EUROPEAN FX UPDATE: Dollar extends its post-CPI decline

USD: DXY -0.3%; 97.71

• After a steady start to the session, the DXY has taken another leg lower as markets digest yesterday's CPI report. Overall, it was broadly in-line and judged not to show an alarming increase in goods inflation related to the US tariff policies. As we mentioned in our commentary yesterday, the US is very much not out of the woods when it comes to a potential inflation scare. However, for now, in the context of the soft July payrolls report, markets are confident in expecting the Fed to lower rates next month. There has been some discourse over the potential magnitude of next month's loosening with Treasury Secretary Bessent suggesting the Fed should think about cutting rates by 50bps. However, it is unlikely that a consensus will form on the FOMC for such a move. Today's docket is light on data but is expected to see remarks from Treasury Secretary Bessent, Fed’s Barkin (2027 voter), Goolsbee (voter) & Bostic (2027 voter). Note, geopolitical headlines are likely to ramp up in the run-up to Friday's meeting between Trump and Putin. However, the broader US macro outlook is likely to remain the dominant force for the USD. DXY has delved as low as 97.76 and is now eyeing the 28th July low @ 97.49.

EUR: EUR/USD +0.3%; 1.1714

• With a soft outturn for ZEW data overlooked yesterday, it remains the case that incremental macro drivers for the Eurozone remain light. As such, the USD is very much in the driving seat for EUR/USD with the pair having now advanced onto a 1.17 handle to hit a new high for the month @ 1.1720. The next target comes via the 28th July high @ 1.1770. Looking ahead for the Eurozone, markets assign just under a 50% chance of a 25bps ECB rate cut by year-end. Bets for such action are unlikely to be cemented until late Q3/early Q4 data is available to policymakers and the extent of the impact from Trump's trade policies is better-known.

JPY: USD/JPY -0.3%; 147.42

• The broad softness in the USD has acted as a drag on the pair, albeit gains for the JPY against the USD have been more limited than some G10 peers. Some of this may be a by-product of the steepening of the US curve yesterday with back-end US yields closing higher on the session. Incremental macro drivers for Japan were limited overnight with the somewhat in-line/mixed PPI data from Japan and a weak 5yr JGB auction providing little in the way of traction for the JPY. USD/JPY has delved as low as 147.23 with the next support level coming via the 147 mark.

GBP: GBP/USD +0.4%; 1.3553

• GBP is on the front foot vs. the USD and towards the top end of the G10 leaderboard. Cable is building on yesterday's gains, which were triggered by the not-as-bad-as-feared UK labour market report and the US CPI release. However, some of that optimism may be tempered with Q2 GDP data due tomorrow. Expectations are for M/M GDP in June to pick up to 0.1% from -0.1% with the Q/Q growth rate expected to slow to 0.1% from 0.7%. From a policy perspective, a soft outturn would further limit available headroom for UK Chancellor Reeves and likely see desks revise up their forecasts for the ongoing “black hole” in the UK’s finances. The implications for monetary policy are likely less severe, with the MPC more biased to see how developments on the inflation front turn out. Cable has ventured as high as 1.3563 and is now eyeing the July 28th peak @ 1.3588.

Antipodeans: AUD/USD +0.4%; 0.6550. NZD/USD +0.5%; 0.5984

• Both are benefiting from the pick-up in risk sentiment, which has been seen since yesterday's US CPI release. AUD/USD was unfazed by a broadly in-line wage data report with the pair extending its rise on a 0.65 handle. Next upside target comes via the 28th July high @ 0.6586. NZD/USD is approaching the 0.60 mark with interim resistance provided by the 200DMA @ 0.5997.

13 Aug 2025 - 09:55- ForexData- Source: Newsquawk