EUROPEAN FX UPDATE: Majors broadly steady as markets await further developments in the Trump administration

USD: DXY -0.1%; 107.97

• DXY trivially lower in the wake of yesterday's heavy selling pressure which was triggered by relief over a lack of tariff actions by Trump on day one of his Presidency. That being said, overnight, Trump has threatened both the EU and China with tariffs and is reportedly pushing for an early renegotiation of the US trade deal with Mexico and Canada. Today's US docket is a light one and the Fed remains in its blackout period ahead of next week's meeting. As such, it is expected that headlines surrounding the new US administration will likely continue to dictate price action for the dollar. Rate strategists continue to flag the possibility of the 10yr yield slipping below 4.5%; could add further pressure to the USD. DXY sits towards the bottom end of yesterday's 107.92-108.79.

EUR: EUR/USD +0.1%; 1.0437

• EUR steady vs. the USD after a particularly strong showing at the start of the week on account of Trump refraining from any explicit tariff actions on day one of his Presidency. That being said, Trump remarked overnight that the "European Union treats us badly and the EU will be in for tariffs". In an interview at Davos, ECB President Lagarde appeared to downplay concerns surrounding tariffs and is confident that the ECB will hit its inflation target over the course of the year. Elsewhere, ECB comms has seen dove Stournaras make the case for multiple 25bps rate cuts and a potential increased speed of cuts in the event of US tariffs. Hawk Knot also backed a 25bps move next week. EUR/USD has just broken above the top end of yesterday's 1.0341-1.0435 range.

JPY: USD/JPY +0.1%; 155.69

• JPY softer vs. the USD despite some fleeting support after reports that Japanese PM Ishiba is to present an investment plan to US President Trump at the summit, according to Kyodo. Broader focus for the JPY this week lies on Friday's BoJ policy announcement which is widely expected to deliver a 25bps hike following numerous sources pieces in recent trading sessions making the case for such a move. The only previous caveat for such action had been Trump rattling markets this week; so far this has not materialised. USD/JPY currently sits within yesterday's 154.76-156.23 range.

GBP: GBP/USD -0.1%; 1.2348

• GBP a touch softer vs. the USD and EUR in the wake of higher-than-expected December borrowing data alongside an upward revision to the prior presents another headwind for the Chancellor and her fiscal space. In response to the data, a defiant Reeves remarked that "our public finances are now in order" and the UK will meet its fiscal rules. Cable comfortably on a 1.23 handle and in close proximity to yesterday's best @ 1.2359 (as context, the low from yesterday sits @ 1.2228).

Antipodeans: AUD/USD +0.1%; 0.6275. NZD/USD -0.1%; 0.5671

• Mildly diverging fortunes for the antipodeans. NZD/USD has had to digest CPI metrics with the headline Y/Y printing at 2.2% vs. Exp. 2.1%. However, ING notes that the closely monitored non-tradable index slowed slightly faster than expected from 4.9% to 4.5%; lowest level since Q4 2021. ING suggests this paves the way for a 50bps RBNZ cut next month (priced at 65%). NZD/USD sits towards the top end of yesterday's 0.5616-89 range. AUD/USD is resilient in the face of Trump tariff threats towards China and sits at the upper end of yesterday's 0.6207-88 range.

22 Jan 2025 - 09:55- ForexEconomic Commentary- Source: Newsquawk