EUROPEAN FX UPDATE: JPY struggled post-BoJ. USD manages to hold onto post-FOMC spoils. EUR eyes ECB

USD: DXY U/C; 99.13

• DXY is flat in early European trade after gaining yesterday in the wake of the FOMC rate decision. The announcement saw policymakers deliver a 25bps rate cut as expected with dissent in either direction after Miran backed a 50bps move and Schmid supported no change. Alongside the decision, the Fed opted to end QT on December 1st whilst reinvesting MBS proceeds into Treasury bills. The main inflection point for the dollar came during Powell's press conference in which he stated that a reduction in December was far from assured and yesterday's cut was another risk management move, but going ahead, it is different. The tone struck by Powell defied market expectations heading into the event that expected the Chair to not resist market pricing that near-enough fully-priced another reduction in December. Post-event, markets see just a 68% chance of a cut by year-end. Whether we get further easing from the Fed by year-end will likely hinge on a further deterioration in the labour market. However, in the absence of official data releases, both markets and policymakers will have limited evidence on which to make their cases. Elsewhere, focus has been on the trade front post-Trump Xi meeting in which China agreed to resume US soybean purchases and the US vowed to cut fentanyl-related tariffs to 10% from 20%. DXY remains on a 99 handle but south of the post-FOMC high @ 99.35.

EUR: EUR/USD +0.2%; 1.1616

• EUR/USD is a touch higher in early European trade but ultimately softer post-FOMC with the pair delving as low as 1.1577 yesterday. Post-announcement, which has seen a material pullback in Fed easing expectations, desks are now re-appraising the possibility of EUR/USD hitting 1.20 in the coming months. From a Eurozone viewpoint, today is of course, ECB day. However, the announcement is unlikely to offer much in the way of catalysts to enter long/short positions in EUR given that policymakers are once again expected to stand pat on current policy settings with the lack of incremental data points since the prior meeting, leaving policy in a "good place". Market pricing concurs with the view of the ECB on hold for the near-term with only 2bps of easing priced by year-end. Looking into 2026, markets see a near 50-50 chance that the ECB will ease again. In the run-up to today's announcement, a raft of data points from across the bloc have given policymakers little reason to panic with French GDP, Eurozone GDP and Spanish CPI exceeding expectations, whilst Germany avoided the technical recession, which some had been positioning for.

JPY: USD/JPY +0.7%; 153.66

• JPY is the standout laggard across the majors amid the twin effects of hawkish Fed and dovish BoJ announcements. On the latter, the BoJ opted to stand pat on policy as expected with hawkish dissent from Takata and Tamura. However, the overriding factor for markets within the policy statement was the lack of overt signalling for an additional rate hike by year-end, whilst flagging that underlying consumer inflation is likely to stagnate on slowing growth. Further JPY losses were triggered during the Ueda press conference, driving USD/JPY above 153 after the governor noted that there was no pre-set idea about the timing of the next rate hike and took a more cautious view on wages, noting that the BoJ wants to examine further the potential growth prospects. Post-event odds of a December hike have slipped to 28% from just below 50% pre-announcement. USD/JPY has ventured as high as 153.88 (highest since 13th Feb 2025) with little in the way of resistance ahead of the 154 mark.

GBP: GBP/USD U/C 1.3192

• GBP is flat vs. the USD and weaker once again vs. the EUR with the pound unable to atone for recent losses. For Cable, the post-FOMC pick-up in the USD is also playing a role. However, GBP selling this week has been broad-based on account of declining food inflation and ongoing angst ahead of the November 26th budget. On the latter, the latest press reports suggest that UK Chancellor Reeves is said to be considering a 2p rise in income tax. From a market viewpoint, whilst this may be seen as fiscally prudent (albeit politically unpopular), the broader implication is that such a growth-limiting announcement would need to be met with a looser stance from the BoE. Note, bets for BoE easing had already been rising over the past week in the wake of last week's softer-than-expected inflation report. As such, the path of least resistance for now appears to be for ongoing GBP weakness. Cable remains below its 200DMA @ 1.3244 but north of its post-FOMC nadir of 1.3140.

Antipodeans: AUD/USD +0.1%; 0.6577. NZD/USD +0.1%; 0.5771

• Both of the antipodes are marginally firmer vs. the USD but ultimately unable to claw back much of the losses seen post-FOMC. For AUD/USD, the pair had been on a stellar run in the early stages of the week following optimism around the US-China trade relationship and hot domestic CPI metrics. As such, some traders have used yesterday's Fed release as an opportunity to book profits. That being said, there is likely a floor underneath the pair following the Trump-Xi meeting in which China agreed to resume US soybean purchases and the US vowed to cut fentanyl-related tariffs to 10% from 20%. Note, the next inflation point for AUD will likely come via tomorrow's flash PMI metrics from China. AUD/USD has ventured as high as 0.6597 but has been unable to make its way back onto a 0.66 handle and towards yesterday's peak @ 0.6617. NZD/USD remains within yesterday's 0.5749-0.5801 trading band.

30 Oct 2025 - 10:05- ForexData- Source: Newsquawk