EUROPEAN FX UPDATE: Market digest flash PMIs. USD mixed vs. peers

USD - DXY U/C; 98.24

• Steady trade for DXY after a session yesterday, which was dominated by newsflow surrounding the Fed. US rates markets endured a steepening of the curve, led by the front-end amid reporting that President Trump could fire Fed Governor Cook amid alleged mortgage fraud. Thereafter, attention pivoted to the account of the July policy announcement, which was viewed with a hawkish lens with the majority of participants more concerned about risks to inflation over the labour market, although the minutes do not incorporate the latest NFP data with chunky two-month revisions. The next inflection point for Fed pricing will likely come via tomorrow's Jackson Hole appearance by Fed Chair Powell. However, many desks are of the view that he will struggle to out-dove the market and likely retain a cautious stance to policy loosening given that there is still one more jobs and CPI report due before the September confab. For today's data docket, the highlights come via weekly claims metrics and the August flash PMI report. DXY sits towards the mid-point of yesterday's 98.07-44 range.

EUR: EUR/USD U/C 1.1654

• EUR saw some pressure early doors after comments from Ukraine's Air Force that Russia used 574 drones and 40 missiles in an overnight attack. This has helped reinforce the message that despite a more encouraging direction of travel for peace talks, the reality on the ground remains tense between Russia and Ukraine. Some of the pessimism was faded following flash PMI metrics from across the Eurozone with a solid report from France kickstarting the recovery and followed by a mostly positive German release. The EZ-wide print saw the composite move further into expansionary territory with the accompanying report noting that "economic activity has picked up in both manufacturing and services". However, "U.S. trade policy is leaving its mark. Foreign orders in the eurozone manufacturing sector have declined for the second month in a row". As it stands, markets price around a 40% chance of a 25bps rate cut by year-end. EUR/USD sits just above its 50DMA @ 1.1645.

JPY: USD/JPY +0.1%; 147.53

• JPY is fractionally weaker vs. the USD after a session of gains yesterday, which were in part driven by a refocus on interest-rate differentials as the front-end of the US curve was dragged lower by the possibility of Fed Governor Cook being removed from her position. Overnight, there was little follow-through seen from mixed flash Japanese PMI metrics for August, which saw the manufacturing metric tick higher from its prior (but remain sub-50) and services fall from its previous (but remain above 50). The accompanying report noted "data for Japan signalled that growth momentum picked up across the private sector in August, with output rising at the fastest rate in six months". USD/JPY sits within yesterday's 146.87-147.81.

GBP: GBP/USD +0.1%; 1.3463

• GBP is the marginal outperformer across the majors following a better-than-expected outturn for flash August services and composite PMIs, which rose further into expansionary territory. The accompanying report noted "Economic growth has continued to accelerate over the summer after a sluggish spring". However, "it’s evident from survey measures of order books, the demand environment remains both uneven and fragile". On the employment front, "payroll numbers also continue to be cut at an aggressive rate". Elsewhere, this morning's public borrowing metrics printed better than market consensus but in-line with official projections. However, Pantheon Macroeconomics notes that "the big picture remains that the public finances are in chronically weak condition". Cable has picked up from its 1.3436 session low with a current session peak @ 1.3476.

Antipodeans: AUD/USD -0.2%; 0.6418. NZD/USD -0.1% 0.5817.

• Both are a touch softer vs. the USD with NZD unable to launch much of a recovery from yesterday's RBNZ-induced losses and AUD failing to garner any support from upticks in flash PMI metrics for August. The accompanying report for Australia noted a strong performance for H2 growth and an easing in price pressures. AUD/USD is at its lowest level since June 23rd with focus on a test of the 0.64 mark and the 200DMA @ 0.6386. NZD/USD has extended further south of its 200DMA @ 0.5835 but is holding above the 0.58 mark with a current session low @ 0.5814.

21 Aug 2025 - 10:20- ForexData- Source: Newsquawk