inflation outlook. China recently launched a plan to boost consumption and improve market sentiment. The initiative includes raising wages, encouraging household spending, and stabilising stock and real estate markets. Positive outcomes from this stimulus could further support the Australian dollar (AUD), as China is Australia's key trading partner.

The Japanese Yen (JPY) gained ground following market anticipation of a potential Bank of Japan (BoJ) (BoC) rate hike in 2025. The Bank of Japan (BoJ) has decided to keep its policy rate steady during its March meeting, underscored by a statement highlighting, "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 subsequent press conference, BoJ Governor Kazuo Ueda emphasised that the central bank is committed to guiding its policy towards the sustainable and steady achievement of its price target and will continue fine-tuning the level of monetary easing as needed to align with this goal. On the data front, Japan's trade balance shifted to a surplus of ¥584.5 billion in February, recovering from a ¥415.43 billion deficit last year. This improvement resulted from an 11.4% increase in exports and a 0.7% decline in imports. Conversely, machinery orders fell by 3.5% month-on-month in January 2025, larger than the 1.2% drop in the previous month. However, orders increased by 4.4% year-on-year, slightly surpassing December's 4.3% but short of the expected 6.9%.

Broader market sentiment around the Australian economic data and People's Bank of China's (PBOC) interest rate decision will influence today's AUD/JPY exchange rate.

NZD/USD Subdued Despite Upbeat New Zealand's GDP Report

NZD/USD faces headwinds near 0.5755 as the Kiwi remains under pressure from ongoing challenges and external risks, mainly growing trade tensions. Market anticipation that the Reserve Bank of New Zealand (RBNZ) will continue with a policy easing stance, citing the possibility of up to 60 basis points rate deduction. On the data front, stronger-than-expected growth data in the fourth quarter of 2024 indicates that the economy has emerged from recession. Gross Domestic Product (GDP) increased by 0.7% quarter-on-quarter in the fourth quarter (Q4), compared to a contraction of 1.1% (revised from -1.0%) in the third quarter, as reported by Statistics New Zealand on Thursday. This figure surpassed expectations of 0.4%. The annual GDP for the fourth quarter decreased by 1.1%, compared to a decline of 0.3% in Q3, while exceeding the estimate of a 1.4% drop. Westpac New Zealand indicated that its confidence index decreased to 89.2 in Q1, down from 97.5 in the previous quarter. This marks the lowest point since Q2 2024, driven by escalating trade tensions, ongoing cost-of-living challenges, and fluctuations in financial markets. Additionally, New Zealand's Business NZ Performance of Services Index (PSI) fell to 49.1 in February, down from 50.4 in January, signalling a return to contraction in the services sector. In the meantime, the People's Bank of China (PBOC) has left its Loan Prime Rates (LPRs) steady, holding the one-year rate at 3.10% and the five-year rate at 3.60%. Given that China is a crucial trading partner for New Zealand, this could introduce volatility to the Kiwi. This decision comes after Beijing introduced special measures to stimulate domestic demand, potentially contributing to the downward pressure on the NZD.

On the other hand, the greenback was weighed down by declining yields after the Federal Reserve (Fed) reaffirmed its outlook for two rate cuts later this year. The Fed's monetary policy statement, explaining the interest rate decision, acknowledged that labour market conditions remain solid but stressed that inflation is still "somewhat" elevated. Fed Chair Jerome Powell highlighted in a press conference that President Donald Trump's tariff policies have created an "unusually elevated" level of uncertainty regarding the US economic outlook, which is expected to result in slower growth and higher inflation. Consequently, the Federal Reserve revised its forecast for core Personal Consumption Expenditures (PCE) inflation to 2.8% for this year, up from the 2.5% projection in December. Additionally, the Fed lowered its GDP growth forecast for the year to 1.7%, down from the previous estimate of 2.1%. Meanwhile, President Trump took to social media, stating, "The Fed would be much better off cutting rates as US tariffs start to transition (ease!) into the economy. Do the right thing," urging the Fed to cut interest rates as the impact of tariffs begins to influence the economy.

New Zealand’s growth figures, along with tomorrow’s trade balance data and key US labour market statistics, will influence the movements of the NZD/USD.

EUR/USD Sinks Following ECB's Lagarde Speech

EUR/USD dropped to 1.0847 following comments by ECB President Christine Lagarde, warning of potential economic threats linked to US tariffs. In her testimony before the Committee on Economic and Monetary Affairs of the European Parliament, Lagarde stated that US tariffs of 25% on European imports, as threatened by President Donald Trump, could reduce Eurozone growth by around 0.3% in the first year. On inflation, Lagarde noted that EU retaliatory measures and a weakening euro could elevate inflation by approximately 0.5%. However, she indicated that this effect would be temporary, as the slowdown in economic activity is expected to reduce inflationary pressures over time.

Germany's parliament approved a €500 billion spending package aimed at boosting economic growth and military spending, marking a shift away from fiscal conservatism. This decision, supported by major political parties such as the CDU/CSU, SPD, and Greens, will significantly increase national debt to fund European defence initiatives. On the data front, Eurozone headline CPI was 2.3% YoY in February, down from 2.5% in January. The core CPI, excluding energy, food, alcohol, and tobacco, eased to 2.6% from 2.7%. Meanwhile, Germany's ZEW Economic Sentiment Index rose to 51.6 in March from 26 in February, surpassing the expected 48.1. The Eurozone ZEW Index also increased to 39.8, exceeding the forecast of 39.6. However, the Eurozone trade balance showed a surplus of €1.0bn in January, down sharply from €15.4bn in December and €10.6bn in January 2024.

On the other hand, the Federal Reserve's decision to maintain its key borrowing rates unchanged at 4.25%-4.50% for the second consecutive meeting, coupled with guidance for two rate cuts later this year, undermines the greenback. The Fed signalled that it would not rush to adjust monetary policy due to "unusually elevated" uncertainty around the President's policies. Fed Chair Jerome Powell highlighted that "tariffs tend to bring growth down and inflation up," prompting a revision in the Fed's inflation and GDP forecasts. Meanwhile, President Trump reiterated his stance that the Fed should cut rates as tariffs impact the economy, stating, "The Fed would be much better off cutting rates as US tariffs ease into the economy. Do the right thing."

In today's session, broader market sentiment around Christine Lagarde's speech and any developments regarding US President Donald Trump and Russian President Vladimir Putin's Ukraine peace deal will influence the EUR/USD exchange rate.

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