Dollar performance and economic data insights

Beyond US data, the UK’s April inflation report is anticipated to influence sterling sentiment, with analysts watching closely for signs of persistent price pressures that could drive additional action from the Bank of England. GBP traders in the Australian market are likely to remain sensitive to shifts in rate expectations, particularly if incoming data diverges from the central bank’s projected trajectory.

Safe-haven flows also played a role in currency movements. Both the Japanese yen (JPY) and Swiss franc (CHF) weakened slightly as risk appetite showed tentative recovery. US equity indices closed higher, contributing to reduced demand for defensive assets. The USD/JPY pair rose above the 155.00 level, with little intervention seen from Japanese authorities despite previous warnings. The CHF also slipped against the dollar, reflecting broader positioning shifts as investors moved back into higher-yielding assets.

The North American session on May 12, 2025, saw dynamic currency movements as traders responded to shifting risk sentiment and macroeconomic signals. The US dollar delivered a mixed performance, firming against the Japanese yen and Swiss franc, while posting mild losses against the euro and British pound.

Looking ahead, currency markets are poised for further volatility as traders digest a packed calendar of economic releases and central bank commentary. The upcoming week will be especially crucial, with US consumer price index (CPI) data set to provide fresh insight into inflation trends and their implications for Federal Reserve policy. A higher-than-expected reading could revive hawkish sentiment and strengthen the US dollar, while a softer print might reinforce expectations for a pause or possible easing later in the year.

Major currency pair movements and sentiment drivers

Commodity-linked currencies experienced a more turbulent session. The Australian dollar (AUD) and New Zealand dollar (NZD) traded in narrow ranges, reacting to mixed signals from energy markets and ongoing questions about the strength of Chinese demand. Crude oil prices swung between gains and losses, influencing the Canadian dollar (CAD), which ultimately ended the session little changed. For Australian investors, the AUD’s sensitivity to Chinese economic headlines remains a key consideration, particularly as Beijing weighs further stimulus options to support domestic growth.

In the eurozone, political uncertainty remains a key risk factor. Developments surrounding fiscal policies and upcoming regional elections may continue to cap euro gains, even as European Central Bank officials express caution about further tightening. Australian investors with exposure to the euro should monitor headlines for any shifts in sentiment that could impact EUR crosses.

As the second half of May approaches, the interplay between macroeconomic data, central bank expectations, and geopolitical developments will remain central to market direction. For active currency traders in Australia, adapting strategies in response to rapidly changing conditions is essential to navigating the evolving forex landscape.

Consumer spending remained resilient, with retail sales showing modest growth of 0.4% in April, bolstering sentiment around the US growth outlook. However, the labor market exhibited early warning signs, with initial jobless claims creeping higher to 225,000, above consensus forecasts. This softening in employment data added weight to the view that the Fed may be nearing a prolonged pause in its rate hiking cycle.

Meanwhile, GBP/USD found some support as UK bond yields rose on speculation of firmer inflation figures in the upcoming report. The pound traded cautiously but maintained a slight bid through the session.

Outlook and upcoming market catalysts

In Canada, housing starts came in weaker than expected, tempering CAD strength despite oil prices holding near session highs. Market participants remained focused on upcoming commentary from Bank of Canada officials, who are expected to address diverging inflation trends between Canada and the US in a speech later this week.

For commodity-linked currencies, especially the Australian dollar, attention will remain on Chinese economic indicators and global commodity price movements. Any new announcements on infrastructure spending or monetary stimulus by Chinese authorities could bolster sentiment toward the AUD and NZD. Meanwhile, oil market volatility remains a key factor for the Canadian dollar, with any supply disruptions or demand revisions likely to ripple across FX markets.

Commodity-linked currencies experienced choppy trade. The AUD, NZD, and CAD were sensitive to intraday swings in oil prices and shifting sentiment around China’s economic outlook. With crude markets fluctuating and commodity demand from Asia uncertain, these currencies struggled to find clear direction.

The US dollar exhibited a mixed performance during the North American session on May 12, 2025, responding to a combination of economic indicators and evolving market sentiment. Traders saw the greenback gain modest strength against traditional safe-haven currencies such as the Japanese yen and Swiss franc, reflecting a slight uptick in risk appetite as US equity markets turned positive during the session.

These developments weighed slightly on the greenback against European currencies. EUR/USD climbed toward 1.0850 intraday, though political fragility in southern Europe, particularly Italy, kept bulls cautious. GBP/USD drifted higher as UK rate expectations firmed, with traders eyeing next week’s CPI release for further confirmation of sticky inflation trends in Britain, which could prompt a more hawkish Bank of England stance.

EUR/USD edged higher, buoyed by dovish comments from a Federal Reserve official that fuelled expectations of a pause in rate hikes. Political turmoil within the eurozone, however, limited the euro’s upside, keeping the pair constrained in a tight range.

Consumer spending also showed resilience, underpinned by strong retail activity. This provided some support to the dollar, indicating that the broader US economy remains on stable footing despite signs of labour market softening. Initial jobless claims rose slightly more than expected, and wage growth slowed on a monthly basis, prompting concerns over the sustainability of recent employment gains.

Market movements and currency performance

In a key dovish development, comments from a voting Federal Reserve member hinted at increasing concern over overtightening. The official noted that “inflation is trending in the right direction” and suggested that barring any significant upside surprise in prices, “further hikes may not be necessary.” Traders responded swiftly, with Fed Funds Futures pricing in a lower probability of additional tightening this year.

US economic data released during the session offered a mixed bag of signals for dollar bulls. April’s inflation metrics held largely steady, with core CPI printing in line with expectations at 0.3% month-on-month. While this indicated continued inflationary pressure, it wasn’t hot enough to reignite aggressive rate hike bets from the Fed. Headline inflation showed a slight uptick, but markets interpreted the figures as broadly neutral for policy direction.

Australian traders will be keeping a close eye on Reserve Bank of Australia (RBA) commentary, particularly amid discussions over domestic inflation persistence and wage growth. Any signals of a shift in the RBA’s policy tone could have immediate implications for AUD positioning, especially in light of the currency’s sensitivity to interest rate differentials and global risk appetite.

Sentiment drivers were multifaceted, ranging from central bank signals to geopolitical developments. Currency markets remained highly reactive to any indication of policy pivot or economic inflection, underscoring the importance of real-time data interpretation for traders in Australia and beyond.

Similarly, the USD/CHF moved higher as the Swiss franc softened in response to improved market optimism. However, the dollar failed to extend gains broadly, with the EUR/USD and GBP/USD pairs notching modest advances during the session.

Safe-haven flows took a back seat as risk appetite improved marginally, though volatility remained elevated heading into key data releases.

Currency pair dynamics during the North American session reflected a blend of shifting risk sentiment and regional economic themes. The EUR/USD pair posted modest gains, buoyed by dovish remarks from a Federal Reserve official that tempered expectations for further rate hikes in the short term. However, the euro’s upside was kept in check by continued political uncertainty in parts of the eurozone, particularly surrounding upcoming elections and fiscal policy disagreements. As a result, the pair hovered near a key resistance level, with traders hesitant to drive further gains without clearer signs of stability in European politics.

• USD gained against JPY and CHF as equities recovered ground
• EUR and GBP posted minor gains versus USD amid central bank signals
• Risk-sensitive AUD, NZD, and CAD remained volatile on commodity and China demand cues

Economic data impacts and central bank influence

Meanwhile, GBP/USD edged higher, supported by rising UK gilt yields amid growing speculation that the Bank of England may need to maintain a restrictive policy stance for longer. Market participants positioned themselves ahead of the UK’s April inflation report, due next week, which could influence expectations around future rate decisions. The pound’s strength was also aided by a broadly softer US dollar environment, though gains remained limited by concerns over the UK’s sluggish growth outlook.

The USD/JPY pair climbed as demand for safe-haven assets waned slightly, with US equity markets showing signs of stabilisation. The yen’s modest weakness reflected reduced risk aversion, though gains in the pair were tempered by cautious positioning ahead of key US inflation data later in the week.

For Australian market watchers, the nuanced performance of the US dollar underscores the importance of tracking US macroeconomic data as a key influence on global currency markets. The interplay between inflation dynamics, consumer behaviour, and Federal Reserve policy remains central to understanding USD direction in the near term.

However, the dollar encountered headwinds against the euro and British pound. This divergence was largely attributed to dovish commentary from a senior Federal Reserve official, which fueled speculation that the central bank may be approaching the end of its tightening cycle. While inflation data released during the session signalled continued price pressure, the pace appeared consistent with recent trends, suggesting that the Fed might opt for a more cautious approach in the coming months.

Geopolitical risk also looms large. Ongoing tensions in Eastern Europe and the Middle East have the potential to trigger risk-off flows, which could benefit traditional safe-haven currencies. However, with market participants increasingly attuned to central bank communications, the balance between policy direction and external shocks will dictate short-term currency trajectories.

• US core CPI at 0.3% m/m – in line with forecasts, easing pressure on Fed
• Retail sales grew 0.4% in April, showing steady consumer demand
• Initial jobless claims rose to 225,000 – suggesting softer labour conditions
• Fed official signalled potential pause in hikes, sending USD marginally lower
• UK and eurozone currencies gained modestly amid shifting rate outlooks