EUROPEAN FX UPDATE: Havens gain on geopolitical concerns, USD eyes PPI metrics

USD: DXY -0.1%; 98.34

• DXY is a touch softer in an extension of the losses seen yesterday, triggered by the soft US inflation report. Additionally, downside is likely also stemming from comments by US President Trump who suggested the US will set unilateral tariff rates within two weeks. In terms of relative performance, the USD is weakest vs. havens (CHF, JPY) on account of geopolitical tensions in the Middle East and the EUR (see below section for details). Today's agenda includes further inflation metrics with PPI due on deck; headline final demand is seen rising +0.2% M/M (prev. -0.5%), with the annual rate rising to 2.6% Y/Y from 2.4%. With both CPI and PPI metrics in hand, markets will have a greater indication as to how the April PCE report will land. Markets currently fully price 2 x 25bps Fed cuts by year-end. The downside in DXY has brought it to levels not seen since April with a current session trough @ 98.25 vs. the 22nd April low @ 98.01.

EUR: EUR/USD +0.3%; 1.1532

• EUR is on the front-foot vs. the broadly weaker greenback with some additional support potentially being leant by the concerning trade comments by US President Trump (see above section for details), which is causing traders to seek a liquid alternative to the USD (an ongoing trend seeing during times of trade-induced risk aversion). The pair has also been bolstered more broadly by the contrast between the "hawkish" ECB last week and yesterday's soft US inflation metrics. Today's calendar is light on EZ data but heavy on ECB speak, however, commentary is unlikely to shift the dial for market pricing. EUR/USD has been as high as 1.1539 with the next major target coming via the 21st April YTD peak @ 1.1574.

JPY: USD/JPY -0.5%; 143.89

• JPY is towards the top of the G10 leaderboard alongside the CHF as havens benefit from the current risk-aversion in the market which is stemming from 1) heightened geopolitical tensions in the Middle East and 2) comments by US President Trump suggesting that unilateral tariff rates could be set by the US in two weeks. Japanese-specific updates have been lacking throughout the session. USD/JPY has delved as low as 143.64 with the next level of support coming via the 6th June low @ 143.45.

GBP: GBP/USD U/C; 1.3544

• GBP faded opening gains vs. the USD in the wake of disappointing UK GDP metrics, which saw the M/M rate for April slip to -0.3% from +0.2% (consensus looked for -0.1%). The M/M data series can often be classed as volatile, particularly at the moment, given the distortions posed by front-loading ahead of anticipated tariffs. However, ING notes that following "a strong first quarter, a weaker jobs market and economic uncertainty point to more muted growth rates for the remainder of this year". Note, the data has received additional scrutiny given the soft jobs data earlier in the week. As it stands, markets assume around 52bps of cuts by year-end vs. circa 41bps at the start of the week. Cable hit a high @ 1.3593 overnight before slipping into the red. EUR/GBP has moved back onto an 0.85 handle and at its highest level since 8th May - 0.8522 was the peak that day.

Antipodeans: AUD/USD -0.3%; 0.6481. NZD/USD -0.3%; 0.6010

• Following an indecisive APAC session, both currencies have eventually given way to the risk aversion in the market. After failing to materially benefit yesterday from the positive readout from the US-China trade talks, AUD/USD is down for a second session in a row and pulling back from its recent YTD high @ 0.6545 and has slipped back onto a 0.64 handle. Note, Westpac's Chief Economist and former RBA Assistant Governor Luci Ellis sees the Cash Rate bottoming at 2.85% next year. NZD/USD is just about holding above the 0.60 mark with a current session trough @ 0.6007.

12 Jun 2025 - 10:00- ForexData- Source: Newsquawk