EUROPEAN FX UPDATE: USD kicks the week off on the backfoot, EUR/USD returns to a 1.13 handle, APAC currencies in focus

USD: DXY -0.2%; 99.82

• USD has kicked the week off on the backfoot after last week's attempted recovery and alongside a pullback in US equity futures. The USD has been notably weaker vs. APAC currencies with particular attention on the TWD which saw its largest one-day gain vs. the USD on Friday since 1988. At an ongoing press conference, the Taiwanese central bank noted that the US has not asked the Bank to appreciate TWD and it does not manipulate the exchange rate. On the trade front, US President Trump said he is willing to lower tariffs on China at some point, but answered "no" when asked if he plans to speak with Chinese President Xi this week. Attention this week will be on the monetary policy sphere with the FOMC policy announcement due on Wednesday. Expectations are for the Bank to stand pat on rates with Fed Chair Powell continuing to note that the Fed is well-positioned to wait for greater clarity before considering altering its policy stance. Note, the release will not be accompanied by a SEP. The next 25bps rate cut is not fully priced until July. DXY is currently caged within Friday's 99.39-100.32 range.

EUR: EUR/USD +0.3%; 1.1323

• Stronger vs. the broadly weaker USD with incremental newsflow lacking and nothing of note on the trade front after the EU made the US a EUR 50bln trade offer last week. EZ Sentix data saw an improvement to -8.1 from -19.5 with the accompanying release noting that "one month after the massive shock that rocked investors with US tariff policy and sent sentix economic data into free fall, the smoke is clearing". Note, the Eurozone calendar is a light one this week and therefore the USD leg of the equation may provide greater impetus. EUR/USD has made its way back onto a 1.13 handle with a current session peak @ 1.1347 vs. Friday's high @ 1.1381.

JPY: USD/JPY -0.6%; 144.14

• JPY is currently the best performer across the majors with USD/JPY briefly breaching 144 to the downside. Hopes of a trade deal with the US remain high with Fox Business’s Gasparino reporting that a "bunch" of trade deal “frameworks” can be expected in the coming weeks; Japan was mentioned in the post. Furthermore on the trade front, Japanese Finance Minister Kato said on Sunday that Japan has no intention of using the possibility of selling its US Treasury holdings for advantage in trade negotiations with the US, according to Nikkei. Note, Japan is currently away from the market. 143.98 is the current session low vs. Friday's trough @ 143.73.

GBP: GBP/USD +0.1%; 1.3282

• GBP mildly firmer vs. the USD after a quiet period of UK-specific newsflow last week. That will all change this week with the BoE due on deck. Expectations are for the BoE to deliver a 25bps rate cut. The decision to cut rates is expected to be unanimous, however, some policymakers such as external member Dhingra may opt to back a larger 50bps move. Market participants will also be looking for how the MPC positions itself for rate cuts going forward with attention on whether it tweaks its "gradual and careful" language or “restrictive” view on the Base Rate. Within the accompanying MPR, ING expects a reduction in the 2025 inflation forecast and an upgrade to the 2025 growth projection but sees no major changes to the medium-term outlook. Cable struggled to hold above the 1.33 mark and returned to a 1.32 handle with a session peak @ 1.3306.

Antipodeans: AUD/USD +0.6%; 0.6478. NZD/USD +0.4%; 0.5971

• Both firmer vs. the USD and near the top of the G10 leaderboard, in tandem with the gains in the Asia FX space including CNH after President Trump suggested a willingness to lower tariffs on China at some point. For AUD specifically, Australian PM Albanese’s Labor Party won an increased majority in the election on Saturday with at least 87 seats in the 150-seat parliament. AUD/USD has broken above its 200DMA @ 0.6460 and printed a fresh YTD peak @ 0.6488. The next major upside target comes via the 0.65 mark; not breached since 3rd December 2024. NZD/USD has ventured as high as 0.5993 but has been unable to test the 0.60 mark; not breached since 25th April.

CHF: EUR/CHF +0.1%; 0.9346

• Softer vs. the EUR and the worst performer across the majors in the wake of soft Swiss inflation data which saw both M/M and Y/Y readings print at 0%; both were forecast at 0.2%. Note, the March SNB projection pencilled in a Q2 average inflation rate of 0.2% Y/Y. As such, odds of a 25bps rate cut to 0% at the June meeting have risen to 100% vs. circa 80% on Friday. Pictet's Ducrozet has suggested that the SNB will need to lower rates into negative territory and a 50bps move next month cannot be ruled out. Despite the magnitude of the release, EUR/CHF is currently tucked within Friday's 0.9311-83 range.

05 May 2025 - 09:50- ForexEU Research- Source: Newsquawk