Forex Signals Brief May 21: FTSE and GBP Rally Despite High UK CPI Inflation

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Today the UK CPI March inflation is the main event, showing an increase, as FTSE 100 and GBP/USD traders followed the report earlier.

Yesterday’s Global Markets Recap: Inflation Surprises, Rate Shifts, and Risk-On Momentum Drive Market Moves

While European trading remained relatively subdued, North American markets were far more eventful—particularly for currency traders. The Canadian dollar surged early in the session, propelled by hotter-than-expected core CPI data for April, which indicated rising inflationary pressures in Canada.

In response to the inflation surprise, the USD/CAD fell 34 pips to 1.3914, breaking below a series of recent lows. This move prompted markets to sharply reduce expectations for a June rate cut by the Bank of Canada, with odds dropping from 65% to just 35%.

Meanwhile, the US dollar started the day on firm footing, bolstered by stronger yields. However, that momentum faded as the session progressed. The British pound initially slipped to a session low in early New York trade, before reversing sharply—climbing 50 pips to 1.3386, just shy of its earlier European highs.

The euro closed the day near Monday’s peak, marking its strongest finish of the week as euro bulls regained control. The shift in sentiment came despite subdued news flow, suggesting a technical rebound in the absence of negative catalysts.

AUD Pressured by RBA, Then Recovers

The Australian dollar came under early pressure following the Reserve Bank of Australia’s 25 basis point rate cut. The RBA’s dovish tone, with hints at a potential 50 basis point cut, weighed on AUD/USD. However, after notable selling pressure during Asian and early European sessions, the Aussie found a technical floor and staged a modest 30-pip rebound, helped by a broadly weaker US dollar later in the day.

Political Risks Stir US Bond Market

Although economic headlines were sparse, political developments in the US subtly rattled markets. Concerns emerged around President Trump’s tax reform plan, which relies heavily on Republican support in Congress without offering offsetting spending cuts. This raised fiscal uncertainty, contributing to modest bond market weakness.

A key House vote is expected in the coming week, which could shape expectations for government spending and debt, adding a layer of risk for markets already navigating interest rate and inflation dynamics.

Today’s Economic Highlights: May 20–24, 2025

UK Inflation: Pressure Builds

The Bank of England is keeping a close watch on domestic price pressures. April’s inflation report is projected to show a significant jump in the headline rate to 3.6% year-over-year, up from 2.6%. That figure would exceed the BoE’s recent estimate of 3.4%, reinforcing expectations that inflation could peak at 3.7% by September.

Analysts cite higher electricity tariffs, increased taxation, and seasonal index pricing as key drivers, along with tariff-related inflation spillovers. The BoE anticipates Q2 inflation will average 3.4%, with Q3 coming in around 3.5%, before eventually easing back to the 2% target.

However, risks remain tilted to the upside. Continued supply chain pressures and pricing pass-throughs may force the BoE to revise its forecasts again, or delay rate normalization.

Last week, markets were slower than what we’ve seen in recent months, with gold retreating as a result, the EUR/USD falling below 1.11, and stock markets continuing upward. The moves weren’t too big, but we opened 37 trading signals in total, finishing the week with 25 winning signals and 12 losing ones.

Gold Prices Rebound Off the 50 SMA

Gold experienced a volatile week, falling below $3,120 during European hours before recovering sharply—climbing nearly $120 to approach the $3,200 mark. Despite this rebound, the precious metal has struggled to revisit April’s high near $3,500, suggesting traders remain cautious even as broader risk appetite improves. Still, gold buyers returned aggressively yesterday, with XAU bouncing $70 off the 50-day simple moving average.

Dollar-Yen Bearish Move Extends

In forex, USD/JPY initially dropped below the key 140.00 level, before staging a robust comeback—rallying past 146.00 and briefly testing resistance near the 200-day moving average at 148.50. While profit-taking briefly interrupted the rally, the pair retains a bullish structure, with many traders seeing dips as buying opportunities amid broader dollar strength.

USD/JPY – Weekly Chart

Cryptocurrency Update

Bitcoin Returns Above $105K

Cryptocurrency markets posted stellar gains this week, led by Bitcoin, which surged 6% to above $103,850, its highest level since February. The rally was buoyed by growing optimism about improving U.S.-China and U.S.-UK trade relations, which lifted investor appetite for riskier assets.

BTC/USD – Weekly chart

Ethereum Tests MAs after Rebound Following Pectra Upgrade

Ethereum also rallied strongly, gaining over 20% from its April low of $1,475 to nearly $2,200. The launch of Ethereum’s “Pectra” upgrade, which enhanced wallet integration and staking features, further boosted confidence in the digital asset space. The update marks a significant step forward for Ethereum’s ecosystem, drawing renewed attention from both retail and institutional investors.

ETH/USD – Weekly Chart

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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