EUROPEAN FX UPDATE: DXY in the doldrums as Trump waters down tariff rhetoric

DXY: DXY -0.7%, 107.42

• Hefty losses in the DXY in a continuation of the price action seen yesterday and overnight after US President Trump suggested a preference of not using tariffs on China, while the greenback was also not helped by Trump's recent calls for lower interest rates during his address to the WEF.


• US President Trump said he expects the Fed to listen to him on interest rates and would consider talking to Fed's Powell - Fed pricing through year-end tilted slightly more dovish vs yesterday but not materially.


• Further downside in the dollar prompted by upside in EUR following better-than-expected Flash PMIs from the bloc.


• DXY fell from a 108.19 high to a low of 107.27 at the time of writing, dipping under its 50 DMA (107.63) with the next level to the downside the low from 18th December 2024 (106.82).

EUR: EUR/USD +0.8%, 1.0496

• Firmer on the back of the aforementioned dollar softness, sanguine Trump tariff rhetoric on China, and with mostly constructive EZ PMI data.


• To recap, French services missed forecasts and dipped from the prior, in turn dragging down the pan-EZ services metrics. Aside from that, other French metrics beat while all German figures topped forecasts. The German commentary highlighted a shift to optimism and "The PMI offers some hope that Germany might dig itself out of the recessionary phase of the past two years."


• Meanwhile, the EZ-wide release warned, ahead of the ECB next week, that "Cost inflation has increased in the services sector, which ECB president Christine Lagarde has said to monitor closely... input prices in manufacturing have increased, ending four months of stable or decreasing costs. This higher price pressure might be due to the weaker euro and the increased CO2 tax in Germany."


• EUR/USD rose from a 1.0410 intraday low to test and eventually breach 1.0500 to the upside, rising above the 50 DMA (1.0431) in the process and eclipsing the peak from December 18th 2023 (1.0512), with the December 17th high (1.0534).

JPY: USD/JPY -0.5%, 155.24

• A choppy session for the JPY with the BoJ in focus overnight and in the European morning,


• To recap, BoJ hiked rates by 25bps to 0.50%, as expected via an 8-1 vote with Nakamura the dissenter - opting for a hold. BoJ also reiterated that it will continue to raise rates if the economy and prices move in line with forecasts. Furthermore, the Outlook Report projections were somewhat varied as Core CPI forecasts were lifted across the entire horizon period, while the Real GDP projection was cut for Fiscal 2024 but maintained for the subsequent years after.


• More action was seen during the presser in which BoJ Governor Ueda began with a hawkish tilt given his comments around spring wage talks (Board has judged that spring wage talks will result in strong hikes again this year. Growing number of firms expressed intentions to continue increasing wages steadily) and his judgement that markets have been stable post-Trump. However, this was superseded by comments on the policy path (no pre-set idea on future adjustments & no preconceived ideas around the scope/timing of the next rate rise) - a remark which sparked a dovish move across JPY assets - potentially as participants were looking for an explicit nod to March, or another meeting, given the hawkish elements of his initial commentary and upward revisions to the CPI forecasts.


• Pre-BoJ Japanese CPI metrics had little sustained reaction on the JPY as a 25bps hike by the central bank was largely priced in.


• USD/JPY sits around the middle of a 154.83-156.37 range, back around 155.50, after briefly dipping under its 50 DMA (154.94), with the next downside level the 21st January low (154.76) and then the 19th December 2023 low (154.42).

GBP: GBP/USD +0.7%, 1.2433

• Supported by the aforementioned weak dollar and boosted by above-forecast UK flash PMIs.


• Commentary from Flash PMIs suggested were a bit less upbeat, in which it suggested "The survey’s price indices are meanwhile indicating that inflation is turning higher again, presenting the Bank of England with a policy dilemma. While the stalled economy and deteriorating jobs market suggest there’s an increased need for rate cuts to stimulate growth, the rise in price pressures hints that the inflation genie is by no means back in its bottle.”


• GBP/USD resides closer to the top of a 1.2345-1.2447 range as it eyes the 8th January high (1.2494) ahead of the 50 DMA (1.2526).

Antipodeans: AUD/USD +0.6%, NZD/USD +0.7%

• Firmer cross antipodeans amid the softer dollar and after US President Trump suggested a preference of not using tariffs on China.


• AUD/USD eclipsed its 50 DMA (0.6324) with a current range between 0.6279-0.6330.


• NZD/USD tested levels close to its 50 DMA (0.5723) in a current 0.5672-0.5721 parameter.

24 Jan 2025 - 10:00- ForexData- Source: Newsquawk