EUROPEAN FX UPDATE: USD mixed vs. peers ahead of NFP, GBP is attempting to recoup lost ground, havens narrowly lag

DXY: DXY -0.1%; 107.61

• DXY a touch softer with the USD mixed vs peers (firmer vs. havens, weaker vs. cyclicals). Today is of course NFP day with headline payrolls expected to slow to 170k from 256k and the unemployment rate hold steady @ 4.1%. Note, today will also see the BLS publish its annual benchmark revisions. As it stands, markets fully price the next 25bps cut from the Fed in July with a total of 43bps of loosening seen by year-end. Elsewhere, markets are also digesting a reiteration from Treasury Secretary Bessent that the administration wants a strong USD, whilst also monitoring the trade situation with some Chinese tariffs on US goods set to come into effect on Monday. DXY is back below its 50DMA @ 107.79 and towards the bottom-end of yesterday's 107.53-108.09 range.

EUR: EUR/USD +0.1%; 1.0392

• EUR/USD is steady vs. the USD in the run-up to today's publication of the ECB's neutral rate. Ahead of which, ECB Chief Economist Lane has suggested that it is best not to focus too much on the neutral rate. ING is of the view that the market will likely "focus on the mid-point and how it compares to the range 1.75-2.25% that currently frames the discussions". The desk adds that a broad-range could open up more of a discussion on the GC about the policy path and "lead the ECB back to a truer meeting-by-meeting approach – thus softening the current gravitational pull of the 2% level for market expectations". As it stands, a 25bps cut in March is fully priced with around 85bps of cuts priced by year-end which would put the terminal rate between 1.75-2.0%. EUR/USD is currently capped by the 1.04 mark and within yesterday's 1.0352-1.0405 range.

JPY: USD/JPY +0.2%; 151.76

• A touch sofer vs. the USD as havens lag cyclicals. Overnight, USD/JPY saw two-way price action in which it initially extended on recent declines after stronger-than-expected Household Spending data from Japan but then rebounded off support around the 151.00 level. Since then, the pair has made its way up to a 151.89 peak. The next upside target comes via the psychological 152 mark. If breached, yesterday's best is still some way off @ 152.89.

GBP: GBP/USD +0.2%; 1.2463

• GBP is attempting to recoup some of yesterday's BoE-induced losses, which were triggered by a "dovish cut" from the MPC as uber-hawk surprised markets with a vote for a 50bps cut. Many desks are highlighting that the Mann vote has overshadowed what was actually an otherwise hawkish release from the MPC with inflation forecasts hiked across the forecast horizon and inflation now expected to peak at 3.7% in Q3 2025 (prev. saw peak of 2.8% in Q3). As the dust settles on the release, the next 25bps cut is fully priced for May with a total of 60bps of cuts seen by year-end. Cable is currently tucked within yesterday's 1.2359-1.2509 range.

Antipodeans: AUD/USD +0.2%; 0.6294. NZD/USD +0.2%; 0.5685

• Both incrementally firmer vs. the USD in what has been a strong showing this week for both currencies after a shaky performance on Monday. The initial tariff jitters on Monday acted as a drag on both AUD/USD and NZD/USD with the former sent to its lowest level since 7th April 2020 @ 0.6088. AUD/USD has since recovered to a 0.6297 peak after eclipsing its 50DMA @ 0.6284 with focus on a test of 0.6300; not breached since Jan 27th. Earlier in the week, NZD/USD fell to its lowest level since 13th October 2022 with a session low @ 0.5517. NZD/USD has ventured as high as 0.5689 and is currently eyeing a test of its 50DMA @ 0.5692/ If breached, the WTD peak sits @ 0.5702.

CAD: USD/CAD U/C 1.4310

• CAD steady vs. the USD in the run-up to Canadian labour market data which is expected to see employment change slow to 25k from 90.9k and the unemployment rate nudge higher to 6.8% from 6.7%. From a policy perspective, it remains to be seen how much follow-through today's release will have on the BoC's policy path given the prior policy announcement was inferred as suggesting that the bank was in wait-and-see mode as it awaited details of the Trump administration's tariff plans. As it stands, markets price in 65bps of further easing by year-end with the next cut fully priced by April. USD/CAD currently sits below its 50DMA @ 1.4315 and towards the bottom end of yesterday's 1.4301-1.4367 range.

07 Feb 2025 - 10:00- ForexