GBP/USD lost ground near 1.2940 following the release of UK growth numbers. Friday's economic data revealed that the UK economy contracted by 0.1% in January, missing the estimation of 0.1% growth. Meanwhile, the Index of Services (January) arrived at 0.4% 3M/3M versus December's 0.2%. In January, the monthly Industrial and Manufacturing Production declined by 0.9% and 1.1%, respectively, both falling short of expectations. On the policy front, disappointing UK GDP data has influenced market sentiment regarding the Bank of England's (BoE) monetary policy stance. The BoE is expected to keep interest rates unchanged at next week's Monetary Policy Committee meeting, as most policymakers have indicated a "gradual and cautious" approach to policy easing.

Conversely, positive jobless claims report and weaker-than-expected Producer Price Index (PPI) data surged the US Dollar Index (DXY), supporting the US dollar. US Initial Jobless Claims for the week ending March 7 were reported at 220,000, lower than the anticipated 225,000. Continuing claims fell to 1.87 million, below the expected 1.90 million, showing resilience in the US labour market. The PPI increased by 3.2% year-over-year in February, down from 3.7% in January and lower than the projected 3.3%. Core PPI, excluding food and energy, rose 3.4% annually, compared to 3.8% in January. The headline PPI stayed the same monthly, while the core PPI declined by 0.1%. A recent social media post by Donald Trump stated that he aimed to implement a 200% tariff on wines and champagne from Europe, weakening market risk sentiment. On Thursday evening, Senate Democratic Leader Chuck Schumer announced his support for maintaining government operations as the Senate readies to vote on a GOP stopgap funding bill scheduled for Friday. In addition, US Commerce Secretary Howard Lutnick mentioned that the administration intends to balance the budget within President Donald Trump's term, targeting completion of this objective over the next three years. The consecutive tariff changes from the Trump administration continue to inject uncertainty into the global trade market along with fears of a recession.

In today's session, the US'sUS's preliminary Michigan Consumer Sentiment and the UK's GDP data will provide guidance on the GBP/USD exchange rate.

NZD/USD Rebounds Ahead of Michigan Consumer Sentiment Index Release

NZD/USD edges higher near 0.5724 as growing concerns about US trade policies undermine the greenback. Weaker-than-expected US economic data, including the recent Consumer Price Index (CPI) inflation report, and softer labour market figures heighten concerns about the potential effects of escalating tariff wars on US economic growth. However, Thursday's better-than-expected jobless claims and softer Producer Price Index (PPI) data support the US dollar. US Initial Jobless Claims reached 220,000 for the week ending March 7, lower than the expected 225,000. Continuing claims dropped to 1.87 million, better than the 1.90 million forecast, signalling a robust job market. Inflation pressures eased as the US PPI rose 3.2% year-over-year in February, down from 3.7% in January and less than the 3.3% estimate. Core PPI, excluding food and energy, increased 3.4% annually, down from 3.8%. The headline PPI remained unchanged, and the core PPI fell by 0.1% monthly.

The New Zealand dollar (NZD) is weighed down by market anticipation that the Reserve Bank of New Zealand will continue reducing interest rates in the upcoming policy meeting; however, the central bank adhered to its cautious monetary policy stance. RBNZ Governor Adrian Orr indicated that the board is anticipating a lower terminal rate than its projections from November and expects two further reductions of 25 basis points (bps) in April and May, contingent upon the economic conditions evolving as anticipated. On the data front, the BusinessNZ Performance of Manufacturing Index (PMI) rose to 53.9, up from 51.7 in January, marking the highest level of expansion since August 2022. The Food Price Index increased by 1.9% compared to January 2025, indicating a rise in food prices during that period. The increasing risk of escalation in the trade war between the US and China – the world's two largest economies – is weighing on the Kiwi. China's retaliatory tariffs on specific US agricultural products came into effect on Monday, following the increase in US tariffs from 10% to 20% on imports from China last week, which could significantly influence the risk-sensitive New Zealand Dollar (NZD). Thursday's comments from the People's Bank of China (PBOC) stated that it "will cut interest rates and Reserve Requirement Ratio (RRR) at a proper time," emphasising liquidity and economic balance.

Broader market sentiment around the US-China relations, escalating geopolitical tensions in the Middle East, and US consumer sentiment data could influence the NZD/USD exchange rate.

