EUROPEAN FX UPDATE: USD extends Friday's buying, GBP remains out of favour

USD: DXY +0.4%; 110.10

• USD has kicked the week off on a strong footing, in extension of Friday's post-NFP buying. This week could offer further support for the greenback in the event of a strong showing for US inflation metrics (CPI and PPI) and retail sales data. As it stands, markets price no longer fully price a 25bps cut by the Fed this year vs. 41bps pre-NFP. In terms of desk views, Barclays now expects the Fed to deliver one 25bps rate cut in June 2025 (vs prev. forecast of one cut in March and one in June). For today's docket, US NY SCE is the main highlight. DXY has cracked above 110 for the first time since 10th Nov 2022; 110.99 was the high that day.

EUR: EUR/USD -0.5%; 1.0190

• Last week's selling pressure in EUR/USD has continued into this week with the pair slipping onto a 1.01 handle for the first time since 11th Nov 2023; 1.0163 was the low that day. This week's EZ macro calendar is a light one. However, we did hear from ECB Chief Economist Lane over the weekend, noting that there is probably more easing to come. Elsewhere, Rehn stated that the ECB should have left restrictive territory by mid-summer, and Vucic notes that under current uncertainty, it is better to move gradually as the ECB is doing.


• EUR/USD opex: 1.0200 (3.9bln), 1.0250 (2.5bln), 1.0300-10 (7.5bln), 1.0325 (525mln), 1.0375 (3.4bln).

JPY: USD/JPY -0.4%; 157.18

• JPY is the marginal outperformer across the majors with not much in the way of fresh macro drivers for Japan with Japanese markets closed today. Nonetheless, attention remains on the finely-poised 24th January policy announcement which sees a 25bps hike vs. unchanged rate as a near coin-flip. As a guide, markets fully price 2 x 25bps hikes by year-end. USD/JPY has just broken below the bottom end of Friday's 157.22-158.87 range.

GBP: GBP/USD -0.8%; 1.2110

• GBP has kicked the week off on a negative footing in an extension of the selling pressure seen last week. Cable has delved to its lowest level since Nov 2023 @ 1.2105. If 1.21 gives way, the 1st November 2023 low rests @ 1.2095. Nothing incremental from a UK standpoint has happened over the weekend, however, the ongoing advances in the UK rates space are clearly acting as a drag on the pound. A strong inflation report (stagflation) or even a soft one (increased BoE easing expectations) on Wednesday and weak GDP print on Thursday could cause further issues for the currency.

Antipodeans: AUD/USD -0.1%; 0.6140. NZD/USD -0.2%; 0.5553

• Both slightly softer vs. the broadly mildly stronger USD. Both saw some support overnight amid mild strength in the CNH after the PBoC continued to defend the currency with a firmer-than-expected reference rate setting and raised its cross-border macro adjustment parameter for the first time since July 2023 to 1.75 from 1.50. However, the gains were later pared as the dollar eventually resumed its advances. AUD/USD has hit a fresh multi-year low @ 0.6132 with the pair now at levels not seen since 8th April 2020; 0.6115 was the low that day. NZD/USD sits towards the lower end of Friday's 0.5542-0.5603 range.

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