EUROPEAN FX UPDATE: USD dominates as geopolitics take centre stage

USD: DXY +0.4%; 98.05

• DXY is very much on the front foot with USD benefiting from its status as a safe-haven currency. This follows Israel conducting pre-emptive strikes on Iranian nuclear and military targets. In response, Iran warned that Israel and the US will pay a heavy price. The key for markets is the extent to which the conflict will escalate and whether it could lead to disruptions in the Strait of Hormuz. Nonetheless, the existing surge in energy prices, if sustained, could have ramifications for the global inflation outlook and overshadow some of the positivity seen from this week's US CPI and PPI reports. Particularly given expectations that inflation is already set to rise in the coming months on account of the trade war. Today's data highlight from the US comes via the UoM release at 15:00BST which is set to show an uptick in the headline sentiment metric. DXY has ventured as high as 98.39 but has stopped shy of yesterday's best @ 98.51.

EUR: EUR/USD -0.3%; 1.1547

• EUR is on the backfoot vs. the USD and has pulled back from yesterday's multi-year high @ 1.1613. Fresh fundamentals for the Eurozone are lacking and therefore, price action is being dictated by broader moves in the dollar. From an ECB perspective, should higher energy prices be sustained, this could shift the Bank's inflation outlook. Note, last week's ECB 2026 inflation forecast of 1.6% was predicated on a firmer EUR and softer energy prices. As such, developments overnight could provide some ammo for the hawks on the ECB. However, it is too early to draw such conclusions at this stage. EUR/USD has delved as low as 1.1513 vs. yesterday's trough @ 1.1487.

JPY: USD/JPY +0.2%; 143.74

• JPY is actually softer vs. the USD despite the risk-aversion seen across global markets. Overnight, USD/JPY trickled lower and briefly dipped beneath the 143.00 level owing to the haven flows into yen but later rebounded to a session high @ 143.87. From a domestic perspective, Bloomberg reports that Japan's top trade negotiator Akazawa expects that a trade deal with US would see the nation spared from higher auto tariffs; these comments come ahead of the 6th round of trade talks in Washington. Markets look ahead to next week's BoJ policy announcement which is expected to see policymakers stand pat on policy; a total of 12bps of tightening is seen by year-end.

GBP: GBP/USD -0.4%; 1.3559

• GBP on the backfoot vs. the USD but flat vs. the EUR. Price action for Cable has been dictated by the USD leg of the equation with fresh UK drivers on the light side asides from comments by the IFS Johnson that UK Chancellor Reeves is a "gnat's whisker" away from having to raise taxes in the autumn budget despite the chancellor insisting her plans are "fully funded". As such, markets look ahead to next week's UK CPI report and BoE policy announcement. The latter is expected to see policymakers stand pat on policy. However, the recent soft labour market data and growth metrics from the UK could lead to some dovish dissent on the MPC. Cable has pulled back from its multi-year high seen overnight @ 1.3632 and slipped back onto a 1.35 handle with a session low @ 1.3522.

Antipodeans: AUD/USD -0.8%; 0.6480. NZD/USD -0.9%; 0.6011

• Both have been hit hard and sit at the bottom of the G10 leaderboard on account of the notable deterioration in risk sentiment. Fresh macro drivers for both are on the light side and as such the risk environment has been the sole driver of price action. AUD/USD has pulled back from an overnight peak @ 0.6533 to a current session low @ 0.6457 with the next target coming via the 4th June low @ 0.6450. If breached, the 200DMA @ 0.6431. NZD/USD is just about holding above the 0.60 mark with a session low @ 0.6005.

13 Jun 2025 - 09:55- ForexData- Source: Newsquawk