The below key drivers are likely to impact investor risk sentiment and FX markets in May
- US tariffs and trade policy is driving tensions and market volatility across markets, weighing on the US dollar.
- Central banks diverge on policy to mitigate growing recession fears. The Fed is on hold, while others, like Bank of England and RBNZ, lean toward easing.
- Shifting inflation and growth trends are influencing sentiment, supporting currencies in regions with stable prices and modest recoveries.
Read on for insights into factors affecting the key currencies, or download as a PDF.
EUR Euro
The euro jumped as investors looked for safety amid US trade tensions, but all eyes are now on how Europe’s economy holds up ahead of the ECB’s interest rate decision next month.
EURUSD hit a 3-year high on April 21. The spike was driven by investors favouring the relative safety of the euro, as Donald Trump’s trade tariffs and what it could mean for the health of the US economy continues market uncertainty. The sharp increase was exacerbated by thin market trade on Easter Monday, with the pair touching US$1.1574 before it retraced the next day.
Despite the uncertainty provided by the Trump administration, the Eurozone posted 0.4% growth in the first quarter of 2025, double what markets were expecting. That said, Trump’s main barrage of tariffs was only unveiled at the start of April, so it will be interesting to see if the European bloc can maintain that pace of growth as we head into the summer.
With no interest rate decision from the European Central Bank (ECB) until June 5, May currency movements will likely be dominated by trade tariffs. There may be an increasing focus on economic data later in the month, given a lot of Trump’s bigger tariffs have been paused until July. The European bloc’s monthly PMI data, publishing on May 22, should give an indication of how the services and manufacturing sectors are coping with all the current headwinds.
Expected ranges:
- EURUSD 1.1140–1.1600
- EURGBP 0.8380–0.8670
GBP Sterling
The pound rose as investors are moving away from the USD, but the upcoming BoE interest rate decision and economic data will hopefully provide guidance for markets, after recent headwinds.
As US President Trump continues to create economic uncertainty, investors moving away from the USD helped GBPUSD reach US$1.3445 on April 28. The increase was supported by some better-than-expected UK growth data released earlier in the month. However, many expect the economy to slow as we head deeper into the year. For now, the UK government has decided against implementing tariffs on US goods entering the UK, and instead is biding its time and likely watching the result of Japan’s trade talks with the US.
GBPUSD started the month around the US$1.33 handle, with the US dollar recouping some of its losses seen in April.
Looking ahead, the next Bank of England (BoE) interest rate decision will be on May 8. BoE Governor, Andrew Bailey, is expected to unveil a 0.25% cut, taking rates down to 4.25%. As usual, his commentary on the future path of interest rates will be the key area of interest, with many expecting the pace of cuts to increase a little given the headwinds the UK is facing. On the data front, the first estimate of first quarter growth for the UK, monthly inflation data, retail sales figures, and monthly PMI readings will all be released in the coming weeks.
Expected ranges:
- GBPUSD 1.3120–1.3500
- GBPEUR 1.1530–1.1930
AUD Australian dollar
The Aussie dollar dipped as markets braced for trade shifts, while all eyes now turn to US/China talks and whether the RBA will cut rates again this month.
In April, the Australian dollar dropped below 60 US cents for the first time since the COVID-19 pandemic, driven by markets attempting to position themselves ahead of tariff and trade policy updates from the White House. In response to a worldwide market crisis, US President, Donald Trump announced that he would temporarily suspend tariffs on most countries for a period of 90 days, while simultaneously increasing the tax rate on Chinese imports to 125%.
Looking ahead to May, a spokesperson for China’s Ministry of Commerce announced that Beijing was “evaluating” an invitation for trade negotiations with the United States. It was welcome news for the rest of the world, as high tariffs—up to 245% on some Chinese exports to the US—throttle trade between the world’s two biggest economies, raising fears of a recession. Lack of movement on US/China trade is bolstering concerns that US growth could slow while inflation could rise in the next few months.
On the local front, Australia’s Consumer Price Index (CPI) rose 0.9% QoQ in Q1 2025, compared with the 0.2% increase seen in Q4 2024. The market consensus was for a growth of 0.8% in the reported period. Annually, Australia’s CPI inflation holds steady at 2.4% in Q1. The market has a very firm view that there are more interest rate cuts on the way, and the data seems to support their expectations. We’ll see at the Reserve Bank of Australia (RBA) decision on May 19-20.
Expected ranges:
- AUDUSD 0.6366–0.6515
- AUDGBP 0.4787–0.4882
- AUDNZD 1.0760–1.0867
- AUDEUR 0.5633–0.5752
NZD New Zealand dollar
The NZD is bouncing back as China is “evaluating” trade talks with the US, and the NZ economy is showing signs of mild recovery. The outlook is cautiously optimistic ahead of RBNZ’s May rate decision.
The New Zealand dollar fell nearly 2 cents on April 4 and then to around US$0.5550 on April 7, its lowest level in 2025. The direct impact of US tariffs on New Zealand exporters is likely to be manageable, but indirect effects could be more significant and harder to assess.
In May, the New Zealand dollar is recovering its losses from April, trading around US$0.5930, amid improving sentiment and signs of easing US-China trade tensions. In the month ahead, China will be “evaluating” potential trade talks with the US but urged Washington to show “sincerity” to establish trust.
In domestic data, the performance of the March NZ Services index showed further signs of stabilisation, with the composite index showing numbers consistent with slow economic growth. While it’s better than the recessionary conditions of the past two years, it’s still only a mild recovery at this stage.
To help with recovery, the Reserve Bank of New Zealand (RBNZ) has been cutting interest rates, and it seems to be working as experts are now predicting the economy to rebound by about 0.4% QoQ.
After cutting interest rates by 50 bps in February and then by 25 bps in April, markets are predicting the RBNZ will lower the Official Cash Rate (OCR) again by 25 basis points to 3.5%, at the upcoming May 27 and May 28 meeting.
Expected ranges:
- NZDUSD 0.5894–0.6023
- NZDGBP 0.4438–0.4508
- NZDAUD 0.9202–0.9294
- NZDEUR 0.5223–0.5311
USD United States dollar
The US dollar remains weak as Trump’s tariffs spark recession fears and rising costs, with markets now watching inflation data and the Fed’s next move for signs of what’s next.
The US dollar has remained under pressure after a big sell-off seen at the start of April when US President, Donald Trump unveiled his sweeping tariff policy, showing further charges implemented on countries exporting goods to the US. President Trump has since lowered many of the tariffs, but markets are deeply concerned about the impact his policies could have on the US economy, with prices of many goods expected to rise in coming months.
The chances of a recession by year-end are seen as being around 50/50 and, worryingly for Trump, government borrowing costs have crept up. The US dollar index (DXY) hit a 3-year low in April.
Looking ahead, President Trump’s trade agenda will continue to be the main area of focus. Now that tariffs are in place, global markets and US consumers will be closely monitoring inflation data, as well as consumer and business sentiment surveys. Comments from US Federal Reserve (Fed) Chairman, Jerome Powell at the May 7 policy decision will be another area of focus. The Fed is expected to hold rates in expectation that prices may rise in the future, so any further aggression from Trump towards Powell could rattle markets even more.
Expected range:
- DXY 99.172–100.375
JPY Japanese yen
The yen saw sharp swings in April amid US trade tensions and a cautious stance from the Bank of Japan. With US growth softening, further volatility is expected into May.
The USDJPY traded on a volatile footing in April, falling sharply from highs near 150 to a low of 139.89 before recovering to around 143.07 by month-end. The initial selloff was driven by safe-haven demand for the yen amid rising uncertainty around US trade policy, particularly proposals for a 25% tariff on Japanese auto exports, which unsettled markets and weighed on the US dollar.
The Bank of Japan (BoJ) held rates steady at 0.5% at its April 26 meeting, as expected, but signalled it’s in no rush to tighten policy further. It downgraded both the growth and inflation forecasts, pushing its 2% inflation timeline into the second half of the 2026 fiscal year.
Looking ahead, the USDJPY remains sensitive to wage dynamics, and external pressures from US trade and monetary policy. With the BoJ in “wait-and-see mode”, and US growth cooling, two-way volatility could persist into May.
While the BoJ has signalled patience on further tightening, Governor Ueda reiterated that the window for rate hikes has not closed entirely, keeping markets alert to upside risks in yen rates. At the same time, Japanese wage negotiations and spring wage offensive (Shunto) outcomes remain under close watch as policymakers look for real, sustained income growth to justify future tightening.
Expected ranges:
- USDJPY 141.50–149.50
- AUDJPY 88.50–95.50
- NZDJPY 83.50–88.50
CAD Canadian dollar
From April to early May, the Canadian dollar experienced significant fluctuations against the US dollar, driven by international trade tensions, domestic economic data, and challenges related to oil prices.
During this period, CAD appreciated by over 3.50% against the US dollar, rising from a closing rate of US$0.6951 to US$0.7240. This increase was largely fuelled by a US announcement of a 10% import tariff and higher duties on major trading partners. However, Canada and Mexico were exempted mainly from these tariffs under the USMCA, which provided relief to investors amid ongoing trade uncertainties.
The general election on April 28 resulted in a very close outcome, with the Liberals falling just short of an outright majority but positioned to form a reasonably stable government in coalition with the NDP and possibly the Greens. Investors view Prime Minister Mark Carney as a credible leader, capable of navigating the increasingly complex US-Canada relationship.
In April, the Bank of Canada kept the interest rate steady at 2.75%, after seven consecutive cuts totalling 225 basis points. Analysts expect further easing, potentially more than the two 25-bps cuts suggested by the market.
In March, Canada saw a decline of 32,000 jobs and a 4.8% drop in home sales month-over-month, indicating that rate cuts have yet to support the housing sector. However, retail sales increased by 0.7% in March, helping to offset earlier declines.
Additionally, the IMF has downgraded Canada’s GDP growth forecast to 1.4% for 2025, raising concerns about domestic demand. Overall, the Canadian dollar is expected to underperform against most other G10 currencies in a context of US dollar weakness.
Expected ranges:
- USDCAD 0.6800–0.7400
- CADEUR 0.6200–0.6800
- CADGBP 0.5200–0.5800
SGD Singapore dollar
The Singapore dollar held steady in March, supported by global sentiment early on. Looking ahead, its direction will likely depend on central bank decisions and broader global trade developments.
In April, USDSGD fell about 3%, easing from around 1.3469 to 1.3066 by month-end. The pair briefly climbed to a high of 1.3553 in early April but reversed sharply following the Monetary Authority of Singapore (MAS) policy meeting.
A softer US dollar and only a modest easing move from MAS helped to strengthen the Singapore dollar, pushing USDSGD down to 1.3010 – its strongest level in six months. Towards the end of April, the pair traded between 1.30 and 1.32, reflecting cautious market sentiment. The move was driven by broad-based US dollar weakness and a broader regional strength in Asian currencies.
On the local data front, Q1 GDP contracted 0.8% quarter-on-quarter but grew 3.8% year-on-year, prompting the government to lower its 2025 growth forecast. Meanwhile, March core inflation eased further to 0.5%, the lowest in four years, and non-oil domestic exports rose 5.4% year-on-year.
Looking ahead, macroeconomic data points to a cautious but SGD-supportive environment. With inflation well-contained and growth slowing, rates are expected to stay on hold for now. A more cautious policy approach from the US Federal Reserve may continue to limit upside potential for the US dollar. While external risks like the US/China trade tensions remain a wildcard, unless global conditions deteriorate sharply, USDSGD is likely to maintain a slight downward bias, with support near 1.28.
Expected range:
- USDSGD 1.28–1.34
HKD Hong Kong dollar
The Hong Kong dollar remained stable in April, trading within a narrow range. Despite a brief intervention in May, the currency is expected to stay steady, supported by a recovering economy and low inflation.
The USDHKD pair edged lower in April, slipping from around 7.78 to 7.756, marking a modest 0.3% gain for the Hong Kong dollar. Trading stayed within a very tight range between 7.754 and 7.783, reflecting the stability of Hong Kong’s currency peg.
Overall, April was characterised by mild HKD strength, with limited volatility and no need for intervention by the Hong Kong Monetary Authority (HKMA). However, USDHKD touched the strong-side convertibility limit of 7.75 on May 2, prompting the HKMA to intervene for the first time since October 2020. The authority sold HK$46.54 billion (approximately US$6 billion) to prevent the Hong Kong dollar from strengthening beyond its official trading band.
Economic data releases during the month showed a mixed but generally steady picture. March inflation held at 1.4% y/y, while the unemployment rate remained stable at 3.2%. The private sector showed some softness, with the March PMI slipping below 50, signalling mild contraction.
Looking ahead, USDHKD is expected to remain range-bound in May, anchored by the currency board system. Much will depend on the US Federal Reserve’s policies, as any move toward future rate cuts could weaken the USD and nudge USDHKD lower. Regional risks, such as US/China trade tensions, could spark some volatility, but significant pressures on the peg are unlikely. Overall, the HKD is well-supported by low inflation, a gradually recovering economy, and the HKMA’s strong reserve position.
Expected range:
- USDHKD 7.75 – 7.80
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