Central Bank Decisions and Key Data Set the Stage for FX Volatility Across USD, EUR, and GBP.

• USD – Slightly softer start, pressured by improved risk sentiment, but direction hinges on Fed guidance and key inflation/GDP data.

  EUR – Supported by relatively hawkish ECB expectations and upcoming inflation data, though major catalysts later in the week will be decisive.

  GBP – Holding firmer for now on easing political stress and a softer dollar, but faces downside risks from elections and BoE expectations.

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  USD:

  The dollar has begun the week on a slightly weaker footing, weighed by a modest improvement in global risk sentiment following reports of potential de-escalation around the Strait of Hormuz. Despite this softer tone, the primary focus remains on a heavy macro calendar. Attention is centred on the upcoming Federal Reserve decision, widely expected to result in no change in rates.

  With markets pricing in a steady policy stance, the emphasis will instead be on forward guidance—particularly how policymakers interpret rising inflation pressures, with core measures expected to remain above 3%. This meeting also carries additional significance as it is likely to be Chair Powell’s final one, adding an extra layer of scrutiny. Alongside this, key data releases including core PCE inflation and Q1 GDP are likely to play a critical role in shaping expectations for the Fed’s next moves. Overall, while the dollar remains relatively supported, near-term direction will depend heavily on incoming signals from both policy and data.

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  GBP:

  Sterling has seen some support in recent sessions, gaining ground as the dollar softened and immediate political concerns in the UK eased. However, this stability may prove fragile. Upcoming local elections present a notable risk event, with potential political fallout already prompting discussions of renewed fiscal and growth measures.

  In addition, further parliamentary developments could add to uncertainty. From a monetary policy perspective, the Bank of England decision later this week will be key. While the likelihood of a rate hike at this meeting is low, market pricing still anticipates tightening later in the year. For sterling to maintain its current footing, policymakers may need to validate these expectations. Without that support—or if political risks intensify—the currency could struggle to extend gains.

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  EUR:

  The euro enters the week with a relatively constructive backdrop, supported by expectations of a more hawkish European Central Bank stance compared to peers. This week’s calendar is particularly dense, with Q1 GDP, April inflation data, and the ECB rate decision all scheduled.

  Recent rhetoric from ECB officials has leaned more hawkish, partly in response to geopolitical developments, and upcoming inflation figures are expected to reinforce this narrative, with a rise toward 3.0% anticipated. While no immediate policy change is expected, markets will be closely watching for signals regarding the June meeting and the broader rate path.

  In this context, the euro could remain supported, particularly if data aligns with expectations and reinforces tightening bias. However, as with other currencies, the absence of immediate action means that gains may be measured unless stronger catalysts emerge.

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