EUROPEAN FX UPDATE: USD down as geopolitics dominates the news cycle

USD: DXY -0.3%: 97.97

• DXY has kicked the week off on the backfoot with the news cycle currently dominated by the Iran-Israel conflict. Focus is on how material any further escalations will be or whether the US will be able to engineer a ceasefire between both sides. Attention will eventually pivot towards the FOMC policy decision on Wednesday, which is set to see policymakers stand pat on the FFR as the Bank awaits further clarity on the impact of the trade war. Note, it is a dot plot meeting with the March projections pointing to 50bps of easing in 2025 and 2026. ING suggests that despite last week's soft inflation metrics, the path ahead for price pressures (tariffs and recent rise in oil) means there is a non-negligible risk that 2025 easing expectations could be trimmed to 25bps. ING is of the view that a more "hawkish Fed is not enough to keep the dollar bid in the current environment". DXY is currently tucked within Friday's 97.62-98.58 range.

EUR: EUR/USD +0.2%; 1.1578

• EUR is a touch firmer vs. the broadly weaker USD with fresh macro drivers from the EZ light. Last week, a slew of ECB speakers failed to move the dial for ECB pricing with commentary echoing that of President Lagarde at the most recent policy announcement; maintaining flexibility but the Bank is likely at or near the end of the easing cycle. Of potentially greater interest are developments in the energy complex. The recent uspide in crude prices could further hamper the growth outlook for the bloc (already weighed on by tariff uncertainty) given its reliance on energy imports. This week's calendar is another light one for the Eurozone with the main highlight coming via ZEW metrics tomorrow. EUR/USD has sat on a 1.15 handle throughout the session and within Friday's 1.1489-1.1614 range.

JPY: USD/JPY +0.1%; 144.23

• A choppy start to the week for the JPY as a brief slip below the 144 mark in early European trade was subsequently reversed. JPY and the safe-haven CHF are both weaker vs. the USD despite the current geopolitical risk environment with some desks pointing towards hopes of a ceasefire and "peak" geopolitical risk. Traders are looking ahead to tomorrow's BoJ policy announcement which is widely expected to see policymakers stand pat on policy. Reporting via the Nikkei suggests that the BoJ is considering halving quarterly purchases of Japanese government bonds to JPY 200bln from April 2026. USD/JPY is currently just above its 50DMA @ 144.07 with a range of 143.90-144.74.

GBP: GBP/USD +0.1%; 1.3583

• GBP is fractionally firmer vs. the USD and weaker vs. the EUR. Newsflow from the UK is relatively light, with markets instead looking towards this week's upcoming risk events. Inflation data for May hits on Wednesday and is expected to show headline Y/Y CPI hold steady at 3.5%, with the services component set to decline to 5.0% from 5.4%. The release is unlikely to have any bearing on the BoE policy announcement the following day with the MPC widely expected to keep policy steady with dovish dissent from Dhingra and Taylor. Last week's soft labour market and growth metrics have prompted concerns over the BoE potentially falling behind the curve. However, the MPC is unlikely to ditch “gradual and careful” approach to policymaking with inflation set to rise in the coming months. GBP/USD is currently tucked within Friday's 1.3517-1.3632 range.

Antipodeans: AUD/USD +0.3%; 0.6506. NZD/USD +0.4%; 0.6031

• Both firmer vs. the USD and at the top of the G10 leaderboard following a session of risk-led losses on Friday. From a macro perspective, focus this week will be on NZ Q1 GDP metrics on Wednesday and Australian labour market data on Thursday. Furthermore, aside from the broader risk environment, both may be dictated by any headlines surrounding the US-China trade situation. NZD saw no reaction to NZIER lowering New Zealand's 2025/26 GDP growth forecast to 1.9% from 2.1% but is managing to hold above the 0.60 mark after delving as low as 0.5995 on Friday. AUD/USD sits towards the middle of Friday's 0.6456-0.6535 range.

16 Jun 2025 - 10:00- ForexData- Source: Newsquawk