EUROPEAN FX UPDATE: DXY underpinned by deteriorating risk and easing credit concerns; CAD awaits CPI

USD: DXY +0.3%; 98.88

• A firm day for the broader Dollar and index, with some suggesting the ease of credit market concerns, and reinforcement by solid Zions Bancorp earnings excluding the fraud losses.


• Newsflow has been relatively quiet today, whilst on the trade front there is little to update on since Monday, although US President Trump kept a conciliatory tone whilst maintaining the November 1st threat of 100% additional tariffs on China.


• The US slate is sparse given the ongoing US government shutdown withholding data, although eyes are set on this Friday's US CPI, which was confirmed to be released by the BLS - the on-off release to determine the annual Social Security cost-of-living increase.


• The speakers' slate, although it includes a few Fed officials, will not provide fireworks given the Fed's Blackout period ahead of the 30th October meeting, where pricing stands at a 99% chance of a 25bps cut, with 49bps worth of easing priced by year-end.


• DXY resides in a 98.50-98.89 range with clean air seen until the 99 psychological level, and thereafter the 15th Oct peak at 99.07. To the downside, yesterday's low resides at 98.39.

EUR: EUR/USD -0.1%; 1.1624

• Subdued trade in quiet newsflow with little action seen from ECB commentary as the clock ticks down to next week's ECB confab, with pricing firmly at a hold (98.4% chance). That being said, analysts at ING posit "not all the Governing Council may be entirely comfortable with an even stronger euro, even if direct comments on FX have been rather rare of late."


• In geopolitics, nothing material to mention on the Ukraine-Russia front, with European leaders set to meet with Ukrainian President Zelensky at some point this week.


• EUR/USD falls further under its 100 DMA (1.1653) and trades in a current 1.1614-1.1655 parameter, with the 15th Oct low at 1.1602.

JPY: USD/JPY +0.4%; 151.50

• USD/JPY holds a firmer bias and moved back to the 151.00 territory amid the fresh record highs in Tokyo stocks, with focus on the parliamentary vote in which LDP leader Takaichi won to become Japan's first female Prime Minister.


• Japan's incoming Finance Minister Katayama echoed the outgoing Finance Minister Kato, and said it is desirable for FX to move in a stable manner reflecting fundamentals; no comments at this moment when asked about BoJ hikes.


• Ahead of next week's BoJ announcement, Bloomberg sources suggested the central bank is said to be closer to a rate hike, but with little need to rush and is said to see no urgency to hike rates next week - not much movement seen in FX. As it stands, there is a 20% chance of a 25bps hike at the 30th Oct announcement, a 44.8% chance of a 25bps hike by the 19th Dec announcement, whilst the first 25bps hike is priced in by the 28th April 2026 announcement.


• USD/JPY resides in and at the upper end of a 150.47-151.67 range with the next upside level at the 151.87 mark.

GBP: GBP/USD +0.2%; 1.3376

• Marginally softened and breached the 1.3400 level to the downside in the absence of any UK-specific catalysts. Though, action has seemingly been influenced by broader action in the USD in recent trade.


• UK PSNB Ex Banks GBP (Sep) 20.246B GB vs. Exp. 20.8B GB (Prev. 17.962B GB, Rev. 15.318B GB). For reference, the OBR forecast from March for the September period was GBP 20.1bln. While elevated yields continued to push the borrowing figure higher, that narrative has improved from a Treasury perspective since October 10th, with the UK 10-year yield in recent sessions at its lowest since July. This has occurred too late to impact the September series; it will be reflected in the data set for release just before Chancellor Reeves’ Autumn Budget is published on November 26th. However, by that point, the OBR will have finalised its forecasts.


• GBP/USD resides in a 1.3372-1.3416 range, with clean air seen until the Oct 15th low at 1.3315.

CAD: USD/CAD +0.2%; 1.4062

• CAD is softer amid USD strength at the time of writing, although Loonie traders look ahead to CPI from the country.


• The headline is seen unchanged M/M (prev. -0.1%), while the annual rate is seen rising to 2.3% Y/Y from 1.9%. This is the last inflation report before the October BoC meeting, where markets price in 16bps of easing, implying a 64% probability of a 25bps rate cut - 25bps is not fully priced until December. The data will help shape rate cut expectations, with rate cut bets paring after the recent strong labour market report.


• On the trade front, US and Canada trade deal may be ready for approval at the APEC summit, via Globe and Mail, although the US is not prepared to make a deal on auto or softwood lumber. A deal on steel, aluminium and energy could be ready to sign later this month.


• USD/CAD resides towards the upper end of a 1.4030-1.4066 range, with Friday's peak just above at 1.4067.

Antipodeans: AUD/USD -0.5%; 0.6478. NZD/USD +0.6%; 0.5712

• The G10 laggards amid the cautious risk tone after failing to benefit from the positive risk appetite overnight.


• NZD/USD is the laggard after slightly softer exports and credit card spending data overnight.


• AUD/USD and NZD/USD both remain within their October ranges, with the former currently between 0.6476-0.6525 and the latter between 0.5710-0.5752.

21 Oct 2025 - 10:00- ForexEU Research- Source: Newsquawk