EUROPEAN FX UPDATE: USD is attempting to claw back some of Friday's lost ground

USD: DXY +0.2%; 98.85

• DXY has started the week off on the front foot but gains are very modest in comparison to the post-payrolls downside on Friday, which saw the index close lower by 1.4%. The knock-on impact to Fed pricing means that markets price an 89% chance of a 25bps cut next month and a total of 59bps of loosening by year-end. This also comes in the context of a potentially more dovish composition of the FOMC with US President Trump set to name Kugler's replacement in the coming days. That being said, commentary in the wake of the report from the likes of Bostic, Hammack, who placed greater emphasis on the inflation side of the Fed's mandate, suggests that a September cut is far from a done deal. Elsewhere, NY Fed President Williams said he is going into the September meeting with an "open mind". Elsewhere on the personnel front, Trump is also set to announce the replacement for the head of the BLS, who he fired on Friday, claiming that they "faked job numbers" before the election in an attempt to help his political rivals. This move has been viewed as a USD negative by the market, given the ongoing assault on institutional credibility. For today's docket, traders will have the opportunity to digest US Employment Trends, Durable Goods revisions and Factory Orders. ISM services PMI is due tomorrow. DXY has been unable to make its way back onto a 99 handle with a current session peak @ 98.97.

EUR: EUR/USD -0.2%; 1.1558

• EUR/USD is on the backfoot after a choppy week last week, which saw EUR slide against the USD in the wake of the EU-US trade deal before mounting a partial recovery on Friday post-payrolls. The macro narrative surrounding the EU remains as it was and that could remain the case with little in the way of market-moving scheduled releases for the Eurozone this week. As such, near-term direction may be provided more by the USD leg of the equation. That being said, traders are mindful of any further rumblings in the EU that could suggest the ratification of the EU-US trade deal could be in jeopardy. Moving forward, should data hold up in the Eurozone and deteriorate in the US, the potential narrowing in rate differentials could prompt a return to the broader EUR/USD uptrend seen in 2025. EUR/USD failed to crack 1.16 to the upside, topping out at 1.1597 and has since slipped back below its 200DMA @ 1.1581 with a session low @ 1.1551.

JPY: USD/JPY +0.4%: 147.96

• After a wild week last week, which saw an initial rally in USD/JPY (on account of broad USD strength and a dovish reaction to the BoJ policy announcement) swiftly reversed in the wake of the US NFP report, USD/JPY is attempting to clamber off the lows. USD/JPY delved as low as 147.07 overnight (vs. Friday's 147.28 trough) but has since recovered to levels closer to 148 as the USD attempts to atone for recent losses. Overnight, comments from Japanese Trade Negotiator Akazawa stated that the recently announced trade agreement between the US and Japan is not a legally binding commitment. This has raised some doubt over how rigidly Japan will stick to its existing pledges with the US. On the domestic agenda, it is worth noting that the LDP will hold a joint plenary meeting of both houses on August 8th. GS suggests that the meeting will focus on the recent loss of the working majority in the Upper House. As such, focus on PM Ishiba's position will likely come into focus.

GBP: GBP/USD -0.1%; 1.3272

• GBP is fractionally lower vs. the USD with incremental macro drivers from the UK on the light side. That will change on Thursday with the latest BoE policy announcement and MPR, which is 82% priced for a 25bps reduction. Within the vote split, Morgan Stanley expects a 1:7:1 outcome with Mann voting for a hold and Dhingra voting for a 50bp cut. Additionally, the desk expects unchanged messaging and an uplift to near-term inflation forecasts. Cable has returned to a 1.32 handle but is still enjoying the bulk of Friday's gains, trading in a 1.3254-93 range.

Antipodeans: AUD/USD -0.1%; 0.6469. NZD/USD -0.2%; 05903

• Both are slightly softer vs. the USD but holding onto a bulk of their post-NFP gains. AUD is slightly more resilient than NZD following a rise in the latest Melbourne Institute Inflation Gauge. For this week's docket, the sole highlight is NZ jobs data on Tuesday. That aside, performance may be gleaned more from the global risk environment and broader USD price action. On the trade front, USTR Greer said the trade truce deadline for China is still under discussion. AUD/USD trades towards the top end of Friday's 0.6419-93 range. NZD/USD is just about holding above the 0.59 mark and remains within Friday's 0.5856-0.5929.

04 Aug 2025 - 09:55- ForexEU Research- Source: Newsquawk