Monthly Currency Report Summary – May 2025

Overview: May 2025 was characterized by heightened volatility across major FX pairs, largely driven by ongoing geopolitical tensions, fiscal policy shifts, mixed macroeconomic data, and increasing speculation over upcoming central bank decisions. The GBP/USD (Cable), EUR/USD, and GBP/EUR pairs exhibited pronounced fluctuations, influenced by evolving risk sentiment around Trump’s tariff policies, inflation trajectories, and interest rate expectations from the Fed, ECB, and BoE.

GBP/USD Performance: The GBP/USD pair climbed steadily through the month, reaching its highest level in over three years, before consolidating as the month closed. The pair opened May below 1.3300, facing early selling pressure as traders speculated on interest rate cuts from the Bank of England and reacted to persistent USD strength. However, this early dip gave way to a broad recovery.

• Early Month (1st–10th): Initial sessions saw the pair slump toward 1.3200 amid rising USD demand supported by improved risk appetite and firming US data. However, a downgrade of the US credit rating by Moody’s on the 19th shifted sentiment, helping the GBP recover ground.
• Mid Month (13th–20th): UK inflation data, combined with a rise in average earnings, lent support to Sterling. The pair advanced toward 1.3400, aided by a broad-based USD pullback and expectations of a Fed interest rate cut later in the year.
• Late Month (21st–30th): Strong UK retail sales and PMI data helped the GBP/USD pair rally to a 39-month high near 1.3500. Resistance kicked in amid overbought RSI signals and ahead of major US inflation data. By month-end, the pair was consolidating just below recent highs, with traders awaiting fresh direction from upcoming US macroeconomic reports.

Key Drivers:

• The passing of Trump’s controversial tax bill initially weighed on the USD.
• GBP strength was fuelled by upbeat UK retail data (1.2% growth) and high wage growth (5.5%).
• FOMC and BoE narratives led to consolidation at the upper end of the range.

Technical Summary: Support zones at 1.3200 held firm throughout the month. Resistance emerged at 1.3500–1.3550, as RSI conditions indicated overbought momentum. The 20-day moving average supported interim consolidations.

EUR/USD Performance: The EUR/USD also experienced a volatile month, peaking near 1.1400 before pulling back to trade below 1.1350 as the USD regained partial ground late in the month.

• Early May: The EUR/USD opened below 1.1200 following a rebound in USD and a cautious ECB outlook. With several European countries observing May Day holidays, liquidity was low.
• Mid May: After climbing to 1.1350 mid-month, EUR gains were capped by ECB policymakers signalling upcoming interest rate reviews and concerns about Eurozone growth. Traders grew cautious amid fears of widening monetary policy divergence with the Fed.
• Late May: EUR/USD ranged around 1.1300–1.1380, affected by strong US consumer confidence and a court ruling supporting Trump’s tariff policies. Despite these headwinds, the pair held above the 20-day moving average.

Key Drivers:

• The ECB’s expected rate cuts in June weighed on the Euro.
• Better-than-expected EU PMI and German inflation data helped the Euro resist steeper declines.
• Ongoing trade developments and USD sentiment swings dictated short-term direction.

Technical Summary: The pair found repeated support near 1.1200, while resistance between 1.1350–1.1400 proved formidable. Momentum indicators signalled consolidation, and the RSI showed the pair was nearing overbought territory mid-month.

GBP/EUR Performance: The GBP/EUR cross moved in a broad range across the month, with periods of strong GBP performance lifting the pair toward 1.2000, followed by brief retracements.

• Early Month: The pair hovered near 1.1760–1.1850 as both currencies weakened against the USD. The pair struggled to find a clear directional bias amid subdued EUR flows and a consolidating GBP.
• Mid Month: Sterling’s relative strength over the Euro led to a steady ascent toward 1.1950. Resilience in UK data compared to stagnating Eurozone narratives supported this uptrend.
• Late Month: The pair pulled back from highs near 1.1970 as the EUR rallied stronger than the GBP against the USD. Nonetheless, GBP/EUR closed the month firm above its 20-day moving average, holding around 1.1867.

Key Drivers:

• Differing inflation trajectories and central bank rate expectations fuelled the pair’s volatility.
• Traders reacted to EUR underperformance following dovish ECB commentary.
• UK data outperformance gave Sterling an edge over the Euro.

Technical Summary: The pair oscillated between support at 1.1760 and resistance near 1.2000. A breakout above this level remains contingent on a clearer BoE rate outlook and relative EUR weakness.

Market Sentiment and Policy Narratives:

• Trump’s Tariff Policy: Tariff announcements, reversals, and court rulings caused erratic USD sentiment. Early enthusiasm gave way to caution as US fiscal stability came under scrutiny.
• Central Banks:
  • Federal Reserve: While May’s meeting offered no changes, market expectations for rate cuts in the second half of 2025 remained. Fed speak and softer inflation data reinforced a dovish market bias.
  • Bank of England: Speculation around a potential rate cut in early summer grew, although strong domestic data delayed immediate moves.
  • European Central Bank: Traders priced in a likely rate cut in June as ECB officials signalled a policy shift to support slowing growth.
• Risk Sentiment: Fluctuating optimism around US-China trade relations, tax policy, and political developments shaped overall FX volatility. The Moody’s downgrade of the US credit rating late in the month sparked short-term GBP and EUR rallies.

Technical Trends Overview:

• GBP/USD: Overbought on RSI mid-to-late May, with support at 1.3300 and resistance at 1.3500–1.3550.
• EUR/USD: Technical’s indicated a consolidation bias, with key support at 1.1200 and resistance capped at 1.1400.
• GBP/EUR: Range-bound with upward bias, eyeing 1.2000 breakout contingent on ECB action.

Outlook for June 2025:

• GBP/USD: The pair may challenge a sustained break above 1.3500 if US data disappoints or the Fed adopts a more dovish tone. Key risks include upcoming BoE decisions and UK inflation metrics.
• EUR/USD: Momentum could shift higher if the Fed signals cuts while the ECB holds rates steady. A break above 1.1400 would signal a bullish extension.
• GBP/EUR: Direction depends heavily on ECB rate cuts and BoE tone. A dovish ECB may send the pair above 1.2000, while a strong Euro recovery could pull it back toward 1.1800.

Conclusion: May 2025 offered traders an active and technically rich month across the major currency pairs. With central bank divergence, trade uncertainty, and macro risks at play, volatility is expected to persist into June. Traders will need to remain agile as monetary policy and geopolitical shifts continue to shape the FX landscape.