EUROPEAN FX UPDATE: Recent USD rally pauses for breath ahead of ADP and ISM services

USD: DXY U/C; 100.15

• The recent rally in the USD that has been driven by improving US-China relations, the hawkish FOMC announcement and yesterday's global equity selling has paused for breath. As the US shutdown enters its 35th day, matching its prior record, official US data releases remain suspended. However, today we will be presented by the latest ADP employment report and ISM services print. The former is expected to see employment in October rise to 28k from the -32k print in September. For the ISM print, consensus looks for the headline metric to pick-up to 50.8 from the neutral 50 mark. As it stands, markets price a December 25bps Fed cut at around 74%. Elsewhere, today will see the commencement of the hearing on the legality of US President Trump's Reciprocal Tariff Policy. Ahead of which, press reports suggest that the Trump administration is "ready to fall back on a patchwork of other trade statutes to keep pressure on US trading partners", according to Politico. As such, a negative ruling for the US administration may prove to be non-incremental for the USD. DXY remains below yesterday's best @ 100.25. If breached, the 200DMA @ 100.38 will come into view.

EUR: EUR/USD +0.1%; 1.1485

• EUR is attempting to stop the rot vs. the USD following a recent run of losses, which dragged EUR/USD down from a 1.1668 peak last week to a 1.1473 trough yesterday. Incremental macro drivers remain on the light side for the Eurozone with final services & composite PMIs and an unrevised ECB annual wage tracker failing to move the dial for the EUR. As such, in the near-term with US data points due on deck and global equity markets faltering, the USD remains in the driving seat for EUR/USD. If the pair slips below yesterday's trough, there is clean air until the 1.14 mark.

JPY: USD/JPY -0.1%; 153.53

• JPY is now only incrementally firmer vs. the USD following a bout of strength overnight as global equities continued to slip. USD/JPY delved as low as 152.97 before returning to levels above 153.50. Recent strength in JPY has been stemming more from the risk-aversion price action in the market as opposed to anything Japan-specific. Fleeting modest JPY appreciation was seen in early European trade after Japanese Top Currency Diplomat Mimura noted that recent JPY moves are deviating from fundamentals and that excessive FX volatility, not levels, is the main concern. However, absent a more material indication that the BoJ is set to continue its policy tightening campaign, JPY gains from domestic developments are likely to be limited. As it stands, markets price a 28% chance of a BoJ hike next month.

GBP: GBP/USD +0.2%; 1.3038

• GBP is attempting to atone for its recent run of losses, which have largely been driven by increasing odds of a December BoE cut and ongoing angst ahead of the November 26th budget. This angst was brought to the forefront yesterday following Chancellor Reeve's pre-budget speech in which she stopped shy of naming any specific policies but helped reaffirm the markets view that it will be a growth-negative event. As mentioned in our commentary, until the budget is officially unveiled the MPC will likely sit on its hands. As such, tomorrow's BoE decision is set to see rates left unchanged. Albeit with a split vote. Until the macro picture for the UK becomes clearer, traders are unlikely to chase the GBP much higher and as such, it remains to be seen whether today's gains vs. the USD and EUR are more of a dead-cat bounce. Cable is holding above yesterday's 1.3010 trough but some way off the 1.3139 peak.

Antipodeans: AUD/USD -0.1%; 0.6482. NZD/USD +0.1%; 0.5648.

• Mildly diverging fortunes for the antipodeans with AUD remaining hampered by the selling in global equities and unable to catch a break from mixed Chinese PMIs overnight. AUD/USD delved as low as 0.6459 overnight, stopping shy of its 200DMA @ 0.6446 before paring most of its losses. NZD has been more resilient with no clear follow-through from overnight NZ jobs data, which saw the unemployment rate match consensus at 5.3%. NZD/USD sits towards the bottom end of yesterday's 0.5635-0.5710 range.

SEK: EUR/SEK -0.1%; 10.9922

• As was widely-expected, the Riksbank opted to keep rates unchanged and reiterated guidance that the "policy rate is expected to remain at this level for some time to come". Within its economic assessment, it was judged that the outlook for inflation and economic activity remains largely unchanged. However, it acknowledged that there are domestic and overseas risks that "could affect economic developments and thereby also the policy rate going forward". One source of optimism stemmed from the Riksbank's view that whilst the labour market is still showing weak development, there are now some signs that a turnaround is on its way. SEK picked up a touch following the release with EUR/SEK slipping onto a 10 handle.

05 Nov 2025 - 10:05- ForexEU Research- Source: Newsquawk