EUROPEAN FX UPDATE: USD fractionally extending yesterday's upside, Kiwi leads post-RBNZ

USD: DXY +0.1%; 99.61

• DXY is marginally extending on yesterday's upside which was triggered by optimism on the trade front and a strong Consumer Confidence release. US-specific newsflow since yesterday has been lacking and as such markets look ahead to today's FOMC minutes release, albeit, given the fluidity of the trade situation, the account is likely to be deemed as stale in some quarters. As such, greater focus will be on monthly PCE metrics due on Friday. Note, Citi's month-end rebalancing model points to a net selling of USD vs. all of the major currencies with the strongest signals vs. JPY and GBP. DXY has ventured as high as 99.87 with focus on a potential test of the 100 mark; last breached on 22nd May (100.11 was the high that day).

EUR: EUR/USD -0.1%; 1.1319

• EUR has seen a slight extension of losses vs. the USD after printing a MTD high on Monday @ 1.1419. Focus remains on the trade front given the slew of headlines across recent sessions which has seen the EU seemingly increasing efforts to reach a deal with the US after President Trump threatened an escalation last week. On the monetary policy front, ECB's Lane said the central bank's task to bring inflation back to 2% is mostly completed, albeit services inflation is still too high. Lane also that the range of discussions on the GC is not that wide and that no one is talking about dramatic rate cuts. Elsewhere, the ECB Consumer Expectations Survey for April showed the 12-month ahead inflation expectation rise to 3.1% from 2.9% and the 12-month ahead growth forecast cut to -1.9% from -1.2%. EUR/USD briefly slipped onto a 1.12 handle with a session trough @ 1.1296.

JPY: USD/JPY -0.1%; 144.11

• JPY is fractionally firmer vs. the USD after a soft showing yesterday on account of a strong USD and declines in long-end Japanese yields after reports that Japan's MoF could trim the issuance of super long debt. It's worth noting that the 40yr JGB auction overnight was weak. Elsewhere, the latest reports note that Japan is said to propose buying US-made semiconductor chips as part of US trade talks. Note, reports suggest that Japan intends to reach a trade deal with the US by the G7 summit in June; markets remain interested on whether a currency clause will form part of the deal. USD/JPY had ventured as high as 144.76 overnight but has since pulled back to levels closer to the 144 mark.

GBP: GBP/USD U/C 1.3502

• GBP flat vs. the USD in what has been a week lacking in major updates from the UK and could well remain the case. BoE Chief Economist is due to speak at 16:00BST, however, the text release will be from a speech delivered on 22nd May. Cable is currently lingering just above the 1.35 mark after hitting a multi-year high on Monday @ 1.3593.

Antipodeans: AUD/USD U/C; 0.6441. NZD/USD +0.5%; 0.5973

• NZD is top of the G10 leaderboard post-RBNZ. As expected, the bank delivered a 25bps rate cut, however, the decision was subject to hawkish dissent from one member. Furthermore, whilst the bank lowered its OCR forecasts, ING notes that they don't fully signal that rates will be trimmed to 2.75%. Additionally, Chief Economist Conway stated that rates are now close to neutral. As it stands, just one more full 25bps cut is priced by year-end. NZD/USD had dipped as low as 0.5925 overnight but has since picked up towards the mid-point of yesterday's 0.5940-0.6006 range. AUD/USD is relatively unfazed by a slightly firmer-than-expected outturn for Australian CPI and currently sits just below its 200DMA @ 0.6447.

28 May 2025 - 09:55- ForexEU Research- Source: Newsquawk