Forex markets in May 2025 were largely defined by the ongoing saga surrounding US trade policies and their impact on the dollar.
The USD itself began to show some strength before more recently pulling back, with a US trade court initially ruling against President Trump’s tariffs. While they have been temporarily reinstated in light of an appeal, many analysts note that it doesn’t spell the end for Trump’s tariffs.
Meanwhile, the euro experienced a choppy month, initially benefiting from dollar weakness but then facing headwinds from trade uncertainty and renewed focus on ECB policy. The British pound demonstrated notable resilience, partly due to the dollar’s woes and relatively positive domestic developments.
The Japanese yen’s safe-haven appeal has shown amidst the fluctuating global landscape and persistent expectations of further Bank of Japan (BOJ) policy tightening.
Here’s what to watch in June:
- US Trade Policy and Judicial Rulings: The ongoing legal battles regarding US President Trump’s tariffs will continue to drive market sentiment. Any further developments or clarity on the legality and implementation of the tariffs will significantly impact the USD and markets in general.
- Federal Reserve Stance: While the Fed held rates steady in May, comments from Chair Powell and other FOMC members will be closely watched alongside data on inflation and economic growth, particularly in light of trade tensions.
- Bank of England Monetary Policy: The BoE’s next meeting will be on June 19th. After May’s rate cut, markets will be looking for clues on the pace and extent of further easing, which will strongly influence the GBP.
- Bank of Japan Policy: Despite global uncertainties, Japan’s economic data continues to fuel expectations of further BOJ rate hikes.
US Dollar (USD)
Of course, the US dollar remained a focal point in May, with its movement heavily influenced by the developments surrounding Trump’s tariffs.
The policy environment continues to erode long-term confidence in the dollar’s stability and its traditional safe-haven status. Economic data showing rising jobless claims and persistent fiscal issues also contribute to the bearish outlook for the USD.
Analysts at JPMorgan noted that the Federal Reserve acknowledged that since their last meeting in March, the risks of higher inflation and higher unemployment have increased, in part due to trade policy.
“Our strategists still expect the Fed to cut interest rates in the second half of the year,” said the bank. “Until tariff policy becomes more clear, market volatility will remain elevated.”
Key Levels:
- EUR/USD: Higher – 1.1510, Lower – 1.1200
- GBP/USD: Higher – 1.3600, Lower – 1.3250
- USD/JPY: Higher – 146.00, Lower – 142.50
Euro (EUR)
The euro’s performance in May was mixed, reacting to both dollar weakness and renewed trade policy uncertainty. The European Central Bank (ECB) cut rates in April, with further easing widely expected in June as inflation moderates.
This divergence in monetary policy, with the Fed holding steady for now, could put some downward pressure on the euro. However, the Eurozone’s economic resilience, particularly Germany’s fiscal adjustments, and some signs of a manufacturing cycle normalisation could offer underlying support, especially given the US dollar’s recent struggles.
According to analysts at UOB, “to continue to decline, [the] EUR must first close below 1.1200.”
They add that “the risk of EUR closing below 1.1200 will remain intact provided that the ‘strong resistance’ level, currently at 1.1355 is not breached.”
Key Levels:
- EUR/USD: Higher – 1.1510, Lower – 1.1200
- EUR/GBP: Higher – 0.8452, Lower – 0.8330
British Pound (GBP)
Despite a recent pullback, the British pound continued its positive momentum in May, largely capitalising on the uncertainties surrounding the US dollar.
Despite the Bank of England (BoE) having cut interest rates in May, the pound’s resilience against the USD suggests that investors are favouring currencies with relatively clearer policy paths and less immediate geopolitical friction.
The UK’s more favourable tariff treatment from the US (baseline 10% compared to higher tariffs on the EU) and the announced trade deal also helped the pound.
However, the upcoming BoE meeting on June 19th will be closely watched. It was recently reported that the BoE’s readiness to cut rates further has been put into doubt as food inflation in the UK has risen for the fourth month in a row.
UOB analysts said in a recent note that “strong momentum indicates further GBP strength.” Nonetheless, they cautioned that “overbought conditions suggest any advance is unlikely to reach 1.3600.”
Key Levels:
- GBP/USD: Higher – 1.3600, Lower – 1.3250
- EUR/GBP: Higher – 0.8452, Lower – 0.8330
Japanese Yen (JPY)
The Japanese yen has had an up-and-down month. After strengthening until around April 22, the USDJPY pulled higher, before declining once again. Yet, it has not broken the April low.
The yen has benefited from the turbulent global trade environment and heightened uncertainty surrounding US policy.
Furthermore, strong domestic inflation data in Tokyo has strengthened expectations for the Bank of Japan (BOJ) to continue its policy normalisation, with a 25 basis point hike anticipated.
Despite some caution regarding global growth risks, the underlying momentum for wage growth and inflation is expected to support further rate increases.
Key Levels:
- USD/JPY: Higher – 146.00, Lower – 142.50
- EUR/JPY: Higher – 165.00, Lower – 161.00
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