EUROPEAN FX UPDATE: Selling in global equities boosts JPY, hits AUD and NZD

USD: DXY -0.1%; 98.17

• DXY is net lower with the USD showing a divergent performance vs. peers on account of the risk-averse moves triggered by the recent selling in regional US banks. As such, the USD is weaker vs. havens (CHF, JPY) and bid vs. risk-sensitive currencies (AUD, NZD). The question for markets is whether the selling pressure in Zions and Western Alliance Bancorp (on account of exposure to fraudulent loans) is a deep systemic issue or something that will have limited contagion, as per the SVB debacle in 2023. Desks are largely of the view that it will follow the pattern of the latter, not the former. However, in the vacuum of official US data points to guide the economic outlook and persistent questioning over the frothiness of US equities, the issues in the regional banking sector have been enough to derail the risk tone over the past 24 hours. Absent a material escalation in the aforementioned banking issues, focus will likely return to the US-China trade spat and US inflation data due next week; core M/M CPI is forecast at 0.3% (prev. 0.3%). As the Fed heads into its blackout period (ahead of the 29th October meeting), events over the past 24 hours have tilted market pricing in favour of fully pricing 2 x 25bps cuts by year-end. DXY hit a new low for the week @ 98.02 (coincides with the 50DMA), before bouncing off the lows.

EUR: EUR/USD +0.2%; 1.1714

• EUR is up against the USD for a fourth session in a row on account of an aversion by the market to bid up the USD amid regional banking concerns and markets continuing to find solace in the developments in French politics this week. On the latter, with Lecornu having survived two no-confidence motions and odds of legislative elections by year-end receding to just 27% (vs. 50%+ earlier in the week), attention now turns to the subsequent debate and potential passage of the budget, as well as Moody's rating on France next Friday. As has been the case throughout the week, incremental macro drivers for the Eurozone have been lacking and comms from ECB officials has had no impact on market pricing with policymakers broadly of the view that there is no need to act on rates in the near-term. This could change next week with flash PMI metrics for October due. However, it would likely take dismal metrics and the risk of an undershooting in inflation to revive the odds of additional ECB easing at this stage. EUR/USD has eclipsed its 50DMA @ 1.1692 and made its way onto a 1.17 handle with a current session peak @ 1.1728.

JPY: USD/JPY -0.5%; 149.68

• JPY outperforms major peers on account of a haven bid alongside the selling in global equity markets. Subsequently, USD/JPY has slipped below the 150 mark for the first time since October 6th. From a domestic viewpoint, focus remains on the political landscape with the JIP co-head announcing "big progress" in discussions with the LDP party and stating that they will be entering the stage of finalising details. Accordingly, markets are now of the view that an opposition unity candidate is incredibly unlikely and attention now turns to the expected appointment of Takaichi as PM. On which, the vote is now expected to be held on October 21st. In terms of the market implications, the appointment of Takaichi will likely continue to be viewed as one of looser fiscal policy and an aversion to additional tightening by the BoJ. However, the conviction in this playbook will likely be tempered by the alliance with the JIP, who are traditionally seen as centre-right. On the BoJ, comments from Governor Ueda over the past 24 hours have reiterated the Bank's view of raising rates if its economic forecasts are realised, whilst Assistant Governor Shimzu has noted that the Bank must tread carefully. USD/JPY has delved as low as 149.39 with the next downside target ahead of the 149 mark coming via the 6th October low @ 149.04.

GBP: GBP/USD -0.1%; 1.3409

• The recovery in the pound vs. the dollar has faltered today on account of the broader risk tone. From a macro perspective, this week in the UK has been characterised by soft labour market metrics and sluggish growth with the former increasingly acknowledged by several BoE speakers this week. However, greater attention on the data slate next week will come via the September inflation report, which is expected to see headline Y/Y CPI approach the 4% mark. As such, despite the global dovish repricing in central bank easing expectations over the past 24 hours, calls for near-term BoE easing are likely to be tempered for now, particularly with the November 26th budget also looming large. Next week also sees flash PMI and retail sales metrics, which are likely to be hampered by ongoing budget-related angst. Today's speaker slate includes BoE’s Pill, Greene & Breeden.

Antipodeans: AUD/USD -0.5%; 0.6455. NZD/USD -0.1%; 0.5717

• Both lower vs. the USD on account of the risk-averse tone in the market with AUD continuing to lag its antipodean peer following yesterday's soft jobs metrics from Australia. With incremental macro drivers lacking overnight from either Australia or New Zealand, gyrations in both currencies are likely to be driven by price action in global equities and any ratcheting up or down of trade tensions between the US and China. AUD/USD has been as low as 0.6444 with interim support ahead of the 200DMA @ 0.6428 provided by the WTD low @ 0.6404. NZD/USD sits towards the lower end of yesterday's 0.5711-55 range.

17 Oct 2025 - 09:55- ForexData- Source: Newsquawk