Sterling and Dollar Lead as Trade Deal Grabs Attention – Action Forex
Last week was dominated by developments out of the US and UK, not just because of monetary policy decisions, but also the unexpected announcement of a US-UK trade deal. Fed’s hold and BoE’s cut were were largely overshadowed by the surprise trade breakthrough.
Importantly, the structure of the agreement offered valuable insights into the US administration’s trade strategy which could set the template for negotiations with other key partners.
Despite the significance of the agreement, market reactions were relatively restrained. Major US stock indexes and the UK’s FTSE 100 closed slightly lower. Investors remain cautious about the deal’s practical impact and the broader global developments.
Still, the news did provide meaningful support to the currencies involved: Sterling and Dollar emerged as the week’s top performers. Japanese Yen took third place
In contrast, Loonie underperformed at the bottom. Kiwi and Swiss Franc also lagged. Euro and Aussie ended in the middle of the pack.
Historic Pact, Modest Reaction: Investors Cautious Despite US-UK Trade Breakthrough
While the US-UK trade deal marked a diplomatic milestone, the first bilateral agreement since the sweeping tariff measures enacted in April, financial markets responded with notable indifference. Equities initially rallied on Thursday following the announcement, but the enthusiasm quickly faded. All three major US indexes reversed earlier gains and ended the week in the red, with S&P 500 falling -0.5%, NASDAQ down -0.3%, the DOW slipping -0.2%.
The structure of the agreement reveals much about the current US approach to trade. The UK, given its trade surplus with the US and its unparalleled security ties, likely received the most favorable terms Washington is willing to offer. If this is the best-case scenario, expectations for more comprehensive or lenient agreements, even with regions like the EU or Japan, may need to be tempered.
A 10% blanket tariff remains on virtually all UK exports to the US. That is likely the floor for future negotiations with other partners. This baseline may not only serve as a protective measure but also as a consistent revenue stream to fund Trump’s domestic agenda, including tax cuts. Though minor exemptions may be granted, such as on UK automobiles and metals, they are expected to be case-specific rather than systemic.
What sets this agreement apart is the emphasis on expanding market access for US companies in the UK, particularly in agriculture and industries. It suggests that future trade arrangements will be designed less to eliminate tariffs wholesale and more to create bilateral corridors of opportunity favoring U.S. exporters, negotiated country by country.
In that context, the muted market response becomes clearer. Investors recognize that this agreement doesn’t signify a return to pre-tariff global trade norms. With 90 days remaining in the current tariff truce, the road ahead includes complex negotiations not only with China and the EU but also within supply chains deeply impacted by the new tariff regime. Optimism about progress must be balanced against the reality that a systemic overhaul is still underway, and clarity will be slow to emerge.
Technically, DOW’s rebound from 36611.78 is seen as the second leg of the corrective pattern from 45073.63 high. Further rise is in favor as long as 40759.41 support holds. However, DOW could start to lose momentum more apparently above 61.8% retracement of 45073.63 to 36611.78 at 41841.20. Break of 40759.41 will indicate short term topping, and bring pullback first.
June Fed Cut Going Off the Radar, July Doubtful, Dollar Extends Modest Rise
Fed held its benchmark interest rate unchanged at 4.25–4.50% last week, as widely anticipated. The key message from Fed Chair Jerome Powell was one of restraint: rate cuts are not imminent. Powell emphasized that with the current level of uncertainty surrounding US trade policy and tariffs, “it’s not a situation where we can be preemptive.” He reiterated that if the current size and scale of tariffs remain in place, the US could face the dual challenge of rising inflation and unemployment.
Cleveland Fed President Beth Hammack’s comments from an interview published on Friday is worth a mention. She noted that the breadth of tariff measures already discussed and implemented raises “real questions” about their ultimate economic impact. As such, she suggested it may take longer before Fed can confidently begin to ease rates.
Crucially, Hammack pointed out that there won’t be much new data between now and the next FOMC meeting in June, limiting the Fed’s ability to reassess the situation. Her comments align with current market pricing, which assigns just a 17.2% probability to a June rate cut.
Looking ahead, July is now the more likely inflection point, though conviction is still weak. Market-implied odds for a 25bps cut in July stand at around 60%. Investors remain far from convinced a rate move is locked in.
Dollar Index gyrated higher last week, partly supported by expectations that Fed interest rate will stay high for longer, and partly support by improved appetite on US assets as trade negotiations made progress.
Technically, corrective rise from 97.92 could extend higher towards 55 D EMA (now at 102.08). But strong resistance should be seen from 38.2% retracement of 110.17 to 97.92 at 102.60 limit upside. On the downside, break of 99.17 support would argue that the corrective recovery has completed earlier than expected, and bring retest of 97.92 low next.
BoE Vote Split Surprises, Top Mover GBP/CAD’s Rally Limited
BoE delivered a 25bps rate cut to 4.25% as widely anticipated, but the composition of the vote took markets by surprise. The Monetary Policy Committee split three ways: five members supported the cut, two hawkish voices—Catherine Mann and Chief Economist Huw Pill—voted for no change, while Swati Dhingra and Alan Taylor pushed for a deeper 50bps reduction. The presence of two hawkish hold votes gave the overall decision a more cautious tone than markets had anticipated Market expectations for a gradual 25bps-per-quarter path remain intact.
BoE Governor Andrew Bailey addressed the impact of global trade tensions in a speech following the decision, and raised an interesting perspective. He highlighted how different global tariff scenarios could affect the UK economy in divergent ways. Most notably, Bailey stressed that a demand-driven downside—where both inflation and activity fall—would require a stronger monetary response compared to a supply-driven upside shock, where inflation rises but growth slows. The key distinction lies in the trade-off: when inflation and activity move in opposite directions, policy decisions become more complex and risk-laden, requiring a more delicate balance.
British Pound ended the week as the strongest major currency. GBP/CAD was the top mover, rising 1.13%. Still, price action in GBP/CAD doesn’t show clear strength. The bounce even failed to break the prior week’s high of 1.8598.
Technically, GBP/CAD is seen as in consolidation pattern from 1.8777, with current rise from 1.7980 as the second leg. Further rally might be seen but upside should be limited by 1.8777.
On the downside, break of 1.8280 support will argue that the third has started. Deeper fall should then follow to 1.7980, or even to channel support at around 1.7700.
AUD/USD Weekly Report
AUD/USD retreated after edging higher to 0.6511 last week, but downside is contained above 0.6364 support so far. Initial bias stays neutral this week first. On the upside, break of 0.6511 will resume the rally from 0.5913 to 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, considering bearish divergence condition in 4H MACD, break of 0.6364 support should confirm short term topping. Intraday bias will be turned back to the downside for 38.2% retracement of 0.5913 to 0.6511 at 0.6283.
In the bigger picture, as long as 55 W EMA (now at 0.6443) holds, down trend from 0.8006 (2021 high) should resume later to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. However, sustained trading above 55 W EMA will argue that a medium term bottom was already formed, and set up further rebound to 0.6941 resistance instead.
In the long term picture, prior rejection by 55 M EMA (now at 0.6764) is taken as a bearish signal. But for now, fall from 0.8006 is still seen as the second leg of the corrective pattern from 0.5506 long term bottom (2020 low). Hence, in case of deeper decline, strong support should emerge above 0.5506 to contain downside to bring reversal.