EUR/GBP Gains on UK GDP Data

EUR/GBP gained ground near 0.8399 as downbeat GDP numbers undermined sterling. In January, UK GDP contracted by 0.1% month-over-month, falling short of the anticipated 0.1% growth, primarily due to manufacturing and industrial decline. However, the UK Index of Services saw a 0.4% increase over the three months of January, reflecting some resilience in the services sector despite broader economic difficulties. UK Industrial Production decreased by 0.9% month-over-month in January, undershooting market expectations of a 0.2% rise, which indicates ongoing troubles in the UK manufacturing industry. Additionally, UK Construction Output dropped by 1.2% in January, sharply deviating from the predicted 0.4% growth, revealing weaknesses specific to that sector. Mixed economic indicators could shift the market sentiment around the Bank of England's (BoE) upcoming interest rate decision.

On the global front, there is an escalating trade war between the United States and the European Union (EU). On Thursday, US President Donald Trump threatened a 200% tariff on all European wines and champagne, sparking global market concerns. Germany's final Consumer Price Index (CPI) increased by 0.4% month-over-month, per market expectations and initial forecasts. The German Wholesale Price Index (WPI) rose 0.6% month-over-month in February, surpassing the predicted 0.3% increase and showcasing inflationary pressures at the wholesale level. Italy's Industrial Production jumped 3.2% month-over-month in January, well above the expected 1.5%, signalling a strong recovery in the nation's industrial sector. Eurozone Industrial Production saw a month-over-month increase of 0.8% in January, surpassing market projections and reflecting stronger-than-anticipated industrial activity across the region. Joachim Nagel, President of the Bundesbank and ECB policymaker, warned that US tariffs on imports might push Germany, the largest economy in Europe, into another recession, exacerbating its current economic difficulties. "We are facing a world with tariffs, so if they are implemented, we might anticipate a recession this year," Nagel stated on Thursday.

In today's session, Germany's February Harmonized Index of Consumer Prices (HICP), the UK's January Gross Domestic Product (GDP), and factory data will influence the EUR/GBP exchange rate.

AUD/JPY Strengthens Amid Uncertainty Over BoJ Policy

AUD/JPY rebounded near 93.86 as the Australian Dollar gained ground on the rising commodity prices, including Gold, Steel, and Iron Ore. However, US President Donald Trump's decision to uphold a 25% tariff on Australian aluminium and steel exports, which are valued at almost $1 billion, may weaken the Australian dollar. This action creates additional pressure on Australia's trade forecast, affecting significant exports. On Wednesday, Prime Minister Anthony Albanese noted that "Australia will not impose reciprocal tariffs on the US," highlighting that retaliatory actions would only raise costs for Australian consumers and exacerbate inflation. Furthermore, RBA Deputy Governor Andrew Hauser emphasised earlier that global trade uncertainty is at a 50-year high. Hauser cautioned that ongoing tariff policies and economic tensions could impede business investment and economic growth.

On the global front, tensions stemming from the US-China trade negotiations and concerns over persistent deflationary pressures in China continue to pressure the Aussie. In February, China's Consumer Price Index (CPI) fell short of expectations, decreasing the fastest in 13 months, while producer price deflation persisted. On the domestic front, Australia's Consumer Inflation Expectations dropped to 3.6% in March from 4.6% in February, the highest since April 2024. The Westpac–Melbourne Institute Consumer Sentiment Index rose 4% to 95.9 from 92.2 in February. NAB Business Confidence fell from 5 to -1, dropping below average, while business conditions improved slightly from 3 to 4, and employment conditions decreased from 5 to 4.

The Japanese Yen drifted lower after Japan's largest trade union group, Rengo, secured an average wage increase of 5.46% for the fiscal year 2025, compared to the demand for a 6.09% increase. Bank of Japan's (BoJ) approach towards heightening global uncertainty could affect the upcoming interest rate decision, influencing market anticipation. Bank of Japan Governor Kazuo Ueda remarked that "Underlying inflation is still somewhat below 2%," influencing market sentiment. He expects inflation to rise as the economy recovers, which will gradually improve Japan's actual wages and consumption as import costs stabilise, with strong wage growth forecasted. Japanese Finance Minister Shunichi Kato cautioned that Japan hasn't fully overcome deflation, highlighting a current struggle with supply shortages rather than weak demand.

In the absence of the key market-moving data from both ends, the AUD/JPY will be driven by market sentiment around Trump's tariffs and global trade tensions.

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