EUROPEAN FX UPDATE: USD is attempting to atone for recent losses. ADP and Challenger loom ahead of NFP tomorrow

USD: DXY +0.2%; 96.88

• DXY is attempting to atone for recent downside after a run of 7 consecutive losses, which have in part been triggered by a dovish repricing of Fed rate cut bets, and as traders seek liquid alternatives to the USD. Yesterday's above-forecast JOLTS print and slightly firmer-than-forecast ISM print were unable to provide much sustained reprieve for the Greenback at the time. ING writes that the "dollar is still suffering from an asymmetrical negative bias". Focus was also on comments from Fed Chair Powell, who refused to take a July cut off the table; currently priced at 19%. On the fiscal agenda, the US Senate narrowly passed President Trump's sweeping tax and spending bill; House to vote by Thursday "at the latest". Today's data slate sees Challenger layoffs and ADP employment, ahead of tomorrow's NFP print with markets likely to be particularly sensitive to any downside surprise. Markets will also be bracing for any further trade updates after US President Trump reaffirmed that his administration is not thinking about extending the July 9th deadline. DXY has ventured as high as 96.91 but is yet to breach yesterday's best @ 96.94

EUR: EUR/USD -0.3%; 1.1776

• The recent rally in EUR/USD has paused for breath with the pair failing to hold above the 1.18 mark after topping out yesterday at a multi-year high of 1.1830. Newsflow for the Eurozone has been overall non-incremental this week with flash EZ CPI metrics not rocking the boat after printing in-line with the ECB's target. Commentary from ECB officials at the Sintra Forum has continued to underpin the Bank's cautious stance with regards to further easing as policymakers await greater details over negotiations between the EU and US over a trade deal. Interestingly, some desks have picked out commentary from the likes of GC member de Guindos, who remarked that a EUR/USD rate north of 1.20 would be "complicated". EUR/USD has delved as low as 1.1771 but is sitting above yesterday's trough @ 1.1761.

JPY: USD/JPY +0.3%; 143.93

• JPY sits near the foot of the G10 leaderboard following an increasingly sour tone from the US administration regarding US-Japan trade talks. To recap, US President Trump said he doubts they'll have a deal with Japan; suggested Japan could pay 30% or 35% tariffs. It was separately reported that the US is to handle Japan later in tariff talks and is prioritising India, according to Nikkei. The net effect of this would be detrimental to Japanese growth and complicated the tightening efforts of the BoJ with just a 56% chance of a 25bps rate hike in 2025, according to market pricing. USD/JPY remains within yesterday's 142.68-144.03 parameters.

GBP: GBP/USD -0.3%; 1.3702

• GBP is weaker vs. the USD and to a lesser extent the EUR. Macro focus in the UK has been on the fallout of last night's action in the House of Commons, whereby UK PM Starmer won the vote in parliament on welfare reform. However, this was after being forced to back down on certain aspects of his proposal. As such, savings under the plan are now expected to be closer to GBP 2bln vs. initially planned GBP 5bln. Aside from the obvious political difficulties Starmer is now in, concerns have increased about what this means for the UK's finances. Chancellor Reeves' room for manoeuvre was already seen as incredibly tight. The latest developments have increased the likelihood of tax increases later in the year, unless Reeves is willing to tinker with her self-imposed "iron-clad" fiscal rules - something which she has consistently pushed back against. Accordingly, a tighter fiscal approach in the UK would heighten expectations of a looser BoE going forward, particularly in the context of increased concerns by MPC members over labour market slack. Odds of an August cut sit at around 76% with a total of 53bps of loosening seen by year-end. Cable has slipped below yesterday's low @ 1.3704 and is currently testing the 1.37 mark to the downside.

Antipodeans: AUD/USD -0.2%; 0.6563. NZD/USD -0.3%; 0.6077

• Both are softer vs. the broadly firmer USD with AUD also hampered by disappointing Australian Retail Sales and Building Approvals data overnight. Note, newsflow on a US-China trade deal has remained light since last week's remarks by US Treasury Secretary Bessent that US-Sino trade talks could conclude by Labor Day (1st September). AUD/USD has pulled back from yesterday's YTD peak @ 0.6580 but is holding above yesterday's trough @ 0.6553. NZD/USD has also traversed lower from yesterday's 2025 high @ 0.6120, returning to a 0.61 handle and matching yesterday's 0.6077 low.

02 Jul 2025 - 10:15- ForexData- Source: Newsquawk