EUROPEAN FX UPDATE: USD attempts to atone for recent losses, JPY weighed on by a pullback in domestic yields

USD: DXY +0.4%; 99.32

• DXY is attempting to recover recent losses after printing a fresh MTD trough yesterday @ 98.69. There hasn't been a clear driver for the price action with fresh macro drivers out of the US on the light side. Focus remains on the trade front with FBN's Gasparino noting yesterday that a framework between the US and India is close to being announced; this could offer some reprieve. Elsewhere, remarks from Fed 2026 voter Kashkari stated that he finds arguments against looking through tariff-induced inflation as compelling. For today's docket, the notable highlights are Durable Goods and Consumer Confidence metrics. However, greater attention will be on events later in the week with FOMC minutes, the second reading of Q1 GDP and monthly PCE metrics due. One interesting observation has come from ING, referencing the decoupling between US rates and the dollar, "the 60-day correlation between 10-year Treasury yields and DXY started the year at 0.68, and now sits at zero". If DXY continues its march higher, the next target comes via the 23rd May high @ 99.94.

EUR: EUR/USD -0.3%; 1.1352

• EUR/USD is on the backfoot and has returned to a 1.13 handle as the USD attempts to atone for recent losses. Focus remains on the trade front after US President Trump's decision over the weekend to announce a delay to the 50% tariff deadline on EU goods to July 9th. The latest reporting via Bloomberg states that the EU is set to focus on critical sectors in a bid to avoid US tariffs; key industries include steel, aluminium, autos, pharma, semiconductors and aircraft. Markets still deem an EU-US deal as one of the most difficult to negotiate. On the data slate, French CPI metrics came in softer-than-expected ahead of next week's EZ-wide release. As it stands, a June cut is near-enough fully priced with a total of 58bps of loosening seen by year-end. EUR/USD has delved as low as 1.1338 with little in the way of support until the 1.13 mark.

JPY: USD/JPY +0.6%; 143.75

• USD/JPY initially retreated amid a softer dollar and the subdued risk appetite in Japan. There were also comments from BoJ Governor Ueda who stated that, to an extent, incoming data allows them to gain more confidence in the baseline scenario and that as economic activity and prices improve, they will adjust the degree of monetary easing as needed. Nonetheless, the pair eventually clawed back losses as the dollar rebounded off lows and as long-term JGB yields declined in response to source reporting via Reuters that Japan's MoF will consider tweaking the composition of its bond issuance plan, which could involve trimming the issuance of super long debt; will meet with primary dealers on June 20th. USD/JPY has ventured as high as 143.86 vs. an overnight trough @ 142.12. Next target comes via the 144 mark with the 23rd May high just above @ 144.07.

GBP: GBP/USD -0.2%; 1.3586

• GBP on the backfoot vs. the USD but to a lesser extent than most peers. Cable is currently snapping its recent strong showing which saw it hit a multi-year peak yesterday @ 1.3593. Fresh macro drivers for the UK are lacking as participants return from the long weekend. That being said, it is worth keeping an eye on events in the Treasury with The Telegraph reporting (citing NIESR) that Chancellor Reeves is "being forced towards" a tax raid of up to GBP 30bln by benefit giveaways and her struggle with increasing borrowing costs. Note, it is a quiet week with regards to UK scheduled events. Cable is currently tucked within yesterday's 1.3524-1.3593 band.

Antipodeans: AUD/USD -0.5%; 0.6449. NZD/USD -0.6%; 0.5960

• After a strong showing in early European trade yesterday on account of the positive risk tone, both are on the backfoot as the USD picks up steam. NZD/USD hit a fresh YTD high yesterday @ 0.6031 before returning to a 0.59 handle. Focus is now pivoting to the upcoming RBNZ rate decision which is set to see policymakers lower the OCR by 25bps to 3.25%. Aside from the actual decision on rates, attention will also be on the central bank’s language and projections with the RBNZ likely to continue signalling more cuts ahead. AUD/USD also hit a new high for the year yesterday @ 0.6537 but has since moved back onto a 0.64 handle and back below its 200DMA @ 0.6452.

27 May 2025 - 09:55- ForexEU Research- Source: Newsquawk