EUROPEAN FX UPDATE: USD flat & GBP hit after region's softer-than-expected inflation report

DXY: U/C, 99.00

• USD is mildly firmer/flat. Nothing really driving things at the moment, but traders are mindful of trade/shutdown developments, and as some begin to position themselves ahead of Friday’s inflation report. For context, some of the recent upside seen in the dollar has been attributed to; a) reversal of debasement trade, b) steep correction in gold, c) easing credit concerns – ING outlines that continued USD strength may be hard to sustain, unless “markets find reasons to price out one of the three Fed cuts expected by March”.


• Briefly recapping the latest trade developments, US President Trump said he will discuss a lot of things with his Chinese counterpart, though he added that the meeting might not happen. As for recent shutdown developments, top democratic congressional leaders reached out to Trump for negotiations – though the President rejected their advances, saying he will not meet any Democratic leaders unless the government is reopened.


• DXY is currently trading at the upper end of the day’s 98.84-99.05 range, peak for the day marks the WTD best. Further upside will see a test of the 14th October high at 99.47.

EUR: U/C, 1.1593

• EUR is essentially flat and trades in an incredibly tight 1.1590-1.1615 range; nonetheless, the bias for today’s price action has been mildly downward. Lacklustre price action, which comes amidst a lack of pertinent newsflow.


• Some focus on reports that several EU leaders have called for the bloc to review, reduce and restrain legislation to reduce the burden on business, via Reuters.

JPY: -0.1%, 151.70

• JPY is essentially flat/mildly lower vs USD, and currently trades in a 151.48-151.95 range, just shy of the 152.00 mark. Overnight strength in the Yen was attributed to a mostly subdued risk tone, although this was marginal in nature given the lack of newsflow and pertinent data releases.


• Thereafter, traders had trade-related reports to digest; Reuters reported that PM Takaichi is to tell US President Trump that the country will buy US soybeans, pickups and LNG, though may not commit to a new defence spending target. As a reminder, the POTUS will visit Japan from October 27-29.


• On economic policy, Takaichi is reportedly readying an economic stimulus which is set to top JPY 13.9tln; Reuters suggested measures are to counter inflation, investment in growth industries and national security. Elsewhere, Japan’s Finance Minister Katayama echoed her PM’s recent remarks, pushing back on the government’s involvement with the BoJ. Katayama said it is up to BoJ on specifics on monetary policy, but should work together to have effective economic policies. As a reminder, in the prior session, the PM said monetary policy lies with the BoJ, and there is no need to review the accord right now.


• Whilst Takaichi sees herself as an Abe successor, her recent remarks have seemingly pushed back on implementing an ultra-dovish BoJ rate path. Moreover, the extent of her fiscally expansive policies may also be limited given she leads a minority government. As such, Rabobank sees USD/JPY moving back towards 147.00 on a 3-month basis.

GBP: -0.4%, 1.3313

• GBP is the clear underperformer vs USD today, following the region’s soft inflation report. In detail, headline Y/Y was unchanged from the prior at 3.8% (exp. 4%), with the Services components also softer-than-expected.


• In an immediate reaction, GBP/USD fell from 1.3384 to 1.3343, before extending to a trough of 1.3314 where the pair currently resides. Further levels to the downside include the low from October 15th and then last week's worst at 1.3248.


• Following the release, market pricing has shifted dovishly, with markets now assigning a 74% chance of a cut by year-end vs 44% pre-release; the first full 25bps cut is priced in by Feb 2026. However, the pre-Budget uncertainty and the slightly mixed drivers within the headline CPI figure, alongside the stickiness of CPI Y/Y at 3.8% may stop the dovish move from running any further. Though, the remarks from Chancellor Reeves overnight and this morning make clear that she does not want the Budget to stand in the way of the BoE easing.


• Recapping Reeves in detail, she vowed to “smooth” the path for BoE cuts, adding that she was determined to get a grip on borrowing and would take steps in her Budget to cut household bills. In other reports, Reeves is reportedly targeting tax partnerships in a crackdown on the UK’s wealthy.

Antipodeans: AUD +0.1%, NZD +0.1%

• Antipodeans are the marginal G10 performers today, benefiting from a recent bounce back in metals prices as spot gold and base metals clamber off from the hefty pressure seen in the prior session. AUD/USD currently trades in a 0.5483-0.6512 range, which is towards the mid-point of the prior day’s range. The Kiwi currently trades in a 0.5736-0.5761 range, with the high for the day just shy of its 21 DMA at 0.5768.

22 Oct 2025 - 10:05- ForexEU Research- Source: Newsquawk