EUROPEAN FX UPDATE: DXY recovers amid trade hopes, JPY weakens amid outflows from havens and despite hotter Tokyo CPI

USD: DXY +0.2%; 99.61

• Nurses some of its recent losses after retreating amid the broad risk-on sentiment on Wall St and with the DXY not helped by mixed data releases, as well as dovish comments from Fed officials including Hammack who noted the Fed could move in June if data is clear about the economy's state which spurred money markets to price a 75% chance of a 25bps cut in June vs. 60% prior to the comments.


• Price action during the European morning has been rather contained, with the index in a 99.43-99.89 range at the time of writing, after briefly topping yesterday's 99.84 peak but still within Wednesday's 98.86-99.93 confines.


• Next week sees the release of US jobs and before the US GDP and PCE - desks suggest any deterioration could trigger another round of dollar losses.


• Analysts at ING suggest "the dollar is continuing its positive correlation with US equity markets and is edging higher. Investors seem to be taking positively the newsflow that US-China tariffs could be negotiated substantially lower... For today, US equities are being called a little higher after some good results from Alphabet. DXY could head back to the 100.25/50 area but stall there. Keep a close eye on the S&P 500, where any close above the 5570/5600 area could suggest we're seeing something more than a bear market correction."

EUR: EUR/USD -0.3%; 1.1350

• Gave back some of the prior day's gains after hitting resistance just shy of the 1.1400 handle as the greenback regained composure.


• ECB rhetoric this week leaned towards an initial disinflationary narrative around tariffs, with Lagarde calling them a negative demand shock and noting the net inflation impact remains unclear. Knot flagged that a 25% US tariff could shave 0.3ppts off EZ growth, with further downside risk if retaliation follows, while also warning of near-term downside risks to inflation and potential medium-term supply chain pressures. Rehn echoed the inflation-dampening view and didn’t rule out larger cuts if risks materialise, and Nagel noted the inflation impact is likely to be more acute in the US, while the Eurozone—particularly Germany—faces a more significant growth drag. Overall, commentary supports a cautious but flexible stance, with a clear bias toward viewing tariffs as a growth-negative, disinflationary shock.


• EUR/USD resides in a 1.1315-1.1394 intraday range at the time of writing, vs yesterday's 1.1315-98 parameter and Wednesday's 1.1308-1.1440 range.

JPY: USD/JPY +0.5%; 143.27

• Breached the 143.00 level to the upside which was facilitated by a rebound in the dollar and the positive risk appetite, while there were also some suggestions of Gotobi demand, whilst a flight out of safe-havens were seen on reports that China is said to consider exempting some US goods from tariffs as costs increase.


• The pair reached a peak of 143.85 before pulling back commentary from China's Foreign Ministry which suggested it is not having any consultations or negotiations with the US on tariffs; and on tariff exemptions, it said it is not familiar with specifics.


• Furthermore, Tokyo CPI data saw an acceleration. The data serves as a leading indicator for national price trends and supports the case for the BoJ to continue with its policy normalisation once trade and tariff uncertainty dissipates.


• USD/JPY resides in a current 143.85-142.59 intraday range, printing a fresh high for the week overnight (vs weekly low of 139.89).

GBP: GBP/USD -0.3%; 1.3298

• Faded some of yesterday's advances and eventually gave up the 1.3300 status as the Dollar picked up.


• Little reaction was also seen this morning to the substantial beat in UK Retail Sales; UK Retail Sales MM (Mar) 0.4% vs. Exp. -0.4% (Prev. 1.0%, Rev. 0.7%); ONS said Retail Sales would contribute 0.08ppts to GDP in Q1 2025 - ONS added that clothing and outdoor retailers reported good weather boosted sales; supermarkets reported a fall.


• On the trade front, UK Chancellor Reeves said she understands US concerns on trade imbalances, especially in China and they don't always agree with the US on policy prescriptions but is confident a trade deal can be done.


• There were also comments from BlackRock's CEO Fink that he's buying up ‘undervalued’ UK assets and is more confident about the investment prospects for the UK than a year ago.


• GBP/USD resides in a 1.3274-1.3345 range vs yesterday's 1.3253-1.3349 parameter.

Antipodeans: AUD/USD -0.3%; 0.6390. NZD/USD -0.5%; 0.5963

• Both subdued amid the upticks in the Dollar and overall cautious risk tone amid the uncertain trade environment, whilst markets were closed on both sides of the Tasman for ANZAC Day.


• China's Politburo held a meeting and said China's fiscal policy would be more proactive, economic recovery needs to be further reinforced, while China is to cut RRR and rates when needed and in a timely manner, and vowed to fully prepare emergency plans for external shocks - little impact was seen on the Antipodeans.

25 Apr 2025 - 09:45- ForexData- Source: Newsquawk