EUROPEAN FX UPDATE: DXY eases after four days of gains whilst JPY sees volatility on the 26-year-old coalition collapse

USD: DXY -0.1%; 99.24

• Subdued morning for the DXY thus far, with the recent modest losses in part a function of the JPY (see below).


• Newsflow has been light this morning, with no path forward in the ongoing US government shutdown as it stands.


• On that note, the US Bureau of Labor Statistics is preparing to release a September CPI report despite the shutdown, according to the NYT. Bloomberg sources suggested staff have been recalled for the preparation of the publication of the report by the end of the month. The US CPI was scheduled to be released on October 15th.


• In terms of the day ahead, the University of Michigan's prelim sentiment data for October is expected to see headline sentiment fall to 54.2 from 55.1, conditions are seen down to 60.0 from 60.4, while expectations are seen unchanged at 51.7; for reference, last month, the one-year inflation expectations gauge was at 4.7%, while the 5-10yr measure was at 3.7%. Today's speaker slate includes: Fed's Goolsbee (2025 voter) who will give opening remarks, Fed's Musalem (2025 voter, no text, Q&A) & Fed's Daly (2027 voter).


• DXY remains above 99.00 and closer to the top end of yesterday's 98.70-99.56 range, with today's current parameter between 99.21-99.43.

EUR: EUR/USD +0.2%; 1.1584

• Taking a breather following the prior day's losses, which saw a convincing breach under the 100 DMA (1.1634) amid Thursday's dollar strength.


• In French politics, President Macron has invited all parties, except RN and LFI, to talks on Friday at 13:30BST, with the new Prime Minister set to be announced today. Analysts at ING posit "there is a general feeling that the political backing remains weak. The market-appeasing pledge by outgoing PM Lecornu about delivering on budget obligations is hardly enough to price out French risk."


• EUR/USD trades in a current 1.1553-1.1589 range, well within yesterday's 1.1543-1.1648 parameter.

JPY: USD/JPY -0.3%; 152.67

• The JPY resides as one of the better performers vs the USD, with strength in the Japanese currency seen as Japan's Komeito leader Saito met with LDP Leader Takaichi and conveyed his intention to withdraw from the 26-year-old coalition, citing the lack of sufficient answers on issues of politics and money. Japan's Komeito leader Saito says the party cannot vote for LDP leader Takaichi's premiership in parliament


• The decision saw a net strength in the JPY but with two-way action seen amid dual implications: 1) strength, on the back of hurdles for Takaichi to pass dovish policies. 2) weakness, on renewed political instability.


• That said, despite the coalitions collapse, some expect the yen to still weaken over time, albeit at a slower pace. Analysts believe Takaichi remains likely to become premier given the LDP’s dominance in both chambers. While the loss of Komeito complicates fiscal policymaking, Saito’s willingness to cooperate on select measures leaves scope for smaller stimulus efforts. Moreover, with fiscal space constrained, desks believe Takaichi may lean on the monetary side, potentially increasing pressure on the BoJ not to tighten too soon.


• Takaichi said she wants to resume talks with Komeito next week.


• USD/JPY eclipsed yesterday's peak (153.23) to reach a high of 153.27 before falling to a 152.38 low on the Komeito coalition exit. Yesterday's low resides at 152.10.

GBP: GBP/USD U/C; 1.3301

• Flat uneventful trade following earlier weakness, with some traders suggesting technical GBP/USD eventually found support at yesterday's low (1.3280), and with GBP/EUR breaching 1.1500 to the downside more convincingly.


• Newsflow remains light for the UK.


• GBP/USD has printed on either side of 1.3300 and sees the next downside level at the 5th August low at 1.3260.

Antipodeans: AUD/USD U/C; 0.6554. NZD/USD +0.2%; 0.5749

• Initially flat trade across the antipodeans amid tentative newsflow for the currencies and amid mixed sentiment in Europe. Kiwi later saw an opportunity to pare back some post-RBNZ losses amid light catalysts. Aussie traders next week look ahead to the RBA minutes, commentary from RBA governor Bullock, Assistant Governor Kent, and then the September Employment figures, whilst New Zealand sees few notable releases.


• AUD/USD and NZD/USD remain within yesterday's bands at 0.6540-0.6612 and 0.5740-0.5758, respectively.

10 Oct 2025 - 09:55- ForexEU Research- Source: Newsquawk