EUROPEAN FX UPDATE: DXY back in the doldrums while havens outperform

USD: DXY -0.2%; 96.55

• DXY has kicked off the new month, quarter and half-year somewhat stable under the 97.00 mark following the recent selling pressure that contributed to the greenback's worst first-half performance in over 50 years.


• The attention stateside remained on the ongoing vote-a-rama related to Trump's "big, beautiful bill" at the Senate with final passage expected later today, while Trump reiterated criticism against Fed Chair Powell and renewed his call for the Fed to lower rates in which he suggested they should be paying 1% interest or lower.


• Meanwhile, analysts at ING categorise the recent USD grind lower as an "orderly bear trend" and add that "After a structurally driven decline of the dollar in April, its losses over the last month or so have become cyclical, as earlier Fed easing becomes priced."


• The US Day sees the release of the ISM manufacturing PMI for June, where the headline is seen inching up to 48.8 from 4.5 while prices are expected to decline slightly (see below). On the labour market front, the JOLTs data for May are expected to show job openings paring to 7.3mln from 7.391mln; a a reminder, the vacancy rate previously rose to 4.4% from 4.3%, and the quits rate fell to 2.0% from 2.1%. Elsewhere, construction spending and the RCM/TIPP economic optimism data due.


• DXY has ventured as low as 96.45 this European morning (vs intraday high of 96.85), with the next level to the downside the 24th Feb 2022 low (96.22), the psychological 96.00 level, and then the 23rd Feb trough (95.85).


• Note, Fed Chair Powell will appear on a panel at the ECB's monetary policy conference, along with ECB President Lagarde, BoE Governor Bailey, BoJ Governor Ueda, and BoK Governor Rhee. Since the Fed kept rates at 4.25-4.50% in June, Powell testified before Congress, largely reiterating his wait-and-see approach.

EUR: EUR/USD +0.1%: 1.1803

• EUR/USD saw a brief foray into 1.1800 territory in APAC trade before pulling back under the level and re-mounting the round figure shortly before EZ Flash CPI data during European trade. EZ inflation printed in line with expectations across the board and did not lead to a notable reaction, although services did accelerate to 3.3% from 3.2%.


• ECB speakers are abundant with the Sintra Forum underway. In terms of notable commentary, ECB's Lane and de Guindos both commented on the Euro level, with the latter suggesting EUR/USD at 1.17 is perfectly acceptable, even 1.20 could be overlooked, any more would be "complicated", and the speed of the FX move is more concerning than the actual level. Meanwhile, ECB's Lane suggested that EUR appreciating has a tightening effect, and there has been some rebalancing by global investors to the EUR. Thereafter, ECB's Kazaks noted that large EUR gains could boost the case for another ECB rate cut.


• Also released this morning, the ECB Consumer Expectation Survey: 1-year CPI 2.8% (prev. 3.1%), 3-year 2.8% (prev. 3.1%), 5-year 2.1% (prev. 2.1%) - no move seen in the EUR.


• On the trade front, the EU will reportedly accept US President Trump’s universal tariff, but seeking exemptions and commitments to lower tariffs on pharmaceuticals, alcohol, semiconductors and commercial aircraft; the EU is also pushing for quotas and exemptions to reduce 25% tariffs on cars and parts and 50% tariffs on steel and aluminium.


• EUR/USD currently resides in a 1.1768-1.1807 range, with the next level to the upside the 16th September 2021 high at 1.1821.

JPY, CHF: USD/JPY -0.4%; 143.02; USD/CHF -0.4% 0.7896

• Gains in the safe havens amid the cautious risk tone, with USD/CHF dipping under 0.7900 for the first time since 2015.


• JPY is also at the top of the G10 leaderboard, in part fuelled by the more cautious risk tone in Europe since the equity open, and in the aftermath of the mostly stronger-than-expected BoJ Tankan survey overnight.


• BoJ's Masu says he does not have any strong disagreement with the view that underlying inflation is still short of 2%. Want to scrutinise how prices move after recent commodity spikes moderate (with specific reference to rice).


• USD/JPY tested 143.00 to the downside from a 144.06 intraday peak, with the next downside level the 13th June trough (142.79).

GBP: GBP/USD +0.2%; 1.3761

• GBP is on a firmer footing after yesterday's choppy performance, although the pair seems to be propped up by GBP strength as characterised by the subdued performance of EUR/GBP, with the divergence possibly a function of developments on the trade front with the US.


• BoE Governor Bailey appeared on CNBC this morning and downplayed concerns about the UK’s fiscal position, stating, “I don’t think investors are concerned about the viability of UK debt stock,” which helps reduce the risk premium on UK assets. He also reaffirmed the Bank’s commitment to price stability with “There will be no sustained growth without stable and low inflation,” signalling that the BoE remains focused on anchoring inflation expectations. On the interest rate outlook, Bailey adopted a measured stance, saying, “The path of interest rates will continue to be gradually downwards,” suggesting no rush to cut rates aggressively, supportive for sterling relative to peers. Addressing recent bond market moves, he argued that, “I don’t think there is anything unusual about the UK when it comes to the yield curve,” and, “I don’t think that QT is causing a steepening of the yield curve,” instead attributing it to global uncertainty: “Yield curve steepening is partly a response to a high level of uncertainty in the global economy.


• GBP/USD resides in a 1.3722-1.3768 range as the pair eyes its 26th June peak at 1.3771 before setting sights on the 29th October 2021 peak at 1.3804.


• EUR/GBP meanwhile sits in a 0.8557-0.8591 range vs yesterday's 0.8539-0.8589 parameter.

Antipodeans: AUD/USD 0.1%; 0.6585. NZD/USD +0.3%; 0.6110

• Both holding an upward bias with slight outperformance in the Kiwi vs the Aussie, with the AUZ/NZD cross back under the 1.0800 mark. The pairs are buoyed by the overnight release of the Chinese Caixin Manufacturing PMI, which topped forecasts with a surprise return to expansionary territory.

01 Jul 2025 - 10:20- ForexData- Source: Newsquawk