EUROPEAN FX UPDATE: USD fades yesterday's gains, EUR digests recent tariff announcements

USD: DXY -0.1%; 104.50

• DXY is on the backfoot after gaining yesterday with the USD showing a mixed performance vs peers. USD gains yesterday were bolstered by the Trump administration's decision to impose 25% tariffs on all cars made outside of the US. That being said, the extent of yesterday's rise was relatively limited with some desks drawing attention to the selling seen in the US equity space as a balancing factor. On which, shares of US automakers are suffering in pre-market trade following the announcement. The pre-election playbook of tariff headlines being USD positive appears to have been rewritten with the hit to economic confidence in the US being the dominant force vs. potential safe haven appeal. That being said, it is worth noting that today is FX spot month-end. As a reminder, Barclays month-end rebalancing model indicates a strong USD buying signal by month-end against all majors. For today's agenda, focus will be on weekly claims figures alongside revisions to Q4 GDP and PCE data. DXY is currently holding below yesterday's high @ 104.68. If this gives way, the 200DMA sits @ 104.92.

EUR: EUR/USD +0.1%; 1.0761

• EUR trivially firmer vs. the USD after a run of six consecutive sessions of losses. It remains to be seen how much legs the bounceback in EUR/USD has given the latest Trump administration announcement of 25% tariffs on all cars made outside of the US. Furthermore, the EU’s top trade negotiator Sefcovic expects US President Trump to hit the bloc with tariffs of about 20% next week. ECB speak continues to focus on the impact of the trade war on the EZ economy with the hawks focusing on the inflationary impact and doves on the growth hit. Today, ECB's Wunsch noted that the Bank is facing a difficult balancing act and a pause should be on the table next month. ECB's Lagarde, Schnabel and de Guindos are due to speak later today. EUR/USD is yet to make its way back onto a 1.08 handle and approach yesterday's peak @ 1.0803. To the downside, attention is on the 200DMA @ 1.0729.

JPY: USD/JPY +0.2%; 150.87

• USD/JPY has extended on yesterday's upside with JPY the worst performer across the majors. Fresh macro drivers for Japan are light as markets look ahead to Tokyo CPI overnight. On which, analysts at ING expect a slight easing of Tokyo prices "amid energy subsidy programmes and stabilisation of fresh food prices. But prices excluding fresh food and energy are likely to remain at a 1.9% rate". As a reminder, the latest BoJ meeting provided no surprises as it maintained rates at 0.50%. Markets do not fully price the next 25bps hike until September with a total of 35bps of loosening seen by year-end. If USD/JPY takes out the WTD peak @ 150.94, attention will be on a test of 151. Above which, lies the 50DMA @ 151.43 and 200DMA @ 151.65.

GBP: GBP/USD +0.2%; 1.2916

• GBP is attempting to atone for yesterday's CPI and Spring Statement induced losses. The recovery has been a tentative one thus far, albeit Cable has been able to reclaim the 1.29 handle. As the dust settles on yesterday's announcement from UK Chancellor Reeves, ING writes that "if the Chancellor has to raise taxes in the autumn, this means that this year's Bank of England easing cycle is under-priced". As it stands, Refinitiv data shows around 44bps of loosening by year-end. If upside in Cable extends, yesterday's high kicks in @ 1.2949.

Antipodeans: AUD/USD +0.2%; 0.6310. NZD/USD +0.2%; 0.5742

• Both are recouping lost ground and attempting to take advantage of the reversal in the greenback. Of note for both countries' largest trading partner, China, US President Trump has suggested he could give the nation some tariff relief to get a deal done on TikTok; China has reportedly rejected this approach. AUD/USD is back above its 50DMA @ 0.6293 and back on a 0.63 handle but yet to approach yesterday's best @ 0.6330. NZD/USD has advanced further on a 0.57 handle but remains south of yesterday's 0.5762 peak.

NOK: EUR/NOK +0.1%; 11.3560

• Norges Bank left rates unchanged in-line with the view of most desks (some looked for a 25bps cut as guided in January). A hold that was justified by inflation pickup. Despite this, the Norges Bank still takes the view that the policy rate can be cut in 2025 and then gradually over the next few years. However (largely as expected), the repo forecasts were subject to a hawkish adjustment with the end-2025 rate at 4.21% (prev. 3.80%); i.e. pricing points to potentially two cuts (but skewed towards just one) at the end of 2025 vs the three cuts across 2025 implied by the December MPR. EUR/NOK fell from 11.3850 to 11.3374 (session low) in a kneejerk reaction as some bets for a cut were unwound. Thereafter, price action was choppy as participants digested the points of uncertainty in the statement and new repo forecasts.

27 Mar 2025 - 10:15- ForexData- Source: Newsquawk