EUROPEAN FX UPDATE: GBP hit by soft PMI, Eurozone data showed diverging fortunes for manufacturing and services

USD: DXY +0.1%; 97.39

• DXY is a touch higher after yesterday's downside. Macro focus for the US at the start of the week has mainly focussed on Fed speak with policymakers (ex-Miran) largely taking a cautious approach to further easing. To recap, 2026 voter Hammack noted that she has one of the higher estimates of neutral and judges that policy is only modestly restrictive. 2025 voter Musalem sees limited room for further easing and 2027 voter Bostic is reluctant to back another rate cut next month due to concerns over inflation. Note, uber-dove Miran remains a notable outlier on the FOMC, judging that the appropriate Fed funds rate is in the mid-2% area, almost 2ppts below the current level. Today's speaker highlight will be Fed Chair Powell at 17:35BST, who will be speaking on the economic outlook and in a more personal capacity than seen last week at the Fed press conference. Other speakers today include 2025 voters Goolsbee and Bowman, the latter of whom is a dove on the FOMC but stopped short of backing a 50bps move last week. On the data slate, flash PMIs are due. However, these often play second fiddle in the US to the ISM series. DXY delved as low as 97.19 overnight before moving back above yesterday's 97.29 low.

EUR: EUR/USD U/C; 1.1803

• EUR was knocked lower in early trade following a dismal PMI report from France, which saw all three key metrics decline from the prior, miss analyst consensus, and sit in contractionary territory. The accompanying report noted that "the increasingly tense domestic political situation is likely to have a negative impact on household consumption and investment decisions." As such, HCOB expects "GDP growth rates to be between 0.5 and 1 percent in both 2025 and 2026". Thereafter, the German release saw the manufacturing print disappoint by remaining in contractionary territory. However, this was offset by an unexpected expansion in the services sector, which helped the composite remain above the 50 threshold and EUR fade French-induced downside. The Eurozone data reflected the trend seen in Germany (services > manufacturing), however, the associated report suggested that "we’re still a long way from seeing any real momentum." EUR/USD briefly slipped onto a 1.17 handle after venturing as high as 1.1819. The pair is still comfortably above yesterday's 1.1726 trough.

JPY: USD/JPY -0.1%; 147.54

• Overnight, USD/JPY fell under its 50 DMA (147.68) and dipped under yesterday's low (147.66) alongside a lack of noteworthy drivers and with Japanese participants away on the Autumnal Equinox holiday. Ahead of the LDP leadership election, poll leader Takaichi has proposed using tax revenues for tax cuts and spending measures to tackle inflation, but said she may consider issuing bonds if needed. Her closest rival, Koizumi said Japan should use the expected increase in tax revenues and proceeds from expenditure cuts to fund spending for steps to combat the rising cost of living. However, Japan must be mindful of the need for fiscal discipline. Polling in third, Hayashi said Japan must avoid issuing deficit-covering bonds to fund spending and keep sending signals to the market that Japan will maintain fiscal discipline.

GBP: GBP/USD -0.1%; 1.3497

• GBP sits at the foot of the G10 leaderboard following a disappointing showing for September flash PMI metrics. All three metrics fell short of expectations, with the services and composite prints remaining in expansionary territory but below the bottom end of analyst consensus. Manufacturing delved further into contractionary mode. The accompanying release noted "September’s flash UK PMI survey brought a litany of worrying news, including weakening growth, slumping overseas trade, worsening business confidence and further steep job losses". As was the case last year, business optimism is fading in the run-up to the budget. On which, a report by the Resolution Foundation said that UK Chancellor Reeves could raise GBP 6bln of income tax without harming employees by focusing increases on pensioners, landlords and the self-employed. Note, we await comments from BoE Chief Economist Pill. Cable ventured as high as 1.3528 overnight before slipping back onto a 1.34 handle with a current session low @ 1.3488; 50DMA sits @ 1.3469.

Antipodeans: AUD/USD -0.1%; 0.6594. NZD/USD -0.1%; 0.5857

• Antipodeans softened overnight amid weakness in Chinese markets. AUD/USD was also weighed on by a marked deterioration in Flash PMIs, albeit the data remained in expansion territory. NZD/USD was subdued, whilst Bloomberg sources suggested a new RBNZ Governor could be announced as soon as Wednesday. AUD/USD remains within yesterday's 0.6574-0.6602 range. NZD/USD is contained within yesterday's 0.5842-71 parameters; below which, the 200DMA sits @ 0.5840.

SEK: EUR/SEK -0.3%; 11.0028

• Alongside a split consensus between a 25bps reduction and an unchanged rate, the Riksbank opted to cut the policy rate by 25bps. The decision to do so was subject to hawkish dissent from Seim on account of her concerns over potential upside inflation surprises stemming from supply-side and fiscal factors. Offsetting the dovish impulse from the rate cut was accompanying commentary that the Bank expects the policy rate to "remain at this level for some time to come." This is reflected in the rate path, which judges 1.75% to be the terminal rate. Two-way price action was seen in EUR/SEK with SEK initially coming under pressure on the decision to cut with the (mostly positive) German PMIs hitting at the time, which sparked some EUR strength. EUR/SEK moved from 11.0220 to 11.0446. Thereafter, this retraced with EUR/SEK moving lower to a 11.0000 trough as markets digested the dissent from Seim, rate path, upbeat commentary on the economy and signs that elevated inflation is transitory. As the dust settled, EUR/SEK moved back to just above pre-release levels.

23 Sep 2025 - 10:20- ForexData- Source: Newsquawk