EUROPEAN FX UPDATE: USD attempts to claw back recent losses, EUR/USD digests soft inflation data

USD: DXY +0.4%; 98.94

• USD is attempting to atone for recent losses after being sold yesterday on account of trade woes, ongoing fiscal concerns and a miss on ISM manufacturing PMI. Focus thus far has been on the trade front after a Reuters report noting that US President Trump's administration wants countries' "best offer" by Wednesday. Elsewhere, the White House Press Secretary said US President Trump and Chinese President Xi will likely talk this week; note, we have not seen any confirmation of this from the Chinese side. Attention later in the session will pivot to the labour market with JOLTS set to be released ahead of Friday's NFP print. Expectations look for a decline to 7.1mln from 7.192mln. Today's Fed speaker slate includes Goolsbee, Logan & Cook. Overnight, DXY hit a multi-month low @ 98.58 before recovering to levels closer to 99.

EUR: EUR/USD -0.4%; 1.1403

• EUR is on the backfoot vs. the USD but just about holding above the 1.14 mark. Losses were extended in early European trade alongside a deterioration in the risk environment as news broke that Dutch Far far-right leader Wilders confirmed he is to quit the government coalition. Flash CPI metrics for the Eurozone showed a slightly softer outturn for HICP Y/Y (1.9% vs. exp. 2.0%, prev. 2.2%) and services inflation slipped to 3.2% from 4.0%. However, the series is expected to have little follow-through into this week's ECB policy announcement which is widely expected to deliver a 25bps rate cut on account of the gloomy growth outlook for the region, given the current trade environment. Looking beyond this week's meeting, markets price in 54bps of loosening (including this week's expected 25bps reduction). If 1.14 gives way, yesterday's low sits @ 1.1340.

JPY: USD/JPY +0.1%; 142.83

• JPY is softer vs. the USD but to a lesser degree than peers. USD/JPY briefly reclaimed the 143 level but failed to hold onto the level alongside a deterioration in the risk environment and a slew of comments from BoJ Governor Ueda who reiterated the Bank will continue to raise rates if the economy and prices move in line with forecasts. He also noted there was no preset plan for rate hikes and that they will raise interest rates only if the economy and prices turn up again and outlooks are likely to be realised. On the trade front, Japan's trade negotiator Akazawa said they are aiming to have cabinet discussions towards a US trade deal and are seeking to accelerate talks ahead of the mid-June G7 talks. USD/JPY is back on a 142 handle and has traded within a 142.39-143.27 range.

GBP: GBP/USD -0.2%; 1.3510

• After a session of gains yesterday, GBP is softer vs. the USD but still managing to just about hold above the 1.35 mark. In terms of UK-specific newsflow, UK Trade Minister Reynolds will meet USTR Greer on Tuesday to discuss the implementation of a trade deal that has been complicated by the announcement of fresh US tariffs on steel, according to Reuters. Elsewhere, BoE's Mann said the BoE cannot exactly offset high long-term rates caused by QT by cutting the bank rate further. Mann will be speaking again today @ 1015BST alongside Bailey, Breeden & Dhingra & Mann at the Treasury Select Committee hearing. With inflation set to remain above target in the near-term and Q1 growth exceeding expectations, the MPC is not fully priced to cut again until November. Cable's session low sits @ 1.3506 vs. yesterday's low @ 1.3453

Antipodeans: AUD/USD -0.6%; 0.6456. NZD/USD -0.7%; 0.5993

• Both softer vs. the USD and at the bottom of the G10 leaderboard in a reversal of yesterday's price action. Losses come as risk sentiment has deteriorated. RBA minutes noted that the Board considered keeping rates unchanged and cutting by 25bps or 50bps, but decided the case for a 25bps cut was the stronger one and preferred for policy to be cautious and predictable. Elsewhere, Australian data saw a surprise contraction in net exports contribution to GDP. AUD/USD has delved as low as 0.6451 but is holding above the 200DMA @ 0.6444 and yesterday's trough @ 0.6430. NZD/USD hit a new high for the year overnight @ 0.6054 before returning to a 0.59 handle; session low @ 0.5991 vs. yesterday's trough @ 0.5963.

03 Jun 2025 - 10:15- ForexEU Research- Source: Newsquawk