The GBP/USD pair edges lower to 1.2930 as investors brace for the US consumer inflation figures. Market sentiment surrounding a probable US economic slowdown and ongoing policy uncertainty regarding the Trump administration's trade policy has added selling pressure to the US Dollar (USD). However, stronger-than-expected US employment numbers provided some support for the greenback. Job postings rose to 7.74 million in January, exceeding the forecast of 7.63 million and up from December's revised figure of 7.51 million (adjusted down from 7.6 million). February's Nonfarm Payrolls rose by 151,000, missing the 160,000 target. January's job growth fell to 125,000 from 143,000. The unemployment rate increased to 4.1%. Average hourly earnings rose 4% year-on-year, below the 4.1% expectation, while month-on-month growth was 0.3%. US CPI inflation is projected to rise 2.9% in February, slightly down from 3.0% in January. Core CPI inflation, excluding food and energy, is expected to ease to 3.2% from 3.3% in January.

On the global front, President Trump withdrew his plan to increase tariffs on Canadian steel and aluminium to 50%, which he revealed late Tuesday. However, the White House confirmed that new 25% tariffs on all imported steel and aluminium will proceed as scheduled on Wednesday. Trump's comment about the economy being in a "transition period" indicated a possible slowdown, influencing market sentiment regarding the Federal Reserve's (Fed) rate-cutting strategy.

The market anticipates that the Bank of England (BoE) will opt for a gradual policy easing cycle, injecting volatility into the sterling. Recent comments by Catherine Mann, a member of the BoE's Monetary Policy Committee (MPC), reaffirmed the necessity of a "gradual and cautious" approach to easing monetary policy. She also stated that the basis for this gradualist approach is "no longer valid" due to "substantial volatility" stemming from financial markets, particularly from "cross-border spillovers." Investors will closely monitor the UK's monthly GDP, Industrial and Manufacturing Production data for January for fresh cues ahead of next week's BoE monetary policy meeting.

In today's session, US inflation numbers will be key driving factors for the GBP/USD exchange rate.

AUD/JPY Rallies on Risk-off Sentiment

The AUD/JPY pair strengthened to near 93.38 as broad risk aversion and ongoing economic concerns in China weighed on the Australian Dollar (AUD). China's retaliatory tariffs on certain US agricultural products took effect on Monday in response to last week's increase in US tariffs from 10% to 20% on Chinese imports, considering China's role as Australia's largest trading partner. China's CPI in February fell short of expectations, declining at the sharpest rate since January 2024. The CPI decreased by 0.7% in February compared to a year earlier, reversing January's 0.5% increase. On the domestic front, the Westpac–Melbourne Institute Consumer Sentiment Index recorded a robust 4% increase in March, rising to 95.9 from 92.2 in February. Australia's NAB Business Confidence declined from 5 to -1 in February, negating last month's gain and reverting to below-average levels. Business conditions improved slightly from 3 to 4, whilst employment conditions weakened from 5 to 4.

On Wednesday, Australian Prime Minister Anthony Albanese remarked, "Australia will not impose reciprocal tariffs on the United States (US), as retaliatory measures would only increase costs for Australian consumers and fuel inflation," in response to Trump's implementation of 25% tariffs on all imported steel and aluminium. Despite the recent Reserve Bank of Australia (RBA) Meeting Minutes indicating a cautious monetary stance, the RBA's interest rate cut in February eased cost-of-living pressures and supported the Aussie. Investors will closely observe the RBA's policy outlook, as last week's strong economic data has diminished market expectations of further monetary policy easing by the central bank.

On the other hand, the Japanese Yen (JPY) wobbled amid concerns that US President Donald Trump may introduce new tariffs on Japan. Yields on Japanese government bonds (JGB) have surged to a multi-year high of 1.5712, driven by speculation about further rate hikes from the Bank of Japan (BoJ), bolstering the currency. Tuesday's GDP data indicated that the Japanese economy grew by 0.6% quarter-on-quarter (QoQ) in Q4 2024. This figure was lower than the preliminary estimate of 0.7%. On an annual basis, Japan's GDP expanded by 2.2% in Q4, compared to the initial forecast of 2.8%. The BSI Large Manufacturing Conditions Index (QoQ) recorded -2.4, down from the prior figure of 6.3. The Producer Price Index (PPI) fell to a 4.0% year-on-year rate in February, down from 4.2% in the previous month.

Broader market sentiment around the US inflation figures and Trump's potential tariffs on Japan will significantly influence the AUD/JPY's movements.

EUR/USD Buoyed Despite Trade Fears

EUR/USD strengthened to around 1.0912, as the euro was buoyed by optimism following the announcement of an ambitious €800 billion European defence investment plan. The European Union (EU) is exploring methods to increase defence spending through joint borrowing, utilising EU funds, and bolstering the European Investment Bank's (EIB) influence, with significant decisions expected by June. Germany's Green Party is open to discussions and aims to reach a defence spending agreement with the new ruling coalition, led by Chancellor-designate Friedrich Merz, by the end of the week. In the past, German leaders agreed to relax the borrowing limitation known as the "debt brake" and to establish a €500 billion infrastructure fund to enhance defence expenditures and stimulate economic growth. Meanwhile, Italy intends to introduce a European guarantee scheme to release up to €200 billion (£216.48 billion) for investments in the defence and aerospace sectors.

On the economic front, the Sentix Eurozone investor confidence index saw a notable increase to -2.9 in March, improving from -12.7 in the previous month. This change exceeded expectations, which had been set at -9.1, and marks the highest level recorded since June 2024. Recent economic data and substantial economic stimulus measures have fueled anticipations of two more interest rate cuts by the European Central Bank (ECB) before the year ends. On Wednesday, European Central Bank (ECB) Governing Council member Gediminas Šimkus commented, "We will see if we cut rates or pause in April," fluctuating the shared currency.

On the other hand, rising concerns about Trump's clumsy tariff threats and a probable US economic slowdown weigh on the greenback. In January, job postings increased to 7.74 million, surpassing the projected 7.63 million and rising from December's revised count of 7.51 million, which was adjusted down from 7.6 million. Recent weak US job data for February has raised expectations for multiple Fed rate cuts this year. However, San Francisco Fed President Mary Daly stressed the uncertainty businesses face, advising that with the economy and interest rates in a "good place," the Fed should avoid hasty decisions. Likewise, Fed Chairman Jerome Powell mentioned that the central bank might wait to assess the effects of President Trump's policies before altering interest rates.

In today's session, February's US Consumer Price Index (CPI) inflation data and ECB President Lagarde's speech will significantly influence the EUR/USD exchange rate.

NZD/USD Struggles Ahead of US CPI Report

NZD/USD drifted lower to near 0.5709 as an uncertain market mood limited the risk-sensitive 'kiwi' to a narrow range. This was driven by policy changes initiated by US President Donald Trump, particularly tariffs, which fuelled potential global war concerns. Last week, Trump announced plans to increase tariffs on Chinese imports to 20% and labelled China a currency manipulator for the first time in decades. In retaliation, China implemented up to 15% tariffs on US goods, heightening the risk of escalating the trade war between the two largest economies and adding pressure on the Kiwi currency. Furthermore, the NZD faces challenges as deflationary pressures in China become more prominent following the recent release of Chinese data. China's CPI for February fell 0.7% from last year, the sharpest drop since January 2024, reversing January's 0.5% increase.

On the other hand, stronger-than-expected US JOLTS job openings data bolstered the greenback. Job postings increased to 7.74 million in January, surpassing the forecast of 7.63 million, rising from December's revised figure of 7.51 million, adjusted down from 7.6 million. February's Nonfarm Payrolls rose by 151,000, falling short of the 160,000 target. Increasing expectations that a slowdown in US economic activity, driven by tariffs, may prompt the Federal Reserve (Fed) to reduce interest rates multiple times this year.

Apart from growing concerns over global economic conditions and geopolitical tensions in the Middle East, the US economic docket—including US Consumer Price Index (CPI) inflation data for February, US Producer Price Index (PPI) inflation report, University of Michigan Consumer Sentiment Index for March, and UoM's Consumer Inflation Expectations—will significantly influence the NZD/USD exchange rates.

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