EUROPEAN FX UPDATE: USD claws back initial losses as the trade agenda dominates ahead of "Liberation Day"

USD: DXY U/C 104.02

• After commencing trade on a softer footing, the USD has been able to claw back losses vs. most peers (ex-JPY and GBP). The main focus at the start of the week has been on the trade agenda after reports that US President Trump is said to be pushing senior advisers to go bigger on tariff policy as they prepare for ‘Liberation Day’ on April 2nd and reportedly revived the idea of a flat universal tariff single rate on most imports. It was also noted that the option viewed as most likely would be tariffs on products from the 15% of countries the administration deems the worst US trading partners, which account for almost 90% of imports. The reaction function for USD on tariff risk remains muddied but is currently biased towards a softer USD. DXY delved as low as 103.74 overnight but has since made its way back onto a 104 handle. In terms of other newsflow for the US, Goldman Sachs has raised its 12-month US recession probability forecast from 20% to 35%; reflects lower growth baseline and sharp deterioration in household and business confidence. This week's US data schedule includes manufacturing and services ISMs, ADP, JOLTS, NFP.

EUR: EUR/USD -0.1%; 1.0812

• EUR/USD was initially firmer despite the slew of negative tariff commentary over the weekend (see above section for details) and the subsequent heavy losses in European equity markets. More recently, the USD has picked up a touch and dragged EUR/USD closer to the 1.08 mark with a session trough @ 1.0806. If 1.08 gives way, Friday's low kicks in @ 1.0764. In terms of fresh macro drivers for the Eurozone, regional inflation metrics from Germany have been mixed ahead of the mainland metrics @ 13:00BST, which are expected to show HICP tick lower to 2.4% from 2.6% and M/M hold steady @ 0.5%. Elsewhere, ECB speak has seen uber-dove Panetta of Italy note that uncertainty from US trade policy calls for caution in lowering rates. Goldman Sachs sees the ECB delivering an additional 25bps rate cut in July, along with a prior forecast of cuts in April and June.


• EUR/USD opex: 1.0800 (1.6bln), 1.0810-20 (614mln), 1.0840 (362mln), 1.0850-60 (543mln), 1.0875-85 (477mln), 1.0890-1.0900 (802mln), 1.0925 (225mln).

JPY: USD/JPY -0.4%; 149.18

• USD/JPY briefly retreated beneath the 149.00 handle with the pair dragged lower by haven flows into the Japanese currency amid the bloodbath in Tokyo stocks, which saw the Nikkei 225 enter into correction territory. In terms of Japanese-specific newsflow, the Japanese Pension fund maintained asset allocation targets in its portfolio, whilst the BoJ cut the amount of super-long bond purchases in its quarterly plan. USD/JPY delved as low as 148.71 overnight; lowest since 21st March (148.58 was the low that day).


• USD/JPY opex 149.00 (260mln), 150.00 (1.4bln), 150.50 (270mln).

GBP: GBP/USD U/C; 1.2945

• GBP flat vs. the USD with UK-specific newsflow on the light side aside from UK PM Starmer speaking with US President Trump on Sunday evening in which they discussed productive negotiations between their respective teams on a UK-US economic prosperity deal and agreed that these will continue at pace this week. Cable briefly rose above Friday's peak @ 1.2967 before returning to levels south of 1.2950. This week's UK calendar is light in terms of tier 1 events.

Antipodeans: AUD/USD -0.4%; 0.6261. NZD/USD -0.4%; 0.5691

• Antipodeans are softer on the broad risk-off moves seen across the market (see USD section for an overview of tariff updates) with an encouraging showing for official Chinese PMIs unable to provide much in the way of reprieve. For AUD, attention is pivoting towards tomorrow's RBA rate decision whereby, markets assign just a 17% chance of a 25bps rate after the bank pulled the trigger on the first reduction in its cycle in February. Reason for caution stems from the rebound in inflation following the February cut. AUD/USD has extended on the downside seen on Friday and remains below its 50DMA @ 0.6295; currently pivoting the March 21st low @ 0.6257. NZD/USD has slipped below the 0.57 mark (coincides with the 50DMA); next downside target comes via the 13th March low @ 0.5677.


• AUD/USD opex: 0.6250 (398mln), 0.6300 (1.1bln), 0.6350 (856mln).

31 Mar 2025 - 10:00- ForexEU Research- Source: Newsquawk