EUROPEAN FX UPDATE: USD attempts to recoup lost ground, EUR/USD back below 1.04, GBP awaits BoE

USD: DXY +0.3%; 108.02

• Firmer vs. all peers after a run of three negative sessions for the DXY. Downside has been attributed to greater optimism around the trade front, which has pressured US yields and dragged the 10yr below 4.5%; yesterday's soft ISM services data also weighed on the USD. As we have mentioned in our commentary, it remains to be seen whether the optimism around trade is warranted given that issues between the US and China are still unresolved and the EU is still very much in the sights of Trump. Today sees the release of weekly claims figures and remarks from Fed's Waller, Daly and Jefferson. However, greater attention lies on tomorrow's NFP print and any potential signs of a cooling in the labour market following soft JOLTS data earlier in the week. DXY has just about gained a footing on a 108 handle with a session high @ 108.05; matching yesterday's best.

EUR: EUR/USD -0.4%; 1.0359

• EUR/USD has made its way back onto a 1.03 handle after venturing as high as 1.0442 yesterday. Fresh EZ-specific macro drivers are lacking for today's session aside from a continued drip-feed of ECB rhetoric with Cipollone noting that US tariffs on China could force the dumping of goods in Europe, weighing on growth and inflation. Focus ahead lies on tomorrow's ECB flash estimate of the neutral rate, which could be used as an indication of how much more loosening the Bank needs to undertake to get itself back to a non-restrictive setting. 1.0357 is the current session low with not much in the way of support until the 1.03 mark.

JPY: USD/JPY U/C; 152.57.

• JPY on the backfoot vs. the USD but to a lesser extent than peers on account of hawkish comments from BoJ hawk Tamura overnight who put forward his view that the Bank needs to raise rates to at least around 1% in the latter half of fiscal 2025. As it stands, markets don't fully price the next 25bps hike until September with a total of 33bps of tightening by year-end. USD/JPY went as low as 151.82 overnight (lowest since 12th Dec) but has since returned to a 152 handle and temporarily moved back above its 200DMA @ 152.74.

GBP: GBP/USD -0.6%; 1.2428

• Softer vs. the USD and to a lesser extent the EUR in the run-up to today's BoE policy announcement. Expectations are for a 25bps rate cut via an 8-1 vote split. Attention will be on any tweaks to forward guidance and how macro projections in the accompanying MPR indicate how loose/tight the MPC views current policy. The outside bearish outcome for GBP would be if external member Mann joined the consensus in voting for a cut. As it stands, the next 25bps cut is not fully priced until June, whilst a total of 83bps of loosening is seen by year-end. Cable has made its way back onto a 1.24 handle and back below its 50DMA @ 1.2498 with a session trough @ 1.2418 seen in the weaker of soft Construction PMI data.

Antipodeans: AUD/USD -0.4%; 0.6260. NZD/USD -0.6%; 0.5657

• Both on the backfoot vs. the USD in quiet newsflow as a run of three consecutive sessions of gains comes to a halt. AUD/USD is back below its 50DMA @ 0.6288 after venturing as high as 0.6296 yesterday. Yesterday's low sits @ 0.6239 which is some way north of Monday's multi-year low @ 0.6087. NZD/USD has also slipped below its 50DMA @ 0.5961 after topping out yesterday @ 0.5702. The pair is currently managing to hold above yesterday's 0.5645 low and the multi-year low printed on Monday @ 0.5516.

06 Feb 2025 - 10:25- ForexEU Research- Source: Newsquawk