EUROPEAN FX UPDATE: FX markets broadly steady. Macro focus remains on the trade agenda

USD: DXY U/C: 104.34

• DXY is steady after yesterday's advances that were in part triggered by a better-than-expected outturn for US services PMI and advances in US yields. Since then, the trade agenda has moved back to the fore after reports that US President Trump will announce additional tariffs over the next few days on autos, lumber and chips. He added that he may give "a lot" of countries breaks on tariffs. For today's agenda, markets will be eyeing US consumer confidence data given the disappointing February report which contributed to a notable move lower in yields at the time. It's worth noting that markets are also anticipating Friday's monthly PCE release. As it stands, markets fully price the next 25bps Fed cut in July with a total of 60bps of loosening seen by year-end. DXY briefly breached yesterday's peak @ 104.44 with focus now on a test of the 200DMA @ 104.94.

EUR: EUR/USD U/C; 1.0798

• EUR flat vs. the USD. EUR/USD was nudged lower in early European trade following a pick-up in the USD, sending the pair back onto a 1.07 handle and briefly below yesterday's 1.0781 trough. From a fundamental perspective, EUR saw some modest reprieve after German IFO data showed an improvement from the prior. On the speaker slate, rhetoric from the ECB thus far has seen comments from ECB's Muller that rates are not restricting the economy, whilst tariffs are likely to mean faster inflation in the short term. ECB's Kazimir says "services inflation is key", adding that he is open to discussing a rate cut or pause in April. Markets are increasingly pricing the likelihood of an April cut (currently seen at 69%). As a reference point, markets no longer price two full 25bps reductions by the ECB this year.

JPY: USD/JPY -0.1%; 150.54

• In APAC trade, USD/JPY initially extended on the prior day's advances which were facilitated by the recent dollar strength, firmer US yields and the heightened risk appetite, although the pair has since eased back from recent highs after hitting resistance just shy of the 151.00 level. If 151 does eventually give way, resistance comes via the 50DMA @ 151.65 and the 200DMA @ 151.73.

GBP: GBP/USD -0.1%; 1.2913

• GBP steady vs. the USD. Markets continue to brace for tomorrow's UK inflation data and Chancellor Reeve's spring statement. On the former, the FT reports that Chancellor Reeves is to publish the forecast from the OBR which is to roughly halve the UK’s expected growth in 2025 from 2% to about 1%, while her GBP 9.9bln of headroom against her fiscal rule has been wiped out, leaving her about GBP 4bln in the red. For the inflation data, this will be eyed for any follow-through into market pricing which currently expects the next 25bps cut in August with a total of 40bps of loosening seen by year-end. Cable currently sits within yesterday's 1.2893-1.2974 range.

Antipodeans: AUD/USD +0.1%: 0.6296. NZD/USD -0.1%; 0.5723

• Both relatively contained vs. the USD with NZD faring slightly worse. AUD saw little follow-through from the pre-election budget announcement which forecasts a 2025-26 budget deficit AUD 42.1bln vs. Exp. AUD 40bln and unveiled new tax cuts that will cost AUD 17.1bln over 5 years (click here for a more detailed summary). Elsewhere, for Australia, attention overnight will be on inflation metrics with consensus looking for another 2.5% headline Y/Y print. Markets fully price the next 25bps reduction by July with a total of 65bps of easing seen by year-end. AUD/USD is currently contained within yesterday's 0.6262-0.6304 range and below its 50DMA @ 0.6289. NZD/USD sits towards the lower end of yesterday's 0.5710-0.5749 range.

25 Mar 2025 - 10:05- ForexEU Research- Source: Newsquawk