Forex Market Forecast for May 2023

Nick Ranga

Forex Market Forecast for May 2023

May kicks off with three key central bank interest rate decisions, with the Reserve Bank of Australia (RBA) on Tuesday, the US Federal Reserve (Fed) on Wednesday, and the European Central Bank (ECB) on Thursday. With inflation beginning to ease, the expectation is that central banks will start to pause rate hikes (the RBA snapped its rate rises in April), although some central bankers are divided. The Bank of England (BoE) will report its interest rate decision in the second week of May, but with inflation in the UK remaining surprisingly elevated, the expectation is that the BoE will hike once again.

  • The RBA halted its hikes in April but left the door open for further hikes. However, Australian inflation continues to ease, and the expectation is that the RBA rate hike cycle has come to an end.
  • In the EU, while inflation is in the single digits, recent comments from ECB chief economist Philip Lane suggest the central bank will hike in May. He was quoted as saying: “If the baseline we developed before the banking stress holds up, it will be appropriate to have a further increase in May.”
  • While US inflation data has shown positive signs, the Fed is expected to raise rates in May, with some predicting that they will then hold rates steady for the rest of the year, although some are pricing in one cut between May and the end of 2023. A Citi analyst recently warned that while the US consumer is strong, the picture hides key vulnerabilities.
  • The UK economy paints a slightly different picture, with inflation remaining stubbornly high, suggesting further rate hikes are ahead. However, while the BoE has said that it expects inflation to fall through the rest of the year, the data has yet to show, and the central bank may be forced to continue along its current path, suggesting a stronger GBP in May.

US Dollar

The US dollar has had somewhat of a mixed month in April, with its performance looking strong against some major currencies and weaker against others. The DXY did, however, weaken during the month as traders and investors continue to expect the Fed to halt rate hikes soon. From a technical perspective, the dollar could have further downside, although it is essential to consider macroeconomic factors on both sides of the pair you are assessing.

Key Levels

  • EURUSD: Higher – 1.1220, Lower – 1.0800
  • GBPUSD: Higher -1.2602, Lower – 1.2180
  • USDJPY: Higher – 137.30, Lower – 130.37


The euro performed well during April, and the attention now turns to the next ECB rate hike decision. With the central bank hiking by 50bps, some expect them to slow to 25bps as the threat of a recession looms. However, given it is still focused on raising rates (that could, of course, change), the feeling is that the euro will remain strong in May. Looking at the daily chart, we can certainly see it potentially moving towards the 1.12 level if current economic conditions remain, although, as mentioned, it will be important to assess what the ECB says.

Key Levels

  • EURUSD: Higher – 1.1220, Lower – 1.0800
  • EURGBP: Higher – 0.8925, Lower – 0.8727

British Pound

Even with the threat of a recession, the current stubbornly high inflation rate in the UK means further rate hikes are likely, even if some in the BoE are against them. Being in the UK means you tend to focus on and worry about the bad news, which is forever highlighted, so it can be somewhat difficult to provide a completely balanced view. Nevertheless, we will try!

As we are constantly reminded, the threat of a recession is always looming, but so far, the economy has remained somewhat resilient. With further rate hikes potentially on the horizon, this suggests the pound will remain robust in May. From a technical perspective, the GBPUSD looks like it is aiming to push further higher, and a move towards 1.26 is something to watch out for in the coming month.

Key Levels

  • EURGBP: Higher – 0.8925, Lower – 0.8727
  • GBPUSD: Higher -1.2602, Lower – 1.2180

Japanese Yen

At the time of writing, the BoJ has yet to announce its interest rate decision (Friday, April 28). However, despite constant talk that the BoJ may soon hike, the expectation is they are kept steady for now. The expectation is that inflation in the country will soon begin to ease, so many feel rates will remain at their ultra-low levels. The yen weakened against the US dollar in April, and if monetary policy remains the same, we can see the yen continuing to weaken against the euro in May. The EURJPY is currently approaching levels last seen in  December 2014. However, signs of a potential rate rise should see the yen spike.

Key Levels

  • USDJPY: Higher – 137.30, Lower – 130.37
  • EURJPY: Higher – 149.50, Lower – 145.62.00

People Also Read:


Trade EURUSD with our top brokers

Broker Features Regulator Platforms Next Step
Number One Broker tickmill_logo-173% of retail CFD accounts lose money Founded: 2014
73% of retail C...
  • Well regulated
  • Ultra-fast and high leverage trading
  • Spreads as low as 0.0 pips
  • Comprehensive research tools
  • Relatively limited number of markets
  • Does not accept US traders
Blackbull LogoYour capital is at risk Founded: 2014
  • User-friendly platform with great trade-analysis tools
  • Leverage Up To 1:500
  • Spreads as low as 0.00 pips
  • Quality trade execution thanks to high-spec IT infrastructure
  • $0 minimum account opening balance
  • 26,000 tradeable instruments
  • Not available in all jurisdictions
  • Regulatory infrastructure
Your capital is at risk Founded: 2006
Europe* CFDs ar...
  • Multi-asset broker offering a wide variety of markets
  • Strong regulatory framework
  • Innovative risk management tools
  • Choice of market-leading platforms
  • Wide spreads on some markets
  • Expiry date on Demo Accounts
ASIC, FSA, FSB, MiFID MetaTrader4, Sirix, AvaOptions, AvaTrader, Mirror Trader
Between 74-89% of CFD traders lose Founded: 2010
Between 74-89 % of retail investor accounts lose money when trading CFDs
  • Low trading costs
  • Great market flow
  • Research and analysis which helps spot trades
  • Wide range of Copy and Social Trading options
  • Limited range of non-forex markets
ASIC, FCA MetaTrader 4, MetaTrader 5, cTrader
eToro Logo77% of CFD traders lose Founded: 2007
77 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
  • Social and Copy Trading Platform
  • Beginner Friendly
  • Risk-free Demo Account
  • Top-tier regulation
  • Limited means of raising queries
  • Withdrawal process isn’t really ‘client-focused’
ASIC, CySEC, FCA eToro Platform
XM LogoYour capital is at risk Founded: 2009, 2015, 2017
  • Low minimum deposit
  • Super- tight bid-offer spreads
  • Impressive trading platforms
  • Tier-1 regulators
  • Difficult to contact tech support
  • No Crypto
ASIC, CySEC, IFSC MT4 Terminal, MT4 for Mac, Web Trader, iPhone/iPad Trader, Droid Trader, Mobile Trader, MT5
FxPro LogoYour capital is at risk Founded: 2006
  • Very well regulated
  • Comprehensive education section
  • Fantastic customer service
  • No cryptocurrencies
  • Fees could be more competetive
CySEC, DFSA, FCA, FSB, SIA MetaTrader4, MetaTrader5, cTrader, FxPro Edge (Beta)

    Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

    Nick Ranga logo74% of clients lose money. Capital at risk.

    - Trusted Global Market Leader
    - Online FX & CFD Trading
    - 180+  Global Markets, 84 FX pairs, 65 shares, 17 popular indices and more
    - Forex, Indices, Commodities, Equities & Bitcoin
    - Available to US traders

    Oanda Logo77% of retail CFD accounts lose money Your capital is...
    • Choose from four high-quality platforms.
    • Good trading conditions with fast execution speeds
    • Excellent research and analysis
    • Strong client protection
    • Winner of Most Popular Broker award for three consecutive years.
    • Fees and commissions are inline rather than market-leading.
    • Satisfactory rather than impressive range of instruments.
    eToro LogoYour capital is at risk

    - Trade 15 cryptocurrencies
    - Beginner friendly