EUROPEAN FX UPDATE: USD higher ahead of NFP, EUR fades yesterday's ECB-induced upside

USD: DXY +0.2%; 98.89

• USD is slightly firmer in what has ultimately been a week of losses for DXY. DXY softness yesterday was largely on account of the post-ECB strength in EUR. From a US viewpoint, little sustained follow-through has been seen following the positive readout of the Trump-Xi call yesterday. Additionally, the Trump-Musk spat is mainly noise thus far for the FX space unless Musk can seriously derail Trump's bill passage through Congress. Overnight, the US Treasury Currency Report noted that no major US trading partners manipulated currencies to gain unfair trade advantages in four quarters through Dec 2024. Note, Switzerland and Ireland were added to the monitoring list. Ahead, attention is firmly fixated on today's NFP report which is set to see payroll growth slow to 130k from 177k and unemployment rate hold steady @ 4.2%. As it stands, the next 25bps cut is not fully priced until September with 54bps of loosening seen by year-end. DXY is towards the top end of yesterday's 98.35-98.94 range.

EUR: EUR/USD -0.1%; 1.1426

• EUR is trivially softer vs. the USD after gaining yesterday on account of the ECB rate decision which saw policymakers pull the trigger on a 25bps rate cut, whilst noting that policy is "well-positioned"; suggesting that the ECB could be nearing or at the end of its cutting cycle. In the wake of the announcement, source reporting via Reuters noted that a visible majority in the ECB meeting expressed preference for holding rates unchanged in July and some argued for a longer pause. Markets price one more cut this year, taking the deposit rate to 1.75%. ECB speak this morning hasn't shifted the dial with policymakers signalling flexibility going forward, whilst acknowledging progress on inflation. EUR/USD is contained within yesterday's 1.1404-1.1495 range.

JPY: USD/JPY +0.3%; 143.90

• JPY is the laggard across the majors following disappointing Household Spending data. Subsequently, USD/JPY briefly made its way back onto a 144 handle with a current session peak @ 144.13, stopping shy of the WTD high @ 144.39. On the trade front, Japan's government said trade negotiator Akazawa met with US Commerce Secretary Lutnick and Akazawa strongly sought a review of US tariffs. Elsewhere, Japan's former top FX diplomat says narrowing US-Japan rate gap will likely support the yen at around 135-140 against USD by year-end.

GBP: GBP/USD -0.2%; 1.3540

• GBP is softer vs. the broadly firmer USD with UK-specific newsflow on the light side ahead of next week's UK spending review. On which, UK Chancellor Reeves reaffirmed she will not have a UK budget like October's again, but can't rule out any tax changes over the next four years. Note, labour market metrics and monthly GDP are also due on next week's docket. For today's agenda, BoE Chief Economist Pill is due to speak @ 13:00BST, but given the subject matter of "AI and Households", it is unclear how much he will touch on monetary policy. After printing a multi-year high yesterday @ 1.3616, Cable has since retreated and moved back below the 1.3550 mark.

Antipodeans: AUD/USD -0.1%; 0.6493. NZD/USD U/C 0.6035

• Antipodeans are steady vs. the USD following a light data docket and relevant newsflow overnight. Both continue to keep an eye on US-Sino relations following the Xi-Trump call yesterday given their trade exposure. However, the readout had little follow-through into either currency. AUD/USD has moved back onto a 0.64 handle and pulled back from yesterday's YTD peak @ 0.6538. NZD/USD has also retreated from yesterday's YTD high @ 0.6080 but is still holding above the 0.60 mark.

06 Jun 2025 - 09:45- ForexEU Research- Source: Newsquawk