EUROPEAN FX UPDATE: Relatively contained trade. GBP digests hot UK CPI, NZD lags post-RBNZ

USD: DXY U/C; 98.32

• After two sessions of gains, the USD rally has paused for breath. There hasn't been a clear driver for the upside seen at the start of the week with the macro narrative relatively unaltered heading into Powell's Jackson Hole speech on Friday. On which, focus will be on how much the Fed Chair leans into the soft July Payrolls report, which triggered a dovish repricing in FFR expectations. That being said, given the inflationary threats of the US' trade policies and there being another payrolls release ahead of the September meeting, Powell is unlikely to "out-dove" the market with his remarks. On the Fed, FOMC minutes are due later today. However, they will likely be deemed as stale in some quarters given the aforementioned August jobs report hit just a few days after the meeting. Fed's Bostic and Waller are due on today's speaker slate. Note, the subject matter for the latter is on Blockchain payments. DXY has ventured as high as 98.44 with the next upside target coming via the 12th August peak @ 98.62.

EUR: EUR/USD -0.1%; 1.1637

• EUR is marginally softer vs. the USD with it remaining the case that there has not been a great deal of incremental macro newsflow from the Eurozone. Remarks from ECB President Lagarde failed to engineer a move in the EUR today with the policy chief noting that recent trade deals have alleviated but not eliminated uncertainty. Lagarde added that the ECB will factor the implications of the EU-US trade deal for the Euro area economy into the September projections and will guide decisions over the coming months. Focus is also on the geopolitical sphere with the latest reporting suggesting that the White House is reportedly eyeing Budapest for peace talks between Ukraine President Zelensky and Russian President Putin. EUR/USD sits in close proximity to its 50DMA @ 1.1644 and towards the bottom end of yesterday's 1.1639-93 range.

JPY: USD/JPY U/C; 147.57

• JPY is flat vs. the USD with no material follow-through from mixed data in which Machinery Tools topped forecasts but trade data mostly disappointed and showed Japanese Exports suffered the largest decline in four years. That being said, the drop-off in exports could prompt some concern from those on the BoJ who expect a negative growth hit from the trade conflict with the US. As it stands, markets price 18bps of tightening by year-end. USD/JPY currently sits towards the mid-point of yesterday's 147.44-148.11 range.

GBP: GBP/USD +0.1%; 1.3497

• GBP is mildly firmer vs. the USD in the wake of hotter-than-expected UK inflation metrics, which saw headline Y/Y CPI advance to 3.8% from 3.6% (Exp. 3.7%) and services jump to 5.0% from 4.7% (Exp. 4.7%). The ONS has attributed some of this to the timing of school holidays, which has triggered a surge in airfares. However, given the outcome of the most recent BoE rate decision, which saw a higher-than-expected level of hawkish dissent, markets will likely further cement expectations that the BoE will slow down the current quarterly cadence of rate cuts. Note, the release also takes place in the context of last week's stronger-than-expected GDP print and "not as bad as feared" UK labour market report. Looking beyond the upcoming report, many desks expect inflation to peak at around 4% for the September report (due to be released on October 22nd). Until this report has been published and there are signs that inflation has peaked, policymakers are likely to be cautious in loosening policy further. Cable has hit a 1.3509 peak but is still some way off yesterday's best @ 1.3519.

Antipodeans: AUD/USD -0.3%; 0.6434. NZD/USD -1.3%; 0.5817.

• NZD is the standout laggard across the majors following the RBNZ rate decision, which saw the Bank cut the OCR by 25bps to 3.00%, as widely expected, while it also lowered its OCR forecasts across the projection horizon and revealed it had voted on the options of either a 25bps or 50bps cut at the meeting; 2 members backed a 50bps move. Market pricing moved in a dovish direction with markets price 32bps of additional loosening by year-end. NZD/USD has slumped below its 200DMA @ 0.5836 and hit its lowest level since April 11th @ 0.5818. AUD/USD is also on the backfoot vs. the USD but to a lesser extent with a current session low @ 0.6430; focus is now on a test of 0.64 to the downside; not breached since 23rd June.

SEK: EUR/SEK +0.2%; 11.1893

• SEK is a touch softer vs. the EUR in the wake of the Riksbank rate decision, which saw policymakers stand pat on policy as expected. The decision to do so was predicated on the board's balancing act in managing weak growth vs. above target inflation. That being said, the Bank still judges that there is still some probability of a further interest rate cut this year, in line with the June forecast. As it stands, markets price in 21bps of loosening by year-end. EUR/SEK is currently above its 200DMA @ 11.1771 with upside capped by the 11.20 mark.

20 Aug 2025 - 09:55- ForexData- Source: Newsquawk