EUROPEAN FX UPDATE: USD eyes FOMC, CAD awaits BoC, AUD softer post-CPI

USD: DXY +0.1%; 108.00

• DXY is marginally higher with the USD stronger vs. most peers (ex-JPY). Today is of course Fed day which is set to see the FOMC pause its rate cutting cycle. At the subsequent press conference, Rabobank expects "Powell to stress that the FOMC is data-dependent and cautious about further cuts, while dodging questions about the impact of Trump’s policies on the Fed’s rate path". As it stands, markets currently price around 50bps of loosening by year-end. ING writes that markets may still lack catalysts to price in more than this level of easing by year-end due to the strength of the jobs market. Elsewhere, markets remain alive to the risk of potential tariff announcements by the Trump admin. DXY is currently oscillating around the 108 mark and briefly matched the top end of yesterday's 107.68-108.05 range.

EUR: EUR/USD -0.1%; 1.0413

• EUR now softer vs. the USD after a bout of selling pressure early doors alongside a disappointing outturn for German GfK Consumer Sentiment. Greater focus lies on tomorrow's ECB policy announcement and the looming threat of tariffs from the Trump administration. On the former, a 25bps cut is widely expected and therefore, focus will be on any guidance over the pace of rate cuts going forward. Whilst the ECB will likely refrain from any explicit guidance, an emphasis on growth concerns would likely be inferred as a dovish signal by the market. As it stands, the odds of a 25bps cut in March stand at around 80% with a total of 90bps of loosening seen by year-end. EUR/USD briefly slipped below yesterday's and the 24th Jan lows @ 1.0414 and 1.0411 respectively but has managed to hold above the 1.04 mark.

JPY: USD/JPY -0.2%; 155.26

• JPY is slightly firmer vs. the USD. BoJ Minutes from the December meeting did little to shift the dial given that there was a more recent meeting last week where the central bank delivered a widely expected 25bps rate hike. Furthermore, JPY was unreactive to news that Japanese Finance Minister Kato held a videoconference with new US Treasury Secretary Bessent in which they confirmed close cooperation on FX. USD/JPY is currently within yesterday's 154.45-155.97 range and holding above its 50DMA @ 154.86.

GBP: GBP/USD -0.1%; 1.2430

• GBP is a touch softer vs. the USD but mildly firmer vs. the EUR with fresh macro drivers for the UK on the light side. That could change at 10:00GMT with UK Chancellor Reeves set to deliver a speech in which she will pledge to go “further and faster” to boost the UK economy by unblocking new infrastructure projects, according to Bloomberg. Elsewhere on today's docket, BoE Governor Bailey is to attend the TSC hearing on the November Financial Stability Report at 14:15GMT. Cable currently sits towards the lower end of yesterday's 1.2415-98 range.

Antipodeans: AUD/USD -0.3%; 0.6232. NZD/USD -0.3%; 0.5651

• Both on the backfoot vs. the USD for a third consecutive session. AUD was hampered overnight by soft Australian CPI metrics in which all figures for Q4 printed softer-than-expected and resulted in increased bets for a cut at the next RBA meeting (cut now priced at around 76% vs. 64% pre-release). In terms of house views, Westpac brought forward its RBA rate cut call to February from May. AUD/USD has delved as low as 0.6228 with the next level of support coming via the 21st Jan low @ 0.6207. NZD/USD is also on the backfoot but managing to hold above yesterday's 0.5648 trough.

SEK: EUR/SEK +0.1%; 11.4765

• SEK trivially softer vs. the EUR after the Riksbank opted to cut rates by 25bps as expected. The accompanying statement noted that "the forecast for the policy rate made in December essentially holds, but the Executive Board is prepared to act if the outlook for inflation and economic activity changes". Additionally, it was stated that "there are signs that an economic rebound is on the way, but activity remains weak". EUR/SEK knee-jerked higher from around 11.46 to 11.49 following the announcement, but this was entirely pared in the minutes after. As the dust-settles, EUR/SEK is now attempting to move a little higher with some dovishness stemming from some outside bets of a hold being unwound. Oxford Economics expects "one more rate cut either in March, when new forecasts are released, or in May, and a terminal rate of 2%".

CAD: USD/CAD +0.1%; 1.4409

• CAD marginally softer vs. the USD in the run up to today's BoC rate decision which is set to see policymakers pull the trigger on another 25bps rate reduction, bringing the total quantum of cuts to 200bps for the current cycle. 25/31 surveyed by Reuters expect such an outcome with markets pricing a 25bps cut at around 100%. As such, focus for the release will be on any clues on future easing (markets price a total of 67bps of easing by year-end) and commentary over the potential impact of impending tariffs by the Trump administration. USD/CAD is currently towards the top end of yesterday's 1.4392-1.4418 range.

29 Jan 2025 - 09:55- ForexEU Research- Source: Newsquawk