EUROPEAN FX UPDATE: USD extends its winning streak, GBP weighed on by woeful borrowing data

USD: DXY +0.3%; 97.60

• DXY is extending its winning streak to a third session and building on yesterday's gains, which were in part driven by a downtick in weekly claims data and a strong Philly Fed report. From a macro perspective, there isn't much of note on the data slate and as such, markets will be reflecting on the week that has been and digesting Wednesday's FOMC announcement, which saw an initial dovish reaction to the decision and SEPs countered by a more cautious Chair Powell. Dovish dissenter Miran will be explaining his decision to back a larger 50bps move at some point today. However, given he is such an outlier on the FOMC and was not joined by Waller or Bowman, his views will likely prove non-incremental for the market, which prices 43bps of loosening by year-end and 112bps by end-2026. 2027 voter Daly is also due on the speaker slate, but is due to present on AI and as such, her comments may not be pertinent for mon pol. Elsewhere, US President Trump and Chinese President Xi are to hold a call today at 14:00 BST/ 09:00ET. The subject matter will likely involve TikTok, tariffs, semiconductors, and geopolitics with the market focused on whether the call could lead to a face-to-face meeting. DXY sits just a touch below yesterday's peak @ 97.60. If breached, the WTD high from Monday sits @ 97.70.

EUR: EUR/USD -0.3%; 1.1753

• EUR is softer vs. the broadly firmer USD with incremental macro drivers for the Eurozone lacking, as has been the case throughout the week. Attention next week will be on flash PMI metrics for September. Ahead of which, Investec notes "on the whole data for Q3 has pointed to some resilience in the economy. We expect this momentum to be reflected in another small improvement in the PMI in September, which at current levels remains relatively low. Clarity over tariffs following last month’s trade agreement with the US provides a further positive development". After printing a multi-year high earlier in the week @ 1.1919, the pair has since delved as low as 1.1750 on Thursday. The WTD low sits @ 1.1716.

JPY: USD/JPY -0.1%; 147.86

• JPY is the only of the majors firmer vs. the USD, following the BoJ policy announcement. As expected, the Bank stood pat on rates. However, the decision to do so was subject to hawkish dissent from Takata and Tamura on account of concerns over upside inflation risks. The other source of surprise came from the BoJ's decision to begin selling its ETF and J-REIT Holdings at a pace of JPY 330bln per year and JPY 5bln per year, respectively. The hawkish dissent knocked USD/JPY lower and sent the pair to a session trough @ 147.21 before fading a bulk of the downside heading into Governor Ueda's press conference. During which, he reiterated that the Bank will continue raising rates if prices move as forecast. From a hawkish perspective, he noted that the domestic economy is withstanding tariff impact and the Bank does not necessarily need to wait to see the full impact of US tariffs on inflation to make a decision on additional tightening. That being said, he acknowledged that downside risks to the economy are still present and didn't make any explicit signals to a move next month, which could have been a driver for the fading of JPY strength. Overall, subject to a marked deterioration in the data (with a particular emphasis on the upcoming Tankan survey) and domestic political stability (LDP election on October 4th), opinion on the board may shift towards another 25bps hike. Markets currently see the October decision as a coin flip and as such, there is still a lot of scope for markets to reprice expectations of the BoJ's next move. USD/JPY has moved back above its 50DMA @ 147.65 and sits towards the top end of yesterday's 146.76-148.26 range.

GBP: GBP/USD -0.5%; 1.3489

• GBP is extending yesterday's losses vs. the EUR and USD as markets digest yesterday's BoE policy announcement and the latest batch of UK data. UK retail sales printed better-than-expected (M/M 0.5% vs. Exp. 0.3%) with Pantheon Macroeconomics surmising that it continues to expect consumer spending to help GDP growth tick along close to trend. However, the release was overshadowed by a marked rise in UK public sector net borrowing (17.962bln vs, Exp. 12.75bln, prev. 2.818bln). Accordingly, fiscal year-to-date borrowing (i.e. April-August) stands at GBP 83.4bln vs the GBP 72.4bln forecast by the OBR. As such, pressure is building on Chancellor Reeves as we look to the Autumn Budget at the end of November. Pantheon Macroeconomics concluded "today’s figures suggest the Chancellor will need to raise taxes by more than the £20B we had previously estimated". Looking ahead to next week, focus will be on flash PMI metrics for September, which could be hampered by caution heading into the aforementioned November budget. GBP/USD has hit a fresh WTD low @ 1.3483 with the next downside target coming via the 50DMA @ 1.3465.

Antipodeans: AUD/USD -0.1%; 0.6603. NZD/USD 0.5872

• Both antipodes are softer vs. the USD in quiet newsflow for Australia and New Zealand, with a decline in NZ exports having little follow-through into NZD. After hitting a fresh YTD high earlier in the week @ 0.6707, AUD/USD briefly made its way onto a 0.65 handle with a current session low @ 0.6588 before moving back above the 0.66 mark. After a sizeable session of losses yesterday on account of disappointing NZ GDP metrics, NZD/USD has extended its decline further to a current session low @ 0.5855 with the next downside target coming via the 200DMA @ 0.5839.

19 Sep 2025 - 10:00- ForexData- Source: Newsquawk