EUROPEAN FX UPDATE: DXY a touch lower, EUR/USD stuck on a 1.04 handle, antipodeans lag

USD: DXY -0.1%; 106.63

• After a pick-up late in the US session yesterday, DXY is a touch lower in early European trade. Trump was able to provide the dollar with some support yesterday after stating that he will be proceeding with tariffs on Mexico and Canada (currently due to come into effect on March 3rd). It remains to be seen whether this is a negotiating tactic or he follows through with his threats. Elsewhere, the Trump admin is also reportedly looking to tighten chip controls on China. Today's data slate sees the release of US Conference Board consumer confidence which is expected to slip to 102.5 from 104.1. Note, the recent run of soft US data has seen markets revert back to fully pricing 2 x 25bps rate cuts by year-end. Today's speaker slate includes Fed's Barr and Barkin. DXY is currently within a 106.56-79 range and above yesterday's YTD low @ 106.12.

EUR: EUR/USD +0.1%; 1.0473

• Trivially firmer vs. the USD with focus in Europe primarily on the political landscape in the wake of the fallout of the German Federal Election and the subsequent coalition-building process. On a domestic footing in Germany, attention is on the feasibility of changing the existing debt brake rules, whilst from a foreign policy footing, Bloomberg reports that Germany is discussing EUR 200bln in emergency defence spending. From a monetary policy perspective, the latest ECB Euro Area Indicator of Negotiated Wage Rates showed Q4 wage growth slow to 4.12% from 5.43% but had little sway on EUR. Note ECB’s Schnabel is due to speak @ 13:00GMT. In remarks last week, she stated "we are getting closer to the point where we may have to pause or halt our rate cuts". EUR/USD is currently tucked within yesterday's 1.0453-0528 range.


• EUR/USD opex: 1.0390-1.0400 (2.5bln), 1.0450 (931mln), 1.0525 (1bln), 1.0550 (1.4bln).

JPY: USD/JPY U/C; 149.66

• USD/JPY initially edged higher overnight and briefly reclaimed the 150.00 status but then faded the gains amid the broad downbeat risk tone across the APAC region and Japanese Services PPI data which slightly accelerated as expected. USD/JPY has delved as low as 149.20 with the next downside target coming via yesterday's YTD low @ 148.84.

GBP: GBP/USD U/C; 1.2620

• Flat vs. the USD and EUR with macro newsflow light for the UK. We heard yesterday from BoE's Dhingra who remarked that if rates are lowered by 25bps at a quarterly pace, you will still be in restrictive territory all of this year. That being said, she is very much viewed as a dovish outlier on the MPC. Of greater interest today are potential comments from BoE Chief Economist Pill who recently distanced himself from backing a 50bps reduction (as voted for by Mann and Dhingra) and urged caution on cutting rates. As it stands, markets fully price the next 25bps reduction in June with a total of 56bps of easing seen by year-end.

Antipodeans: AUD/USD -0.3%; 0.6328. NZD/USD -0.4%; 0.5709

• Both a touch softer vs. the USD. AUD/USD is down for a third consecutive session after printing a YTD peak @ 0.6408 last Friday. Fresh macro drivers are lacking for Australia with attention instead turning to January inflation data due overnight with consensus looking for weighted CPI Y/Y to hold steady at 2.5%. Such an outcome would endorse the RBA's cautious approach to rate cuts after delivering a 25bps reduction last week. Next target to the downside for AUD/USD comes via last week's low @ 0.6327. NZD/USD is also lower for a third session in a row with not much in the way of support until the 0.57 mark.

25 Feb 2025 - 10:15- ForexData- Source: Newsquawk