Introduction: A Weaker GDP but a Stronger Dollar?
The US dollar (USD) defied expectations in early May 2025, posting a slight rebound despite an unexpected contraction in Q1 GDP. With advance GDP data showing a -0.3% decline (vs. +0.3% forecasted), traders anticipated a weaker dollar—yet forex markets shrugged off the news.

This analysis explores:

Why the dollar bounced despite negative GDP growth

Key drivers for EUR/USD and GBP/USD ahead of the NFP report

How Fed rate cut expectations and trade policy shifts could impact forex trends

Technical outlook for major currency pairs

US GDP Shock: Breaking Down the Numbers
Key Takeaways from Q1 GDP Report (April 30, 2025)
Actual GDP Growth: -0.3% (vs. +0.3% consensus)

Consumer Spending Slowdown: +1.8% (lowest in 18 months)

Government Spending Decline: Due to DOGE (Digital Operational Government Expenditure) cuts

Import Surge: Businesses stockpiled ahead of anticipated tariffs

Why Did the Dollar Strengthen?
Markets Priced in Worse Data

Some analysts expected a steeper decline (-0.5% to -0.7%), making -0.3% a "relief."

Focus Shifted to Upcoming NFP & Fed Policy

Traders await May 2 Non-Farm Payrolls (NFP), expected at 130K jobs (vs. 228K prior).

Trade War De-escalation Hopes

Progress in US negotiations with India, Japan, and South Korea eased risk-off sentiment.

Fed Rate Cut Expectations: Will the Dollar Lose Steam?
CME FedWatch Tool Insights
Four 25-bps rate cuts priced in by December 2025

June Cut Probability: ~65% (up from 50% in April)

Key Factors Influencing Fed Decisions
✅ Weaker GDP: Supports dovish stance
✅ Slowing Inflation: PCE core at 2.4% YoY (near Fed’s 2% target)
⚠️ Strong Labor Market: If NFP surprises upside, cuts could be delayed

Analyst Take:
"The Fed is walking a tightrope—soft growth justifies cuts, but resilient jobs data may force patience."

EUR/USD: Can the Euro Hold $1.13 Support?
Recent Price Action (May 1, 2025)
EUR/USD dipped to $1.13 in thin trading

Eurozone Flash GDP Beat: +0.4% QoQ (vs. +0.3% expected)

Technical Outlook
Support: $1.13 (critical psychological level)

Break below → $1.11 next target

Resistance: $1.156 (April highs)

Trend: Consolidation likely before next big move

Trade War Impact:

Reduced EU-US tensions could limit euro upside.

GBP/USD: Pound Holds Near 3-Year Highs
Why Is Sterling Strong?
UK Political Stability: Post-election clarity

US-UK Trade Dynamics: US trade surplus with UK reduces tariff risks

BoE Rate Cut Expectations: Single cut expected in 2025 (vs. Fed’s 4)

Key Levels to Watch
Resistance: $1.343 (September 2024 peak)

Next Catalyst:

BoE Meeting (May 8) – Any hawkish hints could push GBP/USD higher.

NFP Preview: Will Jobs Data Dictate the Next Dollar Move?
May 2 Non-Farm Payrolls Expectations
Consensus: 130K jobs (vs. 228K prior)

Unemployment Rate: 3.9% (steady)

Wage Growth: +0.3% MoM

Potential Scenarios
NFP Result USD Reaction Market Implications
<100K Bearish Fed cut bets rise → EUR/USD ↗, GBP/USD ↗
130K Neutral Focus shifts to Fed meeting
>160K Bullish Rate cut delays → Dollar strengthens
Conclusion: Dollar’s Path Hinges on Fed & Trade Policies
Key Takeaways
GDP Contraction ≠ Dollar Weakness – Markets focused on future Fed moves.

EUR/USD at Crossroads – $1.13 break could trigger deeper correction.

GBP/USD Uptrend Intact – But $1.343 resistance is a hurdle.

NFP & Fed Meetings Critical – Could confirm or delay rate cuts.

Trader’s Playbook
USD Bears: Wait for NFP miss (<100K) to short DXY.