EUROPEAN FX UPDATE: GBP rises post-data, EUR choppy, and AUD narrowly lag post RBA

USD: DXY U/C; 98.42

• USD is broadly flat vs. peers in the run-up to today's eagerly anticipated US inflation report. Expectations are for core M/M inflation to rise to 0.3% from 0.2% with the Y/Y rate seen rising to 3.0% from 2.9%. Ahead of the release, ING notes that a consensus print would be "enough for the 'nothing to see here' crowd to argue tariffs haven’t bitten yet". However, the desk cautions that we are in a "transitional phase" and expects "readings of 0.4% month-on-month to become more common, possibly even higher". That being said, all inflation data will need to be taken in the context of the extent of the deterioration in the labour market. Market pricing assigns an 88% chance of a Fed cut next month with a total of 57bps of loosening by year-end. On the Fed, Bloomberg reports that Fed Governor Bowman, Fed Vice Chair Jefferson, and Dallas Fed President Logan are now also in the running for the Chair position. Elsewhere, on the trade front, US President Trump has signed an Executive Order that will extend the tariff suspension on China for another 90 days, as expected. DXY is contained within yesterday's 98.03-99.67 range.

EUR: EUR/USD U/C; 1.1618

• EUR is steady vs. the USD as the narrative surrounding the Eurozone remains the same. That narrative being that the ECB is holding policy steady with inflation under control but mindful of any potential growth headwinds in Q3 as the impact of the US tariffs on the Bloc filters through into the data. Today's ZEW deteriorated from the priors and also missed expectations, although it prompted no move in the EUR. Market pricing for the ECB continues to point to no further 25bps cuts this year, with only -10bps of cuts priced in at the time of writing. EUR/USD has made its way back onto a 1.16 handle, but still some way off yesterday's best @ 1.1675.

JPY: USD/JPY +0.1%; 148.31

• JPY is fractionally weaker vs. the USD as Japanese participants returned to the market and sent the Nikkei 225 to a record high. Incremental macro drivers for Japan are lacking, and as such, near-term direction for the pair is likely to be driven by US-Japan interest rate differentials, with US inflation due on deck. USD/JPY has eclipsed yesterday's best @ 148.25 with a current session high @ 148.44.

GBP: GBP/USD +0.2%; 1.3456

• Cable is higher in the wake of the latest UK jobs report, which failed to show a marked deterioration in the labour market that some had been positioned for. The ILO unemployment rate held steady at 4.7%, employment change showed a larger-than-expected pick up to 238k from 134k, the contraction in HRMC payrolls change slowed to -8k from -26k and wage growth came in a touch softer than forecast on a headline basis. Overall, the takeaway is that the UK labour market is softening, but the rate of change appears to be slowing. As such, given last week's BoE rate decision, which placed greater emphasis on the lack of progress in returning inflation to target, upcoming CPI data will likely carry greater sway for the UK rates space. As it stands, a November cut is seen at less than 50% and a full 25bps reduction is not priced until February 2026. Cable has advanced further on a 1.34 handle but is still shy of yesterday's 1.3477 peak.

Antipodeans: AUD/USD -0.3%; 0.6497. NZD/UD -0.1%; 0.5929

• AUD is the marginal laggard across the majors in the wake of the latest RBA policy announcement, which saw the central bank pull the trigger on a widely expected 25bps rate cut. The decision to do so was unanimous, and the accompanying policy statement reiterated language that inflation has continued to moderate and the outlook remains uncertain. The central bank also simultaneously released its Quarterly Statement on Monetary Policy which showed a downgrade to the estimate of Australia’s long-run productivity growth to 0.7% from 1.0% and with trend GDP growth now seen around 2.0%, down from 2.25%, while its forecasts were based on a technical assumption of the cash rate at 3.4% by end-2025, 2.9% by end-2026, and 3.1% by end-2027. AUD/USD has slipped onto a 0.64 handle with a session low @ 0.6494. NZD/USD is also lower but holding above yesterday's trough @ 0.5925.

12 Aug 2025 - 10:20- ForexData- Source: Newsquawk