EUROPEAN FX UPDATE: FX markets broadly contained as EUR awaits the upcoming ECB rate announcement

USD: DXY +0.1%; 98.89

• DXY a touch higher with the USD showing a mixed performance vs. peers (weaker vs. antipodeans, firmer vs. havens). This follows a session of losses yesterday which were triggered by soft outturns for US ADP and ISM services PMIs. Newsflow since has been on the quiet side, aside from President Trump calling for a scrapping of the debt limit; something that appears to be very unlikely to be implemented. As such, focus will remain on the labour market for now (pending any major trade updates) with weekly claims and Challenger Layoffs due on today's docket. Albeit, greater attention will be on tomorrow's NFP print. Note, there is still no time set for the expected read-out from tomorrow's reported Trump-Xi call, which has the potential to overshadow the labour market report. Elsewhere, today's Fed docket includes Kugler, Harker, Schmid. DXY has ventured as high as 98.94 with focus on a test of 99. Yesterday's high is still some way off @ 99.39.

EUR: EUR/USD U/C; 1.1415

• EUR flat vs. the USD as markets await the latest ECB policy announcement which is widely expected to see the GC deliver a 25bps cut in the Deposit Rate to 2.0%. With the decision itself nailed on, focus will be on any hints over future easing plans. Lagarde is unlikely to offer any explicit guidance on this front given the uncertainties presented by the trade war. However, any dissent to today's decision from some of the hawks on the GC could be seen as a sign that future easing will face greater resistance. That being said, any such hawkish impulses may be offset by cuts in the accompanying macro projections. As it stands, around 56bps of loosening is seen by year-end (including today's expected 25bps cut). EUR/USD briefly matched yesterday's best @ 1.1435 before ebbing lower as a beat on German Industrial Output failed to support the currency.

JPY: USD/JPY +0.4%; 143.30

• JPY softer vs. the USD and at the bottom of the G10 leaderboard alongside the other notable haven, CHF. Losses were spurred alongside a pick-up in risk sentiment in early European trade as the pair attempted to atone for yesterday's USD-led losses. Japanese-specific newsflow is on the light side other than a softer-than-expected outturn for Japanese Overall Labour Cash Earnings for April (2.3% vs. exp. 2.6%, prev. 2.1%). 143.39 is the high water mark thus far which is a point below yesterday's best.

GBP: GBP/USD +0.1%; 1.3571

• GBP is a touch firmer vs. the USD with UK-specific newsflow remaining on the light side as has been the case throughout the week. From a fiscal standpoint, Times Political Editor Swinford posts UK Chancellor Reeves will next week set out plans to restore winter fuel payments and then claw them back from millions of better-off pensioners through higher tax bills. However, this had little follow-through into the GBP. Elsewhere, the latest BoE DMP release saw the year-ahead inflation forecast unchanged at 3.2% in the three months to May. Cable is yet to test yesterday's best @ 1.3580. If breached, the YTD peak from 26th May @ 1.3593.

Antipodeans: AUD/USD +0.2%; 0.6501. NZD/USD +0.2%; 0.6036

• Antipodeans are holding onto recent spoils with both currencies underpinned by a pick up in sentiment in early European trade. AUD digested mixed Australian data overnight including the latest trade figures and household spending. AUD/USD has just about made its way onto a 0.65 handle and briefly eclipsed yesterday's best @ 0.6505 with a session peak @ 0.6509. If upside resumes, the YTD high sits @ 0.6537. NZD/USD has ventured as high as 0.6044 with the YTD peak @ 0.6054 coming into view.

05 Jun 2025 - 10:15- ForexEU Research- Source: Newsquawk