EUROPEAN FX UPDATE: Contained trade as an early pick-up in the USD fizzled out. Dollar eyes JOLTS ahead of NFP Friday

USD DXY +0.1%; 98.35

• DXY remains on the front foot in early European trade with no clear single catalyst driving the recent upside for the dollar. Traders are mindful of ongoing tariff-related updates with President Trump stating that his administration will be going to the Supreme Court today to appeal the judgement from the US appeals court that most of his tariffs are illegal. Given the other routes available to Trump, desks remain sceptical that an unfavourable Supreme Court judgement would have any material sway on the administration's approach to trade policy. Focus will today also be on the data slate with JOLTS job openings due on deck ahead of ADP tomorrow and NFP on Friday. Expectations are for openings to decline to 7.378mln from 7.437mln. As it stands, markets price a September 25bps cut at 91% and see a total of 55bps of loosening by year-end. Note, Fed hawk Musalem is due to speak at 14:00BST. Additionally, WSJ reports that US Treasury Secretary Bessent is planning to start a blitz of interviews on Friday in search of a candidate to be the next Fed Chair. DXY has ventured as high as 98.63 with the next target coming via the 27th August high @ 98.73.

EUR: EUR/USD U/C; 1.1639

• EUR is steady vs. the broadly firmer USD with incremental macro drivers for the Eurozone lacking. Final Eurozone PMI metrics passed with little in the way of fan fare with the August composite PMI metric revised a touch lower to 51.0 from 51.1. The accompanying report noted that "Yes, the economy has been growing since the start of the year, but the pace is painfully slow". One risk on the horizon for the Eurozone comes via French political tensions as markets brace for the September 8th confidence vote in PM Bayrou. Expectations are firmly in favour of him losing the vote. Should he do so, the most likely options are either a new PM or legislative elections - neither option is widely expected to resolve the current political stalemate. On the speaker slate, ECB hawk Muller said it makes sense to keep rates on hold for a while. Markets continue to price just a 30% chance of a 25bps cut by year-end. EUR/USD delved as low as 1.1609 before staging a recovery.

JPY: USD/JPY +0.2%; 148.76

• JPY remains on the backfoot and unable to catch a break vs. the USD. Yesterday's softness was largely pinned on a lack of commitment from BoJ Deputy Governor Himino in backing further policy tightening, alongside increased domestic political risk. On which, the latest reports suggest that Japanese ruling party LDP's Aso is set to call for an early party election, according to Mainichi. The ongoing combination of these factors will likely act as a hindrance for the pair unless Friday's NFP report can light a fuse under additional Fed easing bets. Overnight, BoJ Governor Ueda said he exchanged views with PM Ishiba on the economy and financial markets and talked about forex. Ueda said it was a regular meeting and there is no change to their stance of raising interest rates if the economy and prices move in line with the forecast. USD/JPY briefly moved back above its 200DMA @ 148.83 and took out the 149 level with a session peak @ 149.13 before retreating.

GBP: GBP/USD U/C; 1.3387

• After a wobble in early European trade, GBP has managed to recoup losses. Back-end UK yields remain higher as fiscal angst continues to grip the market narrative. Markets now have a date for the Autumn Budget with the Treasury opting for November 26th; somewhat later than what many had been expecting. Markets remain unconvinced that the Chancellor will be able to engineer a material pick-up in growth whilst shoring up the nation's finances. Markets have also not welcomed the recent appointment of several officials in the Treasury, who are perceived to be more in favour of hiking taxes. Attention will momentarily turn back to the monetary sphere later today with BoE's Bailey, Lombardelli, Greene and Taylor all due to appear before the TSC. Likely areas of focus will be on how the Bank looks to navigate the pathway between an expected slowdown in growth and stubborn inflation. Lawmakers will also likely question policymakers on their intentions for QT and whether it could be curtailed to help alleviate the pressures facing the Treasury. Note, the decision on QT is due at the September 18th policy announcement. An upward revision to the August services and composite PMIs failed to provide additional support for GBP. GBP/USD hit a multi-week low @ 1.3334 before recovering to levels closer to 1.34.

Antipodeans: AUD/USD +0.1%; 0.6524. NZD/USD U/C; 0.5865

• AUD is a touch more resilient than most peers with the currency underpinned by a better-than-expected outturn for Q2 Australian GDP (Q/Q 0.6% vs. Exp. 0.5%). Following the release, Oxford Economics noted that "Q2 may prove to be a high watermark for growth in 2025" with the June quarter benefitting from a rebound from a soft Q1. The consultancy expects steady, but not spectacular growth through the second half of the year. AUD/USD sits in close proximity to its 50DMA @ 0.6519 and around the mid-point of yesterday's 0.6483-0.6558 range. NZD/USD delved as low as 0.5842, stopping just shy of its 200DMA @ 0.5835 before staging a recovery.

03 Sep 2025 - 09:55- ForexEU Research- Source: Newsquawk