EUROPEAN FX UPDATE: Pick-up in US yields provides reprieve for USD, USD/JPY eyes a test of 150

USD: DXY +0.2%; 106.62

• DXY is a touch higher and attempting to continue its recovery after printing a YTD low on Monday @ 106.12 following a recent run of soft economic releases, which have weighed on US yields. On the trade front, US Commerce Secretary Lutnick clarified that if President Trump is satisfied by the March 4th deadline (in relation to tariffs in response to fentanyl and border security), he could pause fentanyl and border-related tariffs, but global tariffs will still come into effect on April 2nd. Given the lack of clarity over what constitutes a negotiation tactic by the Trump admin or a legitimate plan of action, markets are beginning to become fatigued by tariff headlines and are instead waiting to see what is actually delivered. Today's docket sees the 2nd release of US GDP, quarterly PCE metrics, durable goods and a speaker slate that includes Fed’s Barkin, Schmid, Barr, Bowman, Hammack and Harker. Greater attention on the data front lies on tomorrow's monthly PCE metrics. DXY has been as high as 106.72 with the WTD peak @ 106.78.

EUR: EUR/USD -0.1%; 1.0478

• EUR marginally softer vs. the USD after failing to hold above the 1.05 mark. Yesterday, EUR/USD was able to match the recent YTD peak @ 1.0528 before being dragged lower amid tariff headwinds after US President Trump said he will be announcing tariffs on the EU very soon and noted that EU tariffs are to be 25% on autos and other things. The looming uncertainty created by Trump's tariff agenda has clouded the outlook for the ECB with the terminal rate currently between 1.75-2%. On the ECB, today's account of the January meeting will likely pass with little in the way of fanfare given how stale the release will be viewed by the market. Flash CPI data for Spain leaned marginally hawkish with France and Germany due tomorrow ahead of the EZ-wide release on Monday. 1.0460 is the current session low

JPY: USD/JPY +0.4%; 149.71

• USD/JPY is currently staging somewhat of a bounce after a recent run of losses that have been triggered by softness in US yields; 10yr hit its lowest level since 11th December yesterday but has since picked up in recent trade. From a macro perspective in Japan, ING flags tonight's release of Tokyo CPI whereby the headline "number is expected to soften a little, but the ex-food and energy number is expected to drift back up to 2.0%." The desk adds that "this could continue the momentum toward earlier BoJ rate hikes. And at ING, we think the risk of a 25bp rate hike in May is sorely under-priced at just 20%". USD/JPY has ventured as high as 149.96 with attention will be on a test of the 150 mark.

GBP: GBP/USD U/C; 1.2675

• GBP flat vs. USD and EUR in a week that has been lacking in fresh macro drivers for the UK aside from a pledge to ramp up UK defence spending. Today's docket has UK PM Starmer holding a press conference with US President Trump at 14:00EST/19:00GMT. However, this is not expected to be much of a market mover. Cable currently sits towards the bottom of yesterday's 1.2634-1.2715 range.

Antipodeans: AUD/USD -0.1%; 0.6297. NZD/USD -0.2%; 0.5682

• Both gradually declined during APAC hours to their weakest level in almost two weeks amid the flimsy risk environment, while there were muted reactions to the mixed New Zealand business survey and mostly weaker Australian capex data. AUD/USD has crossed below the 0.63 threshold and delved as low as 0.6286 with the next notable target coming via the 50DMA @ 0.6259. NZD/USD has relinquished the 0.57 handle with a current session trough @ 0.5674; 50DMA @ 0.5655 could offer support.

27 Feb 2025 - 10:20- ForexData- Source: Newsquawk