EUROPEAN FX UPDATE: USD broadly weaker, GBP eyes BoE rate cut

USD: DXY -0.2%; 97.98

• DXY is down for a second day in a row and extending its move below its 200DMA @ 98.21. The USD is continuing to be hampered as markets contemplate Trump's next move with regards to personnel at the Fed. Reporting yesterday suggested that his advisers are trying to guide him towards appointing a temporary Governor to replace Kugler, which would allow him more time to select a Fed Chair. The current shortlist is said to contain three names - two of which are almost certainly Kevin Warsh and Kevin Hassett. Given prior reporting, Fed's Waller is also assumed to be in the running. ING writes that it thinks the "dollar would welcome Warsh, but would get hit by Hassett’s nomination". Comments yesterday from Fed voter Cook noted concern over the July jobs data. However, markets will likely need to wait for Jackson Hole later in the month to get a better steer on how the Fed is likely to be positioned in the coming months. Note, the USD may also be losing ground as geopolitical tensions recede a touch with the Russia and Ukraine conflict potentially nearing a conclusion. Today's data docket includes weekly claims data, the Atlanta Fed GDPNow Tracked and the NY Fed SCE release. Next downside target for DXY comes via the 29th July low @ 97.49.

EUR: EUR/USD +0.2%; 1.1686

• EUR is a touch firmer vs. the broadly weaker USD in a week that has been lacking in incremental drivers for the Eurozone. As such, near-term direction for EUR/USD is likely to continue to be provided by the USD (see USD section). Nonetheless, at the margin, some positivity for the bloc may be gleaned from developments on the geopolitical front following yesterday's discussion between the US and Russia, which was said to have made progress and with President Trump intending to meet Russian President Putin as soon as next week. EUR/USD has extended its rise on a 1.16 handle but is yet to crack the 1.17 mark with the pair topping out @ 1.1698.

JPY: USD/JPY -0.3%; 147.14

• In what has been an indecisive start to the week for USD/JPY, the Yen is eking out mild gains vs. the greenback. This comes in spite of comments from a US official that the now-effective 15% tariff will stack on top of pre-existing tariff rates applied to imports from Japan, unlike in the case of the European Union. Note, there has been some confusion over this comment. However, it has been interpreted as the Japanese government believed it would just replace lower tariffs—so if something was previously taxed at 10%, it’d now be 15%. If it were higher than 15% (like beef at 26.4%), it would stay the same. However, it now appears to be the case that for example, Japanese beef, previously at 26.4%, now gets another 15% on top, making it 41.4%. Markets will look for clarity on this as the “tariff stacking” is likely to raise import costs, disrupt trade flows, and add volatility to affected sectors, especially autos and agriculture. USD/JPY delved as low as 146.70 overnight but has since made its way back onto a 147 handle.

GBP: GBP/USD +0.1%; 1.3362

• GBP is relatively steady vs. the USD as markets brace for the upcoming BoE rate decision, minutes and MPR. Analysts are virtually unanimous in expecting the BoE to lower the Base Rate by 25bps to 4.0% with markets assigning a 93% probability of such an outcome. The move would follow the MPC’s preference for cutting at a quarterly pace and alongside MPR meetings. With regards to the decision to lower rates, consensus looks for a 7-2 outcome. With the likes of Mann and potentially one of Pill or Greene to vote for an unchanged rate. However, when looking at the magnitude of the vote split, this could lead to a three-way split in the event that MPC dove Dhingra and one of Ramsden or Taylor backs a larger 50bps reduction.Note, there is a wide range of views on the vote split and therefore, given the rate is widely expected to be lowered, the first order move for GBP will likely be on the vote split. For now, the softening in the UK economy is not enough to see policymakers accelerate their current pace of loosening and as such, the statement is expected to retain guidance that rate cuts will be “gradual and careful”. Looking beyond the upcoming meeting, markets see 48bps of loosening by year-end, including today's expected 25bps reduction. For the accompanying MPR, MS expects “the peak in near-term inflation to be shifted up to just under 4%, largely on food prices” and for medium-term inflation and growth forecasts to be subject to little change. To the upside, 134 is the next resistance level for Cable. To the downside, yesterday's low sits @ 1.3282.

Antipodeans: AUD/USD +0.5%; 0.6530. NZD/USD +0.5%; 0.5955

• Both are building on the gains seen yesterday vs. the USD with upside today following on from encouraging Chinese trade data which showed a surprise growth in imports and a larger-than-expected increase in exports. AUD/USD has extended its rise on a 0.65 handle and taken out its 200DMA @ 0.6515. Current session high sits @ 0.6541 with the next target coming via the 28th July peak @ 0.6586. NZD/USD has gained a firmer footing on the 0.59 handle and is eyeing the 30th July high @ 0.5971.

07 Aug 2025 - 10:15- ForexGeopolitical- Source: Newsquawk