EUROPEAN FX UPDATE: USD attempting to claw back some of yesterday's losses. EUR awaits ECB rate cut

USD: DXY +0.2%; 99.51

• DXY is attempting to claw back some of yesterday's lost ground. Markets continue to digest yesterday's remarks by Fed Chair Powell, who noted that the Fed wishes to wait for greater clarity before considering any change to its policy stance. However, they may find themselves in the challenging scenario in which dual-mandate goals are in tension. Powell suggested that in this event, the FOMC would focus more on its inflation-limiting responsibilities. ING notes that such hawkish remarks would typically evoke a hawkish reaction, however, the USD is currently being hampered by the shunning of US assets in response to the trade war. On which, updates have been lacking in recent trade as markets await the outcome of US-Japan talks. For today's docket, weekly claims data will be eyed for signs of labour market weakening. DXY sits towards the bottom end of yesterday's 99.17-100.104 range.

EUR: EUR/USD -0.2%; 1.1380

• EUR softer vs. the USD in the run-up to the ECB policy announcement, which is widely expected to see policymakers pull the trigger on a 25bps reduction in the Deposit Rate to the upper end of its neutral rate @ 2.25%. Focus for the release will primarily fall upon how the GC assesses risks surrounding the growth and inflation outlook in the wake of the ongoing trade war. That being said, the tone in recent weeks from global central banks has been non-committal, given the high level of uncertainty, with policymakers preferring to wait for more information. As such, the response to today's announcement may be a limited one for the EUR with ING writing that "the highly liquid euro remains in a prime position to benefit from the rotation". EUR/USD sits towards the top end of yesterday's 1.1281-1.1412 range.

JPY: USD/JPY +0.6%; 142.65

• USD/JPY has re-emerged from beneath the 142.00 level after dipping to a fresh seven-month low overnight @ 141.62 with the rebound supported by the positive APAC risk appetite and after weaker-than-expected Japanese exports and imports data. Overnight, BoJ Governor Ueda stated that Japan's real interest rates remain very low and the BoJ is expected to keep raising interest rates if the economy and prices move in line with projections made in the quarterly report. Of potentially greater interest is the Japanese-US trade talks in Washington. On which, US President Trump has hailed "big progress", whilst Japanese PM Ishiba said the Economy Minister reported to him that constructive talks were held with the US but discussions will not be easy going forward.

GBP: GBP/USD U/C; 1.3238

• GBP flat vs. the USD and more resilient than peers. Fresh macro drivers for the UK are on the light side aside from a report in The Telegraph that UK PM Starmer is reportedly closing in on a new partnership with the EU that could put a trade deal with the White House at risk. It remains to be seen how the market would position itself if closer ties with the EU trigger a more draconian response to the US. Today's calendar is lacking in tier 1 UK macro data points and therefore the USD leg of the equation for Cable will likely provide the greater source of traction for the pair. GBP/USD is currently steady on a 1.32 handle and in a 1.3204-56 range.

Antipodeans: AUD/USD -0.3%; 0.6349. NZD/USD -0.2%; 0.5924

• Both softer vs. the broadly stronger USD after a solid showing yesterday. AUD saw little follow-through from a mixed Australian labour market report in which employment change fell short of expectations and the unemployment rate came in below consensus. As it stands, markets price a 25bps RBA cut in May @ 78% and a larger 50bps reduction @ 50bps. AUD/USD is currently contained within yesterday's 0.6322-0.6391 bounds. Likewise, NZD shrugged off firmer than expected Q1 inflation metrics with a 25bps reduction in May nailed on, according to market pricing. NZD/USD briefly matched the YTD peak @ 0.5944 before pulling back a touch.

17 Apr 2025 - 10:10- ForexEU Research- Source: Newsquawk