Bank FX views in one page, covering the key drivers, clear bias by pair, and the week’s events that move markets.

USD

The US dollar is starting to lose the support it gained during the Middle East conflict, as markets become more confident that tensions are easing and energy prices are no longer rising as sharply. Danske Bank notes that the earlier rally has already started to reverse, with lower yields and improving risk sentiment pulling the dollar down again.

At the same time, Barclays highlights that markets are now pricing a fairly smooth outcome, with expectations of stable energy supply already reflected in prices. That leaves the dollar more exposed if the situation changes again. Marc to Market also points out that positioning has become stretched, which adds to the risk of further downside.

Scotiabank adds that the dollar is still trading above fair value, with room to move lower as markets refocus on softer US growth and longer-term pressures. For traders, the direction is starting to turn, and the dollar looks more likely to drift lower than move much higher from here.

EURUSD

EUR/USD has recovered from its earlier drop and is now holding around the 1.18 level. Danske Bank expects the pair to stay near this range in the short term, but sees a gradual move higher over time as the gap between the Fed and ECB starts to narrow, with the Fed expected to cut later this year while the ECB keeps rates higher.

Commerzbank also notes that the current environment is different from past energy shocks, as other central banks are now more willing to respond to inflation risks, which is helping support the euro. At the same time, oil prices have started to ease, which removes some pressure on the euro area outlook.

For now, the pair looks steady in the short term, but the direction over time still points higher as rate expectations move in the euro’s favour.

GBPUSD

GBP remains under pressure as the UK growth outlook continues to weaken. Lloyds Bank highlights that higher energy prices are pushing inflation higher again while also squeezing consumers, which is slowing activity at the same time.

Danske Bank adds that the Bank of England is now expected to stay on hold for longer, as inflation risks remain but growth is too weak to justify further tightening. This leaves policy in a holding pattern without giving GBP much support.

In simple terms, GBP does not have much supporting it right now, especially if conditions turn more uncertain again.

USDJPY

USD/JPY has remained relatively stable, but the underlying drivers are starting to shift. Danske Bank expects the Bank of Japan to resume rate hikes, supported by stronger wage growth, while the Fed is expected to move more slowly and eventually cut.

CBA also highlights that the pair has been moving with broader swings in yields and risk sentiment, especially around headlines linked to the Middle East. That has kept price action choppy rather than directional.

For now, the pair may continue to move in a range, but over time it points toward a lower USD/JPY as policy moves in different directions.

AUDUSD

AUD has been one of the stronger G10 currencies this year. Danske Bank points to the RBA’s relatively firm stance and Australia’s position as an energy exporter as key reasons the currency has held up well, even during periods of uncertainty.

Westpac also notes that the recent drop in oil prices and recovery in risk sentiment have helped support currencies like AUD, alongside a more stable outlook for global growth.

The overall picture remains supportive, although the path is unlikely to be smooth and will still depend on how global growth holds up.

NZDUSD

NZD is moving broadly in line with AUD but with less strength behind it. BNZ highlights that while the economy has held up so far, higher fuel costs are starting to shift spending toward essentials, which will weigh on growth in the coming months.

At the same time, rising inflation is keeping pressure on the central bank, creating a difficult balance between supporting growth and controlling prices.

In practice, NZD is likely to follow the broader direction of the US dollar, but it does not have the same support as AUD.

USDCAD

CAD has started to strengthen again as the dollar weakens and risk sentiment improves. Scotiabank notes that the move lower in USD/CAD is supported by both macro and technical factors, with momentum clearly pointing lower and scope for a move toward the 1.35 area.

They also highlight that this is typically a strong seasonal period for CAD, and that improving risk appetite is encouraging investors to move back into the currency.

Danske Bank is more cautious on the longer-term outlook, pointing to structural challenges and sensitivity to global growth, but in the near term the direction still points lower for USD/CAD.

Other Pairs

Commerzbank and Danske Bank both highlight that CHF remains supported in an environment where growth is slowing and uncertainty is still elevated, which tends to keep demand for safe-haven currencies in place.

In Asia, Danske Bank notes that the CNY is gradually strengthening, supported by strong trade balances and policy guidance from the PBoC. This adds to the broader theme of a softer US dollar and helps support regional currencies.

Bias Table

Key Event Outlook

United States

The week is relatively light for US data, but retail sales and PMI releases will still matter for confirming whether growth is slowing. Markets are already leaning toward a softer US outlook, so weaker data would reinforce expectations for Fed cuts and add further pressure on the dollar. Strong data could slow the move but is unlikely to change the overall direction.

Eurozone

Focus remains on inflation and ECB communication. Markets are still expecting the ECB to keep policy tight, so any change in tone will matter for EUR. If inflation stays elevated, it supports the current EURUSD direction.

United Kingdom

UK data will be watched closely for signs that growth is continuing to weaken. With the BoE already expected to hold rates, any downside surprises would reinforce the weaker outlook for GBP.

Japan

Attention remains on the Bank of Japan and whether it is ready to continue tightening policy. Wage and inflation data will be key. A clear move from the BoJ would support a stronger yen.

Australia

Australian data and any signals from the RBA will help confirm whether the current policy stance remains in place. China developments also remain important for AUD through trade and demand.

New Zealand

New Zealand data will mainly be viewed through global conditions. Without a strong domestic driver, NZD is likely to follow broader market direction.

Canada

Canadian CPI and retail sales will be key for confirming the strength of domestic demand. Scotiabank highlights that current momentum is solid, and stronger data would support further CAD gains if USD weakness continues.

Other / Geopolitics

Geopolitical developments in the Middle East remain the main external risk. Markets are currently expecting tensions to ease, which supports risk assets and weakens the dollar. Any setback would quickly shift sentiment back toward the dollar.