Weekly FX Outlook: Consolidation Persists as Policy Signals Collide

Global FX markets enter the week in a state of consolidation rather than conviction. Hawkish Federal Reserve rhetoric briefly supported the US dollar, but renewed uncertainty around US trade policy has prevented a sustained breakout. Yields have pulled back from their highs, risk sentiment remains fragile, and major currency pairs are holding within well-defined ranges. 

For now, policy signals are offsetting one another. The Federal Reserve continues to emphasise resilience in the US economy and caution on rate cuts. At the same time, tariff developments and fiscal uncertainty are reintroducing risk premium into US assets. The result is a market that lacks a dominant narrative. 

Against that backdrop, GBP/USD, GBP/EUR and EUR/USD are trading within established boundaries. The coming week’s data and central bank commentary will determine whether those ranges extend or finally give way.
 

The dollar is currently being shaped by two competing forces. 

On one side, Fed speakers have struck a relatively hawkish tone. The US economy remains resilient, labour markets are stable, and inflation has not retreated decisively enough to justify aggressive easing. That has kept front-end yields supported and limited downside in the greenback. 

On the other side, uncertainty around US trade policy has returned to the forefront. The Supreme Court ruling on tariffs and subsequent policy adjustments have raised fresh questions about fiscal revenues, growth implications and the broader direction of trade relations. That uncertainty has weighed on confidence and capped dollar strength. 

The bond market reflects this tension clearly. Short-dated yields initially moved higher on hawkish Fed commentary but subsequently rolled back as trade uncertainty intensified. The dollar index failed to sustain its recent gains. 

For FX markets, this combination creates range conditions. Hawkish policy supports the dollar. Trade and fiscal ambiguity undermine it. Until one of these forces becomes dominant, consolidation remains the base case. 
 

GBP/USD continues to trade within a broad range, with direction driven more by US developments than domestic UK factors. 

Recent dollar strength, supported by Fed rhetoric, pushed the pair toward key technical support near the rising 200-day moving average. That level once again held, reinforcing the broader constructive structure that has been in place since late last year. 

However, sterling’s upside remains conditional. UK rate expectations have shifted toward a more cautious Bank of England stance, and markets have priced increasing odds of rate cuts later this year. That repricing has limited the pound’s ability to rally independently. 

For now, GBP/USD appears to be stabilising above support rather than accelerating higher. The pair is holding its broader uptrend, but gains remain sensitive to US yield movements. A renewed rise in US front-end yields would likely cap advances, while further compression in US-UK rate spreads could allow a grind higher. 

In short, sterling is mid-range, supported technically but lacking a strong domestic catalyst.
 

GBP/EUR is trading near the lower end of its recent range, reflecting relative yield stability in the Eurozone and ongoing caution around UK rate expectations and politics. 

The cross is holding around the 1.1430 region, an area that has provided horizontal support in recent sessions. While the level has prevented a deeper decline so far, the lack of meaningful rebound momentum suggests that the market remains inclined to fade rallies. 

Eurozone yields have eased but remain comparatively stable, and ECB rate expectations have not shifted dramatically. By contrast, UK markets have priced a more flexible BoE path, particularly if growth softens later in the year. 

Political risk also lingers in the background. Domestic developments have not yet triggered a material repricing in sterling, but markets are sensitive to signs of instability. Any surprise developments could amplify downside pressure. 

Absent a hawkish shift in UK rate pricing or materially stronger UK data, GBP/EUR risks drifting toward the 1.1400 region, with deeper support closer to 1.1320 should momentum build.
 

EUR/USD remains confined between 1.17 and 1.19, reflecting the broader policy standoff shaping the dollar. 

Hawkish Fed commentary gave the dollar a lift earlier in the week, but tariff uncertainty quickly knocked confidence and pulled US yields back down. As a result, the pair has recovered back above the 1.18 level and appears to be stabilising. 

From a structural perspective, the euro looks constructively poised. If the recent dip toward 1.1740 proves to be a higher low within the broader uptrend, the pair could gradually re-establish itself toward the upper end of its range and potentially retest 1.20 in the medium term. 

However, that scenario depends on yield dynamics. EUR/USD is only mildly supported if US yields continue to fall faster than German yields. If the US-Germany rate spread compresses further, the euro should remain underpinned. If US yields reaccelerate higher, range resistance near 1.19 is likely to hold. 

For now, the balance of forces favours consolidation with a slight constructive tilt rather than an immediate breakout. 
 

This week’s economic calendar provides several potential catalysts that could test current consolidation dynamics. 

In the United States, multiple Federal Reserve speakers are scheduled, and markets remain highly sensitive to tone following last week’s hawkish messaging. Any reinforcement of a higher-for-longer stance could push short-end yields higher and support the dollar. Conversely, even subtle signs of flexibility could compress spreads and lift EUR/USD and GBP/USD. 

US data releases including consumer confidence, housing indicators, jobless claims and PPI will also be monitored closely. Treasury auctions at the front and belly of the curve could influence yields and near-term USD direction depending on demand strength. 

In the Eurozone, inflation data takes centre stage. German state CPIs, French and Spanish readings, and the broader Eurozone HICP figures will shape expectations for the European Central Bank. Upside surprises could delay expectations for rate cuts and support the euro. Softer prints would likely cap EUR/USD near the upper end of its range. 

Eurozone growth and sentiment indicators will add further context. While not necessarily trend-defining on their own, they influence Bund yields and therefore the rate spread that underpins EUR/USD direction. 

In the UK, the data calendar is lighter, but Bank of England speakers and consumer confidence figures may influence near-term sterling sentiment. Political developments remain a background risk factor for GBP/EUR in particular. 

Overall, the week is data-rich enough to challenge the current equilibrium, but a sustained breakout will require a clear repricing of rate expectations on either side of the Atlantic. 

 

FX markets remain dominated by policy divergence and yield spreads rather than pure growth narratives. The dollar is supported by resilient US fundamentals but constrained by trade and fiscal uncertainty. The euro is benefiting from relative stability in rate expectations, while sterling is balancing technical support against softer domestic pricing of policy. 

Until we see a decisive shift in rate expectations, consolidation remains the most probable outcome. Breakouts beyond established ranges will likely require a meaningful move in US front-end yields or a significant surprise in Eurozone inflation data. 

For now, patience and level discipline remain key. Markets are not lacking volatility, but they are lacking conviction.