EUROPEAN FX UPDATE: DXY flat/subdued in quiet trade whilst JPY narrowly outpaces peers

USD: DXY U/C; 98.50

• Flat/subdued trade during Monday's early European hours after rangebound price action overnight amid the mostly risk-on mood to start the week and following the recent softer tone from US President Trump on China after he noted on Friday that 100% tariffs are unsustainable and that he will be meeting with Chinese President Xi in two weeks.


• Apart from the trade-related headlines, there are few fresh catalysts thus from the US, with the Fed on a blackout period and with no end yet in sight regarding the government shutdown.


• Analysts at ING suggest "Indications that lending issues don’t extend beyond Zions Bancorp and Western Alliance could offer some further relief to the dollar, but it might not be enough to fully price out concerns about the underlying health of the credit market and have the greenback reclaim all losses. On the contrary, evidence of contagion to other lenders or signals of larger credit quality issues can easily send DXY falling 1%+ in the next few days." - whilst Zions Bancorp is expected to report Q3 earnings today after the US market close.


• On the technical front, DXY found support at its 50 DMA on Friday (50 DMA at 98.04 today), with today's current range between 98.39-98.67, and last Thursday's high the next immediate upside level at 98.70.

EUR: EUR/USD +0.1%; 1.1663

• Mild upward bias after rebounding off Friday's trough but remaining beneath the 1.1700 handle, with gains capped as recent comments from ECB officials provided little to spur prices, and after S&P surprisingly lowered France's sovereign credit rating to 'A+' from 'AA-'.


• In data releases, German Producer Prices eased by -0.1% M/M in September (exp. 0.0%), while the annual rate improved to -1.7% Y/Y (exp. -1.5%, prev. -2.2%). Little EUR price action seen on the release.


• In geopolitics, Ukrainian President Zelensky said he will meet European leaders this week after coming back empty-handed from Washington with regards to the Tomahawk missiles, albeit avoiding an immediate geopolitical escalation.


• EUR/USD trades in a 1.1652-1.1680 range, within Friday's 1.1650-1.1728 band, with the 100 DMA at 1.1651 today.

JPY: USD/JPY +0.1%; 150.73

• USD/JPY holds a mild upward bias after briefly topping 151.00 overnight to a 151.20 peak before waning, with initial upside facilitated by the positive APAC risk tone, whilst Japan's LDP leader is on course to win the PM vote in parliament tomorrow.


• The pair was later weighed down by hawkish comments from BoJ's Takata, who said monetary policy remains accommodative even as the achievement of the inflation target is in sight and the initial fear over the impact of tariffs has diminished.


• Fleeting price action was seen on reports that BoJ is reportedly likely to maintain the view that the economy is on course for moderate recovery, despite headwinds from US tariffs, and may slightly revise up economic growth forecast for FY25 at the October meeting, according to Reuters sources. This is unsurprising given the fiscally expansive Takaichi is expected to take office.


• Current pricing for a BoJ 25bps hike stands at 22.6% at the October announcement in 10 days, with only a 50/50 chance of a hike by year end.


• USD/JPY resides in a 150.34-151.20 range, within Thursday's 150.20-151.40 range, but after falling to 149.37 on Friday.

GBP: GBP/USD U/C; 1.3419

• Uneventful trade thus far with newsflow also on the quieter side for the UK, and with little overall move seen to BoE Governor Bailey suggesting Brexit is to have a negative impact on UK economic growth for the foreseeable future. Meanwhile, BoE's Greene said on Friday that core and services inflation are going sideways and noted indications that the disinflation process is slowing, while she is concerned about second-round effects and stated that firms are more sensitive to upside inflation surprises.


• Rightmove House prices showed a slight easing in the M/M increase whilst Y/Y remained at the same pace of contraction. Rightmove suggested "speculation that the Budget may increase the cost of buying or owning a property at the higher end of the market has given some movers, particularly in the south of England, a reason to wait and see what’s announced in the Budget.”


• GBP/USD resides in a narrow 1.3406-1.3443 range, within Friday's 1.3391-1.3472 range, with the 50 DMA at 1.3475 today.

Antipodeans: AUD/USD +0.1%; 0.6497. NZD/USD +0.2%; 0.5737

• Mild upward bias amid the positive seen in APAC markets, although the same sentiment is somewhat limited in European trade, with AWS outages reported in the US East region, affecting global firms.


• Nonetheless, US President Trump Friday said talks with China are progressing. Overnight, PBoC maintained LPRs as expected, whilst Chinese GDP, Industrial Production and Retail Sales either matched or topped forecasts, in turn keeping a mild upward bias in copper.


• AUD/USD and NZD both resides within their respective Thursday ranges at 0.6471-0.6516 and 0.5712-0.5756 respectively.

20 Oct 2025 - 10:05- ForexEU Research- Source: Newsquawk