EUROPEAN FX UPDATE: USD attempting to atone for recent losses. EUR digests soft German IFO

USD: DXY +0.4%; 97.59

• USD is attempting to claw back the losses seen on Monday and Tuesday in a session, which thus far has been void of fresh macro drivers. Comments from Fed Chair Powell yesterday reiterated downside risks to employment, whilst keeping options for the October 29th meeting. More Fed speak comes today via Fed 2027 voter Daly at 21:10BST, who will be speaking on the economic outlook. Today's data docket is a light one in the wake of yesterday's flash PMI metrics, which saw both the manufacturing and services sectors remain comfortably in expansionary territory. The main data highlight this week comes via the August PCE metrics on Friday. Ahead of which, Fed Chair Powell has remarked that headline PCE likely printed at 2.7% and the core rate at 2.9%, both up from a year earlier and driven by goods prices reflecting tariffs rather than broad pressures. Note, House Democrats will meet on September 29th in Washington, D.C. to discuss government funding, according to Bloomberg. DXY has eclipsed yesterday's best @ 97.45 with the next target coming via Monday's 97.82 peak.

EUR: EUR/USD -0.4%; 1.1770

• EUR/USD is lower on account of the broadly stronger USD and a disappointing IFO report from Germany. Both the expectations and current conditions prints declined from their priors and printed below the bottom end of analyst estimates, snapping a streak of six consecutive months of increases for the headline business climate metric. ING surmises the release by noting that "German optimism has been brought down by a mix of US tariffs, a stronger euro and the political inability to combine fiscal stimulus with growth-enhancing reforms". Things are quiet on the monetary policy front since the ECB's hold earlier in the month. Desks remain cognizant of geopolitical tensions after US President Trump's UN address yesterday, in which he noted that NATO countries should shoot down Russian aircraft if they enter NATO airspace and thinks Ukraine, with the support of the EU, is in a position to fight and "win" all of Ukraine back in its original form. Finally, in an olive branch to the Left, reports in French press suggest that Lecornu is open to a tax on top earners and firms. EUR/USD has extended its decline on a 1.17 handle, slipping below yesterday's 1.1779 trough. Monday's low sits @ 1.1726.

JPY: USD/JPY +0.4%; 148.26

• USD/JPY has moved back onto a 148 handle, supported by the stronger dollar and incremental JPY weakness after flash PMIs showed a deterioration across all components, commentary highlighted persistent cost pressures and elevated inflation. Elsewhere, focus remains on the outcome of the LDP leadership contest on October 4th with Sanae Takaichi still judged to be the front-runner for the position. As a reminder, Takaichi has proposed using tax revenues for tax cuts and spending measures to tackle inflation, but said she may consider issuing bonds if needed. Elsewhere, Former BoJ member Adachi said an October rate hike cannot be ruled out if solid Q2 GDP results in upgraded forecasts, adding that a hike would likely do little harm to domestic growth. As it stands, an October hike is currently seen as a coin-flip by markets. USD/JPY has ventured as high as 148.29. Next target comes via yesterday's peak @ 148.37.

GBP: GBP/USD -0.3%; 1.3478

• GBP is on the backfoot vs. the broadly firmer USD and steady vs. the EUR. Incremental macro drivers from the UK are light in the wake of yesterday's soft showing for September flash PMI metrics, which were weighed on by angst ahead of the November 26th budget. Ahead of which, the Institute for Government (IfG) is the latest think tank to come out and suggest that Chancellor Reeves needs to consider going back on her “rash” tax commitments and impose serious tax reform. Note, this follows a report from the Resolution Foundation, who proposed a 2ppt reduction in national insurance alongside a 2ppt increase in income tax. Today's docket is light in terms of data. However, MPC external member Greene is due to give remarks at 17:30BST on ‘Supply shocks and monetary policy’ (text release is due). In remarks on September 3rd, Greene stated that she voted to keep policy on hold as the risk of persistent inflation was higher, and the risk of weaker demand was lower. Cable has slipped onto a 1.34 handle and below yesterday's 1.3488 with the pair now eyeing the 50DMA to the downside @ 1.3471.

Antipodeans: AUD/USD +0.2%; 0.6608. NZD/USD -0.2%; 0.5844

• AUD is bucking the trend of the majors and is firmer vs. the USD in the wake of firm Australian CPI metrics, which saw the Y/Y CPI rate climbing from 2.8% to 3.0% - the top end of the RBA's target range. As such, odds of a 25bps rate cut next week sit at just 8%. AUD/USD has moved back onto a 0.66 handle with a current session peak @ 0.6628. NZD/USD is lower and conforming to the picture shown across most majors. The pair is currently eyeing a test of its 200DMA to the downside @ 0.5841. Overnight, New Zealand Finance Minister Willis said Anna Breman will be the new RBNZ Governor, beginning her five-year term on 1st December 2025.

24 Sep 2025 - 10:20- ForexEU Research- Source: Newsquawk