EUROPEAN FX UPDATE: DXY trims some post-FOMC gains this morning; NZD plumbs the depths on GDP

USD: DXY -0.1%; 96.90

• Trimmed earlier gains after ultimately strengthening in the aftermath of the FOMC with initial selling seen in reaction to the Fed's decision to cut interest rates by 25bps, which was as expected, and as the SEPs showed projections for two more cuts this year. The dollar rebounded during the post-meeting press conference, where Powell provided hawkish-leaning comments in which he noted that he feels they don't need to move quickly on rates and argued the need for further data to ensure higher inflation from tariffs is a one-time rise, while he called the cut a risk management cut amid labour market concerns and noted a meeting-by-meeting situation.


• Analysts at ING suggest "regardless of the market’s hectic reaction, we read this as a negative event for the dollar. Despite Powell’s cautionary tone, the FOMC has clearly shifted to a dovish stance where it sees multiple cuts, and the focus is now firmly on the employment side of the mandate." - with the desk pencilling in two more 25bps rate cuts this year. Meanwhile, markets haven't fully priced in a cut for October, but some 45bps of easing priced by year-end.


• During the European session this morning, the index has come off best levels despite a lack of newsflow as European players digest the FOMC and look ahead to the US initial jobless claims and continuing claims (the former coincides with the BLS survey window for the September jobs report).


• DXY resides in a 96.897-97.311 range at the time of writing, vs yesterday's parameter between 96.218-97.072, with the next level to the upside the 16th September high at 97.388.

EUR: EUR/USD +0.2%; 1.1834

• Posting mild intraday gains in tandem with the dollar trimming earlier upside.


• Newsflow for Europe has been light, although ECB's de Guindos hit the wires and suggested the ECB needs to pay a lot of attention to NEER rather than just EUR/USD, whilst the risk of undershooting for the ECB is "not big" or "especially relevant", and risks to inflation are balanced and two-sided.


• ING posits that their model "indicates that the hawkish repricing at the front end of the USD curve, relative to the EUR one, still places the short-term fair value at 1.185. "


• EUR/USD resides in a 1.1780-1.1838 range at the time of writing, after ultimately slipping on the FOMC yesterday, with the pair printing a 1.1808-1.1919 range on Wednesday.

JPY: USD/JPY +0.2%; 147.31

• USD/JPY swung between gains and losses in reaction to the Fed, with USD/JPY eventually reclaiming the 147.00 status, while the Japanese currency was not helped overnight by disappointing Machinery Orders, and the BoJ also kick-started its 2-day policy meeting, where it is widely expected to keep rates unchanged.


• Elsewhere, Japanese LDP leadership candidate Hayashi, noted that Japan's consumption tax is an important source of revenue to fund social welfare costs, and added that "Abenomics" was an appropriate policy at a time when Japan was suffering. Hayahi also suggested that Japan's conditions have allowed the BoJ to raise rates, the economy is now at a new phase, and Japan's inflation is cost-push, not demand-driven.


• USD/JPY trades in a current 146.77-147.53 range after briefly topping its 21 DMA (147.47), with the next upside level the 15th September peak at 147.82.

GBP: GBP/USD +0.1%; 1.3643

• Cable faded the knee-jerk reaction to the FOMC and reverted to sub-1.3700 territory, while attention turns to the BoE.


• The BoE is expected to keep the Base Rate at 4.0% via a 7-2 vote, following August’s close-cut easing. Inflation remains above target, with further easing not fully priced until April 2026. Attention will focus on any guidance on future cuts and on quantitative tightening, where consensus expects a slowdown to GBP 70bln per annum from October. BoE is expected to slow the pace of QT, reducing gilt sales to GBP 70bln a year (from GBP 100bln) amid concerns that current sales are exacerbating bond market volatility, with limits also possible on long-dated gilt disposals, according to a Bloomberg survey.


• Meanwhile, US President Trump is still in the UK with a potential joint presser with the UK PM due later (timing TBC).


• Cable trades in a 1.3586-1.3640 range at the time of writing, with the next upside level yesterday's peak at 1.3726.

Antipodeans: AUD/USD -0.2% 0.6641; NZD/USD -1.1%; 0.5896

• Both softer with the Kiwi the marked G10 laggard following weak GDP data for Q2 in which the economy contracted by 0.6% Y/Y (exp. 0.0%) and resulted in money markets fully pricing a cut at the RBNZ meeting in October with an off chance for an oversized 50bps reduction.


• NZD/USD slipped through its 100 DMA (0.5960) to levels under its 21 DMA (0.5904), in a current 0.5894-0.5970 range.


• AUD/USD was pressured after disappointing jobs data which showed a surprise decline in headline Employment Change-AUD/USD resides in a 0.6615-0.6659 range with the next downside level the 11th September low at 0.6591.

NOK EUR/NOK U/C; 11.5914

• Norges Bank opted to cut its Key Policy Rate by 25bps to 4.0% as expected and suggested the committee judges that a somewhat higher policy rate will likely be needed ahead compared with the outlook in June.


• A dovish reaction to the decision to cut, as while this was the base case for markets, it unwound the c. 40% implied probability of a cut that was implied heading into the meeting. Thereafter, the hawkish language in the statement and specifically Governor Bache saying they "do not envisage a large decrease in the policy rate ahead" sparked an unwinding of that dovish kneejerk.


• Notably, the MPR has now been lifted across the curve, with the Q4-2025 and Q1-2026 averages at the current 4.0% policy level, implying that the policy rate is now on hold until the Q2-2026 meeting at the earliest. Further out, the MPR implies just one 25bps cut in 2026 and another in 2027; for 2027, there is less than a 50% chance of a second move implied.

18 Sep 2025 - 10:25- ForexData- Source: Newsquawk