Regency FX give their monthly update on developments in the foreign exchange markets. The foreign currency market in May 2025 exhibited notable dynamics for the British Pound (GBP), Euro (EUR), and U.S. Dollar (USD), driven by a mix of geopolitical tensions, central bank policies, trade uncertainties, and economic data. Below is a detailed review of the performance and key influences on these major currencies during the month.

U.S. Dollar (USD)

• Performance: The USD experienced a volatile month, with an initial surge driven by market reactions to trade tariff developments from the Trump administration. However, gains were tempered by a U.S. Court of Appeals ruling that paused immediate action on tariffs, leading to a retreat in USD value.

• Key Drivers:
  • Trade Uncertainty: The U.S. Court of International Trade ruled certain Trump-era tariffs unlawful, causing a temporary USD surge, but the appeals court’s intervention introduced uncertainty, capping gains.
  • Economic Data: Weaker-than-expected U.S. GDP revisions for Q1 and rising jobless claims pressured the USD, signalling potential economic softening.
  • Federal Reserve Policy: The Fed maintained interest rates, with Chairman Jay Powell noting increased economic uncertainty but confidence in current performance. Markets pushed back rate cut expectations, supporting the USD modestly.

• Market Impact: The USD weakened against the EUR (EUR/USD rose from 1.0811 to 1.1325 in London closing rates) and the GBP, reflecting a broader bearish sentiment amid trade and growth concerns.

British Pound

• Performance: The GBP showed resilience, advancing against the USD with GBP/USD settling back under 1.33 by late May after earlier gains. Against the EUR, GBP/EUR reached a five-week high near 1.19, supported by strong UK retail sales and risk appetite.
• Key Drivers:
  • UK Economic Data: Robust retail sales and buoyant risk sentiment bolstered the GBP, countering weaker employment signals and cautious Bank of England (BoE) policy.
  • BoE Policy: The BoE maintained a cautious stance, with market expectations of potential rate cuts in 2025 amid fragile UK fundamentals. Nordea forecasted a gradual GBP/EUR decline to 1.15 by late 2025.
  • Trade Developments: News of a potential US-UK trade agreement late in May limited GBP losses against the USD, offering a positive catalyst.
• Market Impact: GBP/USD faced downward pressure but held gains year-to-date, with forecasts ranging from 1.32 (HSBC) to 1.38 (SocGen) by early 2026, reflecting mixed outlooks.

Euro (EUR)

• Performance: The EUR strengthened significantly against the USD, with EUR/USD rising from 1.0811 to 1.1325 in London closing rates, a 9.2% gain over March and April combined—the largest since post-GFC volatility. The EUR/EER-41 index jumped 2.9% in April, continuing to support EUR gains into May.
• Key Drivers:

• ECB Policy: The European Central Bank (ECB) cut its key policy rate by 25 basis points to 2.25% in April, following 150 basis points of cuts since 2024, boosting EUR confidence. The ECB also continued its APP and PEPP securities run-off, reducing balance sheet exposure.
  • Economic Sentiment: Despite political gridlock in Germany and uncertainty in France, the EUR benefitted from safe-haven flows and a weaker USD, with volatility easing near support at 1.1100 and resistance above 1.1250.
  • Trade and Geopolitics: Trade-related uncertainties and geopolitical tensions lent support to the EUR as a relative safe haven, though gains were tempered by mixed Eurozone growth.
• Market Impact: EUR/USD fluctuated around 1.1200 by late May, settling near 1.1265, with forecasts ranging from 1.17 (RBC) by year-end to 1.18 (BNP Paribas) for end-2025, signalling cautious optimism.

Cross-Pair Highlights

• GBP/USD: The pair advanced but faced resistance, closing below 1.33 by May 30, with losses mitigated by potential US-UK trade news. Forecasts for 2026 varied, with Morgan Stanley predicting 1.45 and Credit Agricole at 1.36.
• EUR/USD: A strong rally saw the pair test 1.12 before recovering to 1.1265, supported by USD weakness and ECB policy divergence. A bearish 2025 outlook persists, with potential to test 1.0330 if selling continues.
• GBP/EUR: The pair hit a five-week peak near 1.19, but forecasts like Danske Bank’s 1.15 by mid-2026 suggest a retreat amid hostile global conditions and UK economic challenges.

May 2025 in the currency markets was characterised by the ongoing tension between traditional seasonal patterns and extraordinary global circumstances. While historical trends suggested weakness in major dollar pairs, the complex interplay of monetary policy expectations, trade uncertainties, and geopolitical factors created a more nuanced trading environment. The dollar’s mixed performance reflected these competing forces, while major currencies like the euro and pound showed resilience against the backdrop of changing Fed expectations and regional policy developments.

Market participants heading into June remained focused on central bank communications, economic data releases, and the evolution of global trade and geopolitical situations as key drivers for currency market direction.

Currency ranges in May.

GBP/EUR

High: 1.1963 on May 28, 2025

Low: 1.1721 on May 5, 2025

GBP/USD

High: 1.3582 on May 26, 2025.

Low: 1.3143 on May 12, 2025.

GBP/AUD

High: 2.1023 on May 27, 2025.

Low: 2.0500 on May 5, 2025

EUR/USD

High: 1.1417 on May 26, 2025.

Low: 1.1081 on May 12, 2025.

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