EUROPEAN FX UPDATE: USD a touch softer but still very much up on the week

USD: DXY -0.2%; 98.34

• DXY is a touch softer but still up some 0.6% on the week and higher for a second week in a row. The drivers for the USD upside have been a combination of resilient US data, expectations that a tariff compromise will be reached between the US and global trading partners, inflation that will limit near-term Fed easing and the market pulling back from being overly short the dollar. Today's docket is a light one with the main data highlight coming via the prelim UoM release. Attention will be on the inflation components, however, they are often highly politicised and not necessarily reflective of actual inflation developments. Fed's Waller is due on the speaker slate again after remarks last night where he attempted to talk up the chances of a rate cut later this month. However, he is very much seen as an outlier on the board and not reflective of the broader consensus. DXY is back below its 50DMA and towards the bottom end of yesterday's 98.33-95 range.

EUR: EUR/USD +0.4%; 1.1643

• EUR/USD is attempting to recoup some lost ground vs. the USD after hitting a MTD low yesterday @ 1.1555. Price action for EUR/USD this week has largely been at the whim of the USD with incremental drivers for the Eurozone on the light side as markets await progress on an EU-US trade deal ahead of the August 1st deadline. Attention next week will pivot to the ECB policy announcement. Expectations are unanimous that the ECB will stand pat on rates. However, reporting ahead of the meeting has suggested that the GC is to discuss a more negative scenario next week than previously envisaged in June after Trump's latest tariff threat. Note, flash EZ PMI data for July hits a few hours before the release. EUR/USD has made its way back onto a 1.16 handle and is eyeing yesterday's best @ 1.1642.

JPY: USD/JPY U/C 148.66

• JPY flat vs. the USD as the ongoing rally in USD/JPY pauses for breath. Japanese inflation metrics overnight printed in-line and provided little traction for JPY with greater attention on this weekend's upper house elections. Expectations are that the ruling bloc could lose its majority at this weekend's upper house elections. Such an outcome is expected to lead to looser fiscal policy and has been a driving force in the upside in back-end Japanese yields. It remains the case that a trade deal between the US and Japan is yet to materialise with Japanese officials not wishing to cede ground ahead of this weekend's election. Once the event is out of the way, it is possible that Japanese trade officials may offer a more conciliatory position towards their US counterparts. USD/JPY has moved back onto a 148 handle and trades in a 148.30-88 range vs. the multi-month high printed on Wednesday @ 149.18.

GBP: GBP/USD +0.2%; 1.3434

• GBP firmer vs. the broadly weaker USD with incremental drivers from the UK light today. Focus in the UK this week has been on the data slight with hot inflation data on Wednesday and soft labour market data on Thursday underscoring the market narrative that, whilst the BoE is expected to keep easing policy in the coming months, they are unlikely to accelerate their current quarterly pace of rate cuts. Next week sees flash PMI metrics for July. However, absent a material pullback in inflation or rapid deterioration in the labour market, the release is unlikely to reshape BoE easing expectations for the remainder of the year.

Antipodeans: AUD/USD +0.5%; 0.6518. NZD/USD +0.6%; 0.5964

• Antipodeans are outperforming alongside the mostly positive risk appetite and recent rebound in commodity prices. AUD/USD has picked itself up from yesterday's MTD low @ 0.6454, moving back above its 50DMA @ 0.6494 and hitting a current session high @ 0.6520 vs. yesterday's best @ 0.6533. NZD/USD has gained a firmer footing on a 0.59 handle, venturing as high as 0.5965.

18 Jul 2025 - 10:05- ForexData- Source: Newsquawk