EUROPEAN FX UPDATE: DXY remains on the backfoot, EUR underpinned by stimulus hopes as attention turns to ECB

USD: DXY -0.1%; 104.16

• DXY remains pressured and has extended its losing streak to a fourth session in a row. Recent price action has largely been a EUR story which has had a mechanical impact on the USD, with the JPY today also acting as a drag. From a US lens, this week has been characterised by soft US data and tariff angst given actions taken earlier in the week. On the latter, Trump has offered some tentative olive branches in the past 24 hours by providing a one-month exemption on any autos coming through the USMCA and reportedly considering agricultural carve-outs for Mexico and Canada. That being said, in order for sentiment to show a more meaningful recovery, Trump will need to signal a more marked walk back in tariff actions - this seems unlikely at this juncture. For today's US data docket, weekly claims, trade and wholesale inventories are due; tomorrow's NFP looms large. The speaker slate includes Fed's Waller, Bostic and Harker. If downside in DXY extends, focus is on a test on 104; not breached since 6th Nov (103.70 was the low that day).

EUR: EUR/USD +0.1%; 1.0792

• EUR/USD has pulled back a touch in recent trade but ultimately remains buoyed by the latest stimulus efforts from Germany. The German 10yr yield is up around 50bps since the start of the week with ING writing that "risks are probably skewed to the 3% handle in 10-year bunds". Subsequently, EUR/USD hit another YTD peak overnight @ 1.0821. Naturally, desks are now debating whether the pair can breach the 1.10; not traded since October last year. Today, the ECB is expected to deliver another 25bps rate cut. Greater attention lies on whether policymakers will still view policy as restrictive in lieu of recent economic developments. In terms of pricing beyond today's meeting, an April cut is priced at around 44% with a total of 68bps of cuts seen by year-end (including today's). If upside in EUR/USD resumes, the next target comes via the 7th Nov high @ 1.0824. Beyond that, it is clear air until the 1.09 mark.

JPY: USD/JPY -0.7%; 147.74

• JPY is the best performer across the majors and even outpacing the rampant EUR. USD/JPY was already softer in early European trade before extending the move to the downside after news that Rengo, Japan's largest labour union, is seeking a wage hike of 6.09% for 2025 (sought 5.85% in 2024). Markets continue to price in a more aggressive hiking path by the BoJ with 35bps of hikes seen by year-end and the first fully priced in September (vs. October seen at the start of the week). USD/JPY has printed a fresh YTD low @ 147.78 with the next target coming via the 8th Oct low @ 147.34.

GBP: GBP/USD -0.2%; 1.2872

• Cable has made its way onto a 1.29 handle for the first time since November 2024 before fading gains. It remains the case that fresh macro drivers for the UK have been on the light side and as such the pair is taking its cues from the broad softness in the USD. The latest DMP release showed the 1-year ahead inflation expectation rise to 3.1% from 3.0% with the 3-year metric holding steady at 2.8%. However, this failed to have any material sway on Cable. If upside resumes, the next target for the pair comes via the 11th Nov peak @ 1.2925.

Antipodeans: AUD/USD +0.1%; 0.6336. NZD/USD +0.2%; 0.5735

• The recent rally in the Antipodeans vs. the USD has extended once again. Overnight, AUD/USD was unreactive to the mostly better-than-expected Australian data and instead tracked the cautious mood in APAC trade. The pair printed a fresh high for the month @ 0.6356 before fading gains. That being said, downside is limited when considering the starting point for the week @ 0.6211. NZD/USD printed a fresh MTD peak during APAC hours @ 0.5746 before slipping a touch.

06 Mar 2025 - 10:20- ForexEU Research- Source: Newsquawk