EUR/USD, USD/JPY, and AUD/USD forecast as central bank policies fuel volatility
EUR/USD declines as US dollar strengthens after Fed decision
The EUR/USD pair declined to $1.0860 on Thursday as concerns over a potential U.S.-EU trade war weighed on the euro. European Central Bank (ECB) President Christine Lagarde warned that U.S. tariffs of 25% on European imports could reduce Eurozone GDP growth by 0.3% in the first year, potentially expanding to 0.5% if the European Union retaliates.
This economic uncertainty has put pressure on the euro, which has been struggling to maintain gains.
The Federal Reserve’s decision on Wednesday to maintain interest rates at 4.25%-4.50% while projecting two rate cuts later in 2025 has provided mixed signals to the forex market. Fed Chair Jerome Powell noted the risk of higher inflation due to tariffs but downplayed their long-term impact. While U.S. President Donald Trump has pushed for lower interest rates, Powell emphasized that the Fed remains cautious, leading to continued strength in the U.S. dollar.
EUR/USD. USD/JPY. AUD/USD price movement (Source: TradingView.)
USD/JPY edges lower as BoJ holds rates steady
The Japanese yen appreciated past 148.50 per dollar for the second straight session as investors digested the Bank of Japan’s (BoJ) latest policy decision. The central bank opted to keep rates at 0.5%, citing economic uncertainties and trade risks. However, expectations remain for a rate hike later this year due to rising wages and inflation, supporting further yen strength.
Global geopolitical risks have also contributed to increased safe-haven demand for the yen, with tensions rising in the Middle East and Ukraine. The yen’s movement remains influenced by U.S. Federal Reserve policy, with traders closely watching whether the Fed will adjust its outlook in response to shifting economic conditions.
AUD/USD declines as weak jobs data dampens RBA outlook
The Australian dollar dropped below $0.6350, extending its losing streak for a third consecutive session. Weaker-than-expected employment data, with a decline of 52.8K jobs in February, raised concerns about labor market softness. Despite the Reserve Bank of Australia’s cautious stance on rate cuts, market expectations remain split on the timing of the next policy move, with some analysts anticipating a rate cut as early as May.
The People’s Bank of China’s (PBoC) decision to hold loan prime rates steady also influenced AUD/USD, as traders assess the impact of China’s policy decisions on Australian trade. The pair faces immediate resistance at 0.6337, and a break below 0.6312 could increase downside pressure.
As previously discussed, the Forex market remains volatile as central bank policies diverge. The EUR/USD pair faces downside risks due to economic uncertainty in the Eurozone, while the yen is gaining strength amid safe-haven demand. The Australian dollar remains under pressure, with weak employment data affecting rate expectations.
