FX weekly forecast: Rising US inflation to strengthen the US dollar?
Philip McHugh May 12th 2025 - 2 minute read
Hawkish forward guidance from the Federal Reserve and Bank of England (BoE) underpinned the US dollar and pound last week, while trade deal optimism also lent support to both currencies.
Pound (GBP)
The UK’s latest GDP figures will be the primary focus for GBP investors this week. Economists predict a healthy acceleration of growth in the first quarter, which could provide a shot in the arm for the pound (GBP).
Euro (EUR)
Germany will publish its latest ZEW economic sentiment index this week. EUR investors will be watching to see if morale in the Eurozone’s largest economy has shown any improvement since last month’s slump. If sentiment remains negative, the euro (EUR) may falter.
US dollar (USD)
The positive progress in US-China trade talks over the weekend is likely to act as a key catalyst for movement for the US dollar (USD) this week, with a 115% reduction in tariffs turbocharging the ‘greenback’. The focus now shifts to the latest US consumer price index. If inflation remains high, it’s likely to validate the Federal Reserve’s more hawkish monetary policy outlook and lift USD exchange rates.
Australian dollar (AUD)
The Australian dollar (AUD) may face headwinds this week, as a soft Australian jobs report may stoke bets for further interest rate cuts from the Reserve Bank of Australia (RBA) in the second half of 2025.
South African rand (ZAR)
The release of South Africa’s latest unemployment data may drag on the South African rand (ZAR) this week, amid forecasts that the local jobless rate rose in the first quarter of the year.
Canadian dollar (CAD)
In the absence of any notable domestic data, movement in the commodity-linked Canadian dollar (CAD) may be driven primarily by oil price dynamics this week. If crude prices continue to rise, this may underpin the ‘loonie’.
New Zealand dollar (NZD)
Impactful New Zealand economic data is also in short supply this week, with the New Zealand dollar (NZD) likely to be driven by wider market trends.
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Written by
Philip McHugh