EUROPEAN FX UPDATE: JPY strength nudges DXY lower. GBP lags fractionally

USD: DXY -0.1%; 98.69

• DXY is a touch softer with the index weighed on by gains in JPY (see section below for details) and another strong CNY fix by the PBoC overnight. From a fundamental perspective in the US, the government remains shut down with no end in sight to the impasse, whilst Trump is visiting various Asian nations ahead of his expected meeting with Chinese President Xi at the APEC summit. Given reporting over the weekend, expectations are widely for a de-escalation in trade tensions between the two nations and increased agricultural purchases from China. In the absence of BLS or Census Bureau data prints (aside from CPI last week), attention today is instead on other metrics such as today's Richmond Fed, CaseShiller House Price data and Conference Board Consumer Confidence. The main highlight for the week comes tomorrow with the FOMC rate decision due on deck. Expectations are widely for a 25bps rate cut with focus on any signalling over another potential reduction in December. DXY has delved as low as 98.56 with the next target coming via the 21st October low @ 98.50.

EUR: EUR/USD +0.1%; 1.1653

• EUR is fractionally firmer vs. the EUR with incremental macro drivers for the Eurozone lacking. Yesterday's more encouraging German IFO release has had little follow-through into EUR with markets bracing for a potentially soft Q3 German GDP print on Thursday, which could confirm a technical recession. The ECB's Consumer Expectation Survey saw the 1yr inflation forecast slip to 2.7% from 2.8% with the 3yr holding steady at 2.5%. This will be of little consequence to this week's ECB announcement, which is widely expected to see policymakers stand pat on policy. In French politics, the debate on the budget is ongoing with focus today on a potential wealth tax. The Socialists have warned that they will be willing to topple the government by the end of the week unless there is a material tax increase on the wealthy in next year's budget. EUR/USD has ventured as high as 1.1667 with interim resistance provided by the 50DMA @ 1.1686.

JPY: USD/JPY -0.6%; 151.90

• JPY is the standout outperformer across the majors following Trump's visit to Japan, which saw the US President and Japanese PM Takaichi sign an agreement on the US-Japan alliance and framework for securing the supply of critical minerals and rare earths. Also adding to the bullish tone overnight was comments by Japanese Economy Minister Kiuchi, which attempted to jawbone the currency and remarks from US Treasury Secretary Bessent that underscored the need for 'sound' monetary policy in Japan. However, some of the JPY strength was trimmed as Finance Minister Katayama later remarked that they didn't think the remarks from Bessent encouraged a rate hike from the BoJ. On which, the BoJ is set to announce its latest policy announcement on Thursday with just 5bps of tightening priced and a December hike seen at nearly 50:50. USD/JPY has made its way back onto a 151 handle with a session low @ 151.77; next target comes via the 22nd October low @ 151.48.

GBP: GBP/USD -0.2%; 1.3302

• GBP is the marginal laggard across the majors amid cross-related selling in the likes of GBP/JPY and buying in EUR/GBP. On the latter, EUR/GBP has ventured as high as 0.8764, breaching the widely-watched July peak @ 0.8760. The price action follows on from last week's UK inflation report, which saw Y/Y CPI fail to reach the consensus expectation of 4% and subsequently has seen markets adopt a more dovish stance towards forward expectations for the BoE; around 16bps of loosening is priced by year-end. Note, the pound has been more resilient vs. the dollar on account of the USD's recent broad weakness with Cable just about holding above the 1.33 mark. In terms of UK newsflow today, attention has been on data from the BRC that food inflation in October declined to 3.7% from 4.2%; another potential signal that inflation is likely on a downward path. Elsewhere, budget angst has been underscored by an FT report that the UK OBR is expected to cut its trend productivity growth forecast by about 0.3%, which is said to threaten a GBP 20bln hit to UK public finances.

Antipodeans: AUD/USD -0.2%; 0.6546. NZD/USD -0.1%; 0.5763

• After outperforming yesterday on account of positivity surrounding US-China trade talks, and a run of stronger CNY fixes by the PBoC, AUD has faded some of yesterday's upside vs. the USD, albeit it still remains firmer on the week. The next potential inflection point for AUD comes via tomorrow's Q3 inflation data with consensus looking for a Q/Q increase to 1.1% from 0.7% and a Y/Y print at 3.0% vs. prev. 2.1%. Ahead of the release, RBA Governor Bullock yesterday remarked that a consensus outturn of 2.7% for the Y/Y trimmed mean print would signify a material departure from the RBA’s forecasts. Note, flash Chinese PMIs towards the end of the week could also shift performance of AUD. AUD/USD has delved as low as 0.6545 but is sitting comfortably above yesterday's 0.6528 trough. NZD/USD sits towards the mid-point of yesterday's 0.5751-78 range.

28 Oct 2025 - 09:55- ForexEU Research- Source: Newsquawk