EUROPEAN FX UPDATE: The USD rally continues as soft JPY and NZD boost the Greenback

USD: DXY +0.2%; 98.80

• DXY is up for a third session in a row with WTD gains thus far of 1.1%. It remains the case that the price action is not being driven by outright bullish calls on the USD but more a case of weakness elsewhere, mainly JPY and EUR, with NZD the latest of its major counterparts to take a stumble. If anything, the macro narrative surrounding the US remains a downbeat one as the government shutdown continues to drag on, delaying economic data releases and threatening a hit to domestic growth. Additionally, the labour market could be dealt another blow if President Trump proceeds to enact mass layoffs of Federal workers. For today's docket, the standout highlight is the minutes from the FOMC's September meeting, in which it cut the FFR by 25bps (subject to dovish dissent from Miran). Focus will be on the level of apprehension on the board over additional easing in the face of concerns over tariff-induced inflation. Elsewhere, today's speaker slate includes remarks from Fed’s Musalem, Barr, Goolsbee & Kashkari. DXY has ventured as high as 98.97 with focus on a test of the 99.0 mark; not breached since 5th August.

EUR: EUR/USD -0.2%; 1.1631

• EUR remains pressured vs. the USD and is just about holding onto a 1.16 handle after delving as low as 1.1607. French political turmoil remains a key part of the Eurozone macro narrative with PM Lecornu (also due to speak @ 19:00BST) set to meet with socialists, greens and communists in an attempt to form a coalition government. The likely price for Macron will be a left-wing PM, which could make the parliamentary arithmetic easier for passing a budget, given that the Socialist Party holds the most seats in the National Assembly. Failing that, markets will likely cement calls for fresh legislative elections (priced at 66% vs. 53% yesterday). Albeit, as we mentioned yesterday, this may also likely fail to solve the stalemate and could trigger an early Presidential election - the most risk-averse scenario for the market. Aside from France, Germany saw further woeful data earlier in the session with German Industrial Orders falling well short of consensus and subsequently stoking concerns over a contraction in the domestic economy. On the speaker front, ECB's Rehn has talked up the possibility of inflation slipping below the Bank's 2% target. If 1.16 gives way in EUR/USD the next target comes via the 27th August low @ 1.1573.

JPY: USD/JPY +0.4%; 152.44

• JPY remains very much on the backfoot against the USD with USD/JPY having risen five handles since Takaichi's victory in the LDP leadership race. The move has been relentless this week given the market's view that the fallout of Takaichi will leader to a mix of looser monetary and fiscal policy. Subsequently, markets only assign a circa 25% chance of a cut this month vs. roughly 70% last week. Further reason for caution in expecting additional tightening from the BoJ was presented overnight via the August real cash earnings data, which printed a deeper-than-expected contraction. Nonetheless, in a note published this morning, Oxford Economics expects the BoJ to hike rates by 25bps in December on account of the "surprisingly hawkish shift in the BoJ's view since its September policy meeting and upward revisions to our growth and inflation projections, driven by the US economy's resilience". USD/JPY has climbed as high as 152.64 with focus now on a test of 153; not breached since February. If the pair begins to approach 155, given the velocity of the move, expectations of potential intervention will likely increase.

GBP: GBP/USD -0.1%; 1.3427

• GBP is a touch weaker vs. the USD but stronger vs. the EUR. At the risk of sounding like a broken record, in the absence of any tier 1 UK data, the macro narrative has failed to evolve beyond ongoing angst ahead of the November 26th Budget. On which, there has been no material update over the past 24 hours. BoE Chief Economist Pill is due to give remarks at 16:00BST. He last spoke in September, noting that inflation in the UK has proved to be more stubborn than expected and the Bank may need to maintain restrictive policy. This is a view reflected in market pricing with just 6bps of loosening seen by year-end. GBP/USD briefly tripped below yesterday's low @ 1.3391 before returning to a 1.34 handle.

Antipodeans: AUD/USD -0.3%; 0.6582. NZD/USD -0.7%; 0.5757

• NZD is the laggard across the majors after the RBNZ's decision to opt for a deeper 50bps rate cut (views heading into the meeting were split between 25bps and 50bps). Additionally, the committee noted that it remains open to additional reductions. The minutes stated that the case for reducing the OCR by 50 basis points emphasised prolonged spare capacity and the associated downside risk to medium-term activity and inflation. Subsequently, has extended its descent on a 0.57 handle and hit its lowest level since April 11th. This, allied with the ongoing rally in gold prices has continued to support AUD/NZD, which hit a multi-year high overnight @ 1.1446. Nonetheless, AUD has succumbed to the broadly stronger USD and has slipped further on a 0.65 handle with a session low @ 0.6556; next target comes via the 50DMA @ 0.6549.

08 Oct 2025 - 10:20- ForexEU Research- Source: Newsquawk