Top 2 Currency Pairs to Trade in April 2024

Top 2 Currency Pairs to Trade in April 2024

Reading time: 9 minutes

The foreign exchange market—the Forex market (or FX market)—is the world's largest financial market. Its ever-evolving nature, broad range of market participants and high liquidity make it attractive to both beginner traders and older hands. 

For most of 2022 and the better part of 2023, central banks around the world embarked on policy tightening to tame runaway inflation. With most G10 economies now experiencing disinflation in 2024, traders, investors and financial analysts forecast 2024 to mark the beginning of a global pivot, a transition from one of policy tightening to loosening monetary policy. 

Given the potential pivot ahead, Forex traders will focus on a number of major currency pairs. While possible trading opportunities in the AUD/USD (Australian dollar/US dollar), GBP/USD (British pound/US dollar) and USD/JPY (US dollar/Japanese yen) are likely, for example, the Research Team opted to focus on two of the most traded currency pairs in the world for the month of April: the EUR/USD (euro/US dollar) and the GBP/JPY (British pound/Japanese yen).

EUR/USD:

The ECB –

The European Central Bank (ECB) held all three key benchmark rates unchanged for a fourth consecutive meeting, as was widely expected. The March meeting also saw updated macroeconomic projections, pushing forward a more optimistic tone for the economy. For 2024, the ECB projects inflation will average 2.3% this year versus 2.7% in the prior projections. Underlying inflation was also revised lower and is expected to average 2.6% in 2024, while growth saw downward revisions this year, now expected to only grow by 0.6% compared to 0.8% (previous estimate). ECB President Christine Lagarde, in her press conference after the rate decision, communicated that the eurozone’s economy is in a disinflationary state and added that inflation is making good progress towards the 2.0% target but needs additional data. There was no mention of a timeline for rate cuts, but Lagarde did note that the ECB Governing Council have been discussing the ‘dialling back of their restrictive stance’. 

The Fed –

At the latest meeting, the US Federal Reserve (Fed) held its Fed funds rate unchanged at 5.25%-5.50% for a fifth consecutive meeting. This was not a surprise, but what did jolt the markets was the dot plot in the Summary of Economic Projections (SEP) showing that Fed officials continue to project three rate cuts this year. This was taken as dovish in the market as many desks speculated the possibility of a rate cut being removed from the dot plot in light of the recent increase in CPI and PPI inflation. 

Fed Chair Jerome Powell did not seem overly concerned about the recent uptick in inflation (Jan and Feb) in his Press Conference after the rate announcement and reaffirmed that the central bank continues to seek confirmation that inflation is moving in the right direction, but did communicate that it would likely be necessary to begin policy easing at some point this year. Ultimately, the accompanying rate statement also repeated that the Fed would be closely watching incoming data and would not look to reduce the Fed funds rate until it gained greater confidence regarding inflation moving towards its target of 2.0%.

Outlook:

The EUR/USD will be an interesting currency pair to monitor in the months ahead. Both economies are in a disinflationary process, and both central banks are poised to ease their policy in July (assuming further evidence of disinflation is seen), according to the OIS markets (but both also have June on the table as a strong possibility). 

Consequently, economic data will be widely watched, particularly inflation, employment and growth (GDP) metrics, with traders selling (buying) strong out-of-consensus negative (positive) prints. 

GBP/JPY:

The BoE –

Although the Bank of England (BoE) held the Bank Rate unchanged at 5.25%, it echoed a dovish tone at the previous MPC meeting. This was seen through the MPC voting by a majority of 8-1 to keep rates unchanged. MPC members Haskel and Mann (hawks) switched from hikes to unchanged, while Dhingra (a known dove) continued to support a quarter-point cut. So, from this, we could be seeing a central bank manoeuvring towards easing policy and a move that might begin to weigh heavily on the pound over the coming months. According to market pricing, the first 25 basis-point cut could come as soon as June’s meeting.

The BoJ –

The Bank of Japan (BoJ) recently ended an era of negative interest rate policy (NIRP) by raising its overnight Policy Rate by 10 basis points to 0.0%-0.1% (its first rate hike in 17 years) and abandoning YCC at its March meeting. While this is a hawkish driver for the Japanese yen (JPY) in and of itself, upside strength was hampered by forward guidance offering a dovish tone: limited guidance was seen for any further policy-firming.

Outlook:

The BoJ are unlikely to hike rates again this year (the hike was fuelled by higher wages); however, they may attempt to increase the Policy Rate after next year’s wage negotiations. Yet, the BoE is set to begin policy easing as soon as June, but August is also on the table as a potential date. 

The BoE acknowledges that while it remains concerned about core services inflation, the current restrictive stance is weighing on economic activity and loosening the job market. Therefore, inflation and wage data will be a key watch for UK traders; overall, the MPC Committee will want to see further signs of disinflation in these areas before cutting rates. Thus, any marked negative deviation in these data could send the GBP/JPY heavily lower. As a result, while any upside surprise in the data could bump the GBP/JPY higher, it is likely to be short-lived and will eventually be met with selling pressure. 

Trading Currencies with FP Markets

At FP Markets, more than 70+ currency pairs, including a mix of major currency pairs, minor pairs, and exotic pairs, are available to trade. The EUR/USD and GBP/JPY can be traded around the clock from the Asia Pac session to the London session and New York. All of this can also be done through a wide range of superior Trading Platforms, offered through MetaTrader, cTrader, and TradingView. 

Register for an FP Markets Demo Account today and begin trading global currencies.