EUROPEAN FX UPDATE: DXY back above 100, EUR/USD slips onto a 1.12 handle, GBP eyes UK-US trade deal and BoE

USD: DXY +0.2%: 100.11

• DXY saw an uptick in early European trade, taking the index back above the 100 threshold; no obvious driver was seen behind the move at the time. Last night's FOMC policy announcement had little follow-through into the USD with the Fed keeping rates unchanged as expected, whilst noting that risks to the economic outlook increased further and risks to both sides of the mandate have risen. From a trade perspective, attention is on the details of the expected upcoming UK trade deal announcement whereby the agreement will be eyed as a proxy of what is to come. ING notes that "focus will primarily be whether the 10% baseline US tariffs in place under the current 'paused' conditions can be negotiated away" (consensus is for it to remain in place). Elsewhere, ahead of US-China talks in Geneva over the weekend, President Trump said he is not open to pulling back 145% tariffs. DXY has hit a new high for the week @ 100.20 with the next target coming via the 2nd May peak @ 100.32.

EUR: EUR/USD -0.1%; 1.12911

• EUR fractionally softer vs. the USD with Eurozone newsflow on the light side. On the trade front, the EU is set to announce today a provisional list of tariffs against the US which will be enforced if talks with the US fail. Reporting suggests that the EU is set to target US-made cars. The details of today's UK-US announcement could provide some insight into what the EU may need to forgo to get a deal done with the US. EUR/USD has reverted back to a 1.12 handle and hit a fresh low for the week @ 1.1271.

JPY: USD/JPY +0.6%; 144.71

• JPY softer on account of the positive risk sentiment which has stemmed from hopes on the trade front. Japanese-specific newsflow remains light with the BoJ Minutes from the March meeting a non-event given that there was a more recent meeting last week where the BoJ pushed back its timing to achieve the price goal. USD/JPY has ventured as high as 144.51 with the WTD peak just shy of the 145 mark @ 144.99.

GBP: GBP/USD -0.2%; 1.3275

• GBP a touch softer vs. the USD but to a lesser degree than peers amid increased optimism on the trade front with the US and UK expected to announce a trade deal later today. That being said, it is worth noting that the announcement is set to be a "heads of terms" agreement, rather than a full deal, but substantive, according to Sky News. Attention now turns to Thursday's BoE meeting, which is expected to see policymakers deliver a 25bps rate cut; focus will be on any potential tweaks to guidance. Morgan Stanley expects the "gradual and careful" language to be removed to provide the MPC “space to accelerate cuts if needed”. Cable has returned to a 1.32 handle with a session low @ 1.3268 vs. the WTD trough @ 1.3259.

Antipodeans: AUD/USD -0.1%; 0.6416. NZD/USD -0.3%; 0.5921

• Both slightly softer vs. the USD with domestic newsflow from Australia and New Zealand on the light side. After hitting a YTD peak yesterday @ 0.6514, AUD/USD has delved further below its 200DMA @ 0.6458 and slipped below yesterday's low @ 0.6421. The next downside target comes via the 0.64 mark. The next inflection point for the pair will likely come via the outcome of US-China trade talks in Geneva over the weekend. NZD/USD has pulled back further from the 0.60 mark and delved beneath yesterday's low @ 0.5934 with the next target coming via the 200DMA @ 0.5885.

SEK: EUR/SEK +0.1%; 10.9281

• SEK a touch softer in the aftermath of the Riksbank policy announcement which saw the central bank stand pat on rates as expected. The accompanying statement noted that "it is somewhat more probable that inflation will be lower than that it will be higher than in the March forecast", adding that this "could suggest a slight easing of monetary policy going forward". That being said, the Bank was at pains to stress the high level of uncertainty surrounding the Swedish economy amid the ongoing trade war, adding it is wise to await further information to obtain a clearer picture of the outlook. A 25bps rate cut is not fully priced until September. EUR/SEK has been as high as 10.9424 but is yet to approach its 50DMA to the upside @ 10.9491.

NOK: EUR/NOK +0.2%; 11.7100

• Little follow-through seen in the NOK after the Norges bank stood pat on rates at 4.5% as expected. The accompanying statement noted that restrictive monetary policy is still needed, adding that, if the policy rate is lowered prematurely, prices may continue to rise rapidly. However, the outlook implies that the policy rate will most likely be reduced in the course of 2025. On the trade front, the Committee gave special attention to the fact that this may pull the interest rate outlook in different directions. A 25bps rate cut is not fully priced until September. EUR/NOK is currently tucked within its 50 and 200DMAs at 11.6863-7305 respectively.

08 May 2025 - 09:50- ForexEU Research- Source: Newsquawk