August Exchange Weekly FX Market Outlook – 26/05/2025

Following a quiet start to the week due to the UK’s Spring Bank Holiday on Monday, currency markets are now fully back in motion, and the remainder of the week offers plenty of data points and sentiment drivers that could stir volatility across the majors.

With no major UK data on the docket, GBP may take its cues from global risk sentiment and central bank commentary elsewhere. For international businesses managing currency exchange exposure, this is a week to stay alert to headline risk and short-term shifts in positioning.

With no major UK economic releases this week, sterling markets will be driven more by external factors and broader market sentiment. After last week’s inflation figures showed core CPI falling faster than expected, expectations have grown for a potential BoE rate cut as early as August.

That puts GBP in a more sensitive position heading into summer. Any risk-off sentiment or hawkish divergence from the ECB or Fed could tip GBP/USD and GBP/EUR further from recent ranges. With recent Bank of England commentary suggesting patience, sterling may drift in search of direction this week.

The main event this week is Eurozone CPI data on Friday, which will help solidify expectations ahead of the European Central Bank’s June policy meeting. A cooler inflation read would likely confirm market pricing for a June rate cut, possibly the first among major central banks this cycle.

However, if price pressures remain sticky, especially in services, it could cause a last-minute rethink. EUR/USD has been supported recently by stable PMI data and a softer USD, but Friday’s print could cause sharp repricing. Keep an eye on EUR/GBP as well, as relative rate expectations may shift depending on Friday’s outcome.

In the US, the spotlight is on Q1 GDP revisions (Thursday) and PCE inflation (Friday), the Fed’s preferred inflation gauge. With recent data showing mixed signals, robust labour markets but easing CPI and retail sales, markets are looking for clarity on the economy’s underlying strength.

This week also brings Fed speeches, including from Governor Waller, which could provide further insight into how patient the Fed plans to be. A firmer tone could lift USD, especially if PCE inflation remains above 2%. Conversely, softer inflation would likely see dovish expectations reprice in more aggressively.

For currency exchange markets, particularly USD/GBP and USD/EUR, these updates could act as key directional catalysts.

• Canada’s GDP (Friday) will provide a snapshot of the country’s economic performance in Q1. If the data surprises to the upside, we could see support for the loonie (CAD), especially given the market’s current dovish leaning toward the Bank of Canada.
• In Australia, retail sales figures (Tuesday) may affect AUD sentiment. The RBA held steady in its last meeting but remains vigilant on inflation. Weak sales could increase talk of a potential rate cut later in the year. As always, Chinese economic headlines also matter for the Aussie due to close trade ties.

The Japanese yen continues to trade at historically weak levels, with USD/JPY remaining above 156. While there have been no official interventions in recent weeks, policymakers have reiterated their discomfort with excessive FX volatility. Markets remain cautious, and sudden moves could trigger renewed talk, or action, on stabilising the currency.

Outside of economic data, global risk appetite continues to shape flows. Equities remain close to recent highs, and commodity markets are showing mixed signals. Any risk-off turn, perhaps linked to geopolitical tensions or political uncertainty, could reintroduce volatility into FX markets, especially for higher beta currencies like AUD, NZD, and GBP.

For corporates and individuals with currency exposure, this week is a reminder of the value in having a defined currency exchange strategy. Short-term data surprises, shifts in interest rate expectations, or geopolitical developments can move markets fast. Whether you’re importing goods, paying overseas invoices, or managing cross-border payroll, volatility protection matters.

At August Exchange, we help clients navigate the noise. From spotting short-term opportunities to putting long-term hedging strategies in place, we deliver personalised solutions through leading partners, ensuring transparency, competitive pricing, and peace of mind.

Whether you’re looking to secure better rates, review your current provider, or simply understand how upcoming data could impact your bottom line, we’re here to help.

Just five currencies—the USD, EUR, JPY, GBP, and AUD—make up over 80% of global forex trading volume.