EUROPEAN FX UPDATE: JPY benefits from haven bid, GBP hit by soft jobs, Antipodeans dented by risk-tone

USD: DXY +0.1%; 99.36

• After a soft start to the session, whereby DXY was dragged lower by the haven bid into the JPY (see section below for details), the Greenback was able to garner support at the expense of risk-sensitive currencies and the GBP (post-jobs data). The bout of risk aversion was triggered by China's decision to take countermeasures against five US-linked firms - a move which has dashed some of the hopes seen during yesterday's session. Furthermore, a source piece in the WSJ overnight stated that "people close to the Trump administration say the US side likely will demand that China rescind, not merely delay or water down the rare-earth export rule". For today's docket, in the ongoing dearth of US data amid the still-unresolved shutdown, the sole highlight comes via the NFIB Small Business Optimism index. As such, greater emphasis will be on the speaker slate, which includes Fed’s Powell, Waller, Collins & Bowman. Powell's remarks are the obvious highlight, with the Chair set to speak on monetary policy and the economic outlook. However, it is hard to see how much his view will have evolved in recent weeks, given the aforementioned lack of US data points. DXY has ventured as high as 99.47, with the next target coming via last week's peak @ 99.56.

EUR: EUR/USD -0.1%; 1.1558

• After initially looking like it was going to make a test of 1.16 overnight, EUR/USD was dragged lower by the broader pick-up in the USD. From a macro perspective, focus in the Eurozone remains on France with PM Lecornu set to present his budget at 14:00BST, aiming to reduce the deficit to 4.7% by end-2026. In terms of the specifics, Politico reports that additional measures to those previously expected will include a tax on the richest members of society. Even with the Socialists on board, the governing coalition would still need to find additional votes in the Assembly, which looks tough given that the Far Right and Left are expected to table a no-confidence motion on Lecornu. Betting markets remain unconvinced and see a 57% chance of fresh elections by year-end. Elsewhere in core Europe, German ZEW data showed misses for both metrics, with the current conditions component slipping further into negative territory. Ahead of the release, ING highlighted the increasing prospect of additional easing by the ECB on account of softening data and declining oil prices. EUR/USD has been as low as 1.1543 and is just about holding above last week's low @ 1.1542.

JPY: USD/JPY -0.2%; 152.02

• JPY is the only of the majors to out-muscle the USD given its safe-haven status. JPY was supported in early European trade as investors reacted to the increase in US-China tensions overnight (see USD section for details). Subsequently, USD/JPY was dragged as low as 151.63 vs. an earlier session high @ 152.61. A pick-up in the USD has since seen the pair return to a 152 handle. In terms of the macro story for Japan, it is one that remains dominated by domestic politics following the collapse of the ruling coalition. Note, the LDP party has proposed October 21st for an extraordinary Diet session. In terms of what comes next, markets remain wary of attempts by opposition parties to build a coalition, prevent Takaichi from becoming PM. The prospect of such an outcome is keeping markets cautious in terms of pricing additional hikes, with just 4bps of tightening seen at this month's meeting.

GBP: GBP/USD -0.6%; 1.3255

• GBP was hit in early European trade following the latest UK labour market report, which was largely viewed with a dovish lens. Surmising the data, Pantheon Macroeconomics highlighted the unexpected uptick in the unemployment rate and the decline in 3M/YY ex-bonus average earnings, which will factor into thinking on the MPC. Accordingly, markets have opted to add a couple of bps of loosening to year-end pricing, which now assigns a circa 45% chance of a 25bps reduction vs. around 32% pre-release. That being said, markets will likely remain cautious in pricing additional loosening by the MPC with the October 22nd (September) report looming large and set to see Y/Y headline CPI approach the 4% mark. Furthermore, the uncertainty presented by the November 26th budget is likely to see policymakers keep their powder dry next month. Elsewhere, BRC retail sales slowed to 2.0% Y/Y in September from 2.9% as consumers remain cautious in the run-up to next month's fiscal event. Cable has delved as low as 1.3255 to levels not seen since early August. If 1.3250 gives way, there is clean air until the 1.32 mark. EUR/GBP has also been supported, with the cross making its way back onto a 0.87 handle.

Antipodeans: AUD/USD -0.8%; 0.6457. NZD/USD -0.6%; 0.5692

• Both are softer vs. the USD and at the bottom of the G10 leaderboard. In the absence of any material domestic updates, AUD and NZD remain at the whim of broader risk dynamics, which are being led by US and Chinese trade tensions. After some reprieve yesterday amid hopes of a more conciliatory stance from the White House, China's decision overnight to take countermeasures against five US-linked firms has hampered sentiment once again. RBA minutes proved non-incremental for AUD overnight, with greater focus on upcoming jobs data and Q3 CPI due at the end of the month. As it stands, markets price a 50-50 chance of a cut next month. AUD/USD has slipped further on a 0.64 handle and is now eyeing its 200DMA @ 0.6423. NZD/USD has been as low as 0.5686 to trade at levels not seen since April.

14 Oct 2025 - 10:15- ForexData- Source: Newsquawk