EUROPEAN FX UPDATE: USD mixed vs. peers ahead of core PCE

USD: DXY +0.2%; 108.28

• DXY is extending on the upside seen yesterday following comments from US President Trump that he will put a 25% tariff on Canada and Mexico because of fentanyl, and stated that China is going to end up paying a tariff as well. It is worth noting that there was a more conciliatory piece overnight in the WSJ noting that the US Administration could announce new tariffs by Saturday, but with a grace period before implementation to allow for negotiation. Furthermore, advisors are considering several offramps to avoid enacting universal tariffs on Canada and Mexico. For today's docket, focus will be on monthly PCE metrics for December, which follows yesterday's quarterly print. Consensus is for core M/M to tick higher to 0.2% from 0.1% with the Y/Y rate expected to hold steady at the elevated level of 2.8%. DXY has been as high as 108.37 with the next target coming via the 23rd Jan high @ 108.51.

EUR: EUR/USD -0.2%; 1.0375

• EUR/USD lower for a fourth consecutive session as the dust settles on yesterday's widely-expected 25bps rate cut from the ECB. Sources in the wake of the meeting revealed that if the GC delivers another 25bps cut in March, it will likely drop the “restrictive” reference to rates. As noted by ING, whether this will be seen as ultimately hawkish or not will in part depend on the outcome of the ECB's publication of its R-star estimate next. Elsewhere, the latest ECB survey of consumer expectations survey saw the 12-month inflation projection increased to 2.8% from 2.6%. Additionally on the inflation front, French CPI came in softer-than-expected whilst the regionals from Germany appear to be cooler than consensus for the mainland print @ 13:00GMT. EUR/USD has been as low as 1.0366; lowest since 21st January; 1.0341 was the low that day.

JPY: USD/JPY +0.2% 154.59

• JPY softer vs. the USD with havens generally lagging vs. the USD. Overnight saw a deluge of data from Japan whereby headline Tokyo CPI came in firmer than expected, core in-line, IP and retail sales Y/Y beat. As it stands, the next 25bps hike from the BoJ isn't priced until October. USD/JPY currently sits within yesterday's 153.78-155.23 range and below its 50DMA @ 154.84.

GBP: GBP/USD -0.1%; 1.2404

• Slightly softer vs. the USD as UK-specific newsflow remains light in the run up to next week's BoE rate decision and MPR. Policymakers are expected to "strike a balance between the recent weak news of activity and the stronger news on price pressures" by cutting rates 25bps, CapEco writes. In the interim, direction for Cable is likely to be dictated by the USD leg of the equation. GBP/USD has just slipped below the bottom end of yesterday's 1.2407-67 range with the next downside target coming via the 1.2392 low.

Antipodeans: AUD/USD +0.3%; 0.6223. NZD/USD +0.3%; 05653

• Both firmer vs. the USD and attempting to claw back some of the losses from Trump's aforementioned tariff rhetoric yesterday. AUD/USD slipped below the 0.62 mark yesterday and delved as low as 0.6198 in what was a fourth consecutive session of losses for the pair; currently sits towards the top end of yesterday's 0.6198-0.6243 range. Similar price action for NZD/USD which hit a 0.5622 low but has since moved closer to yesterday's 0.5667 peak.

31 Jan 2025 - 10:05- ForexData- Source: Newsquawk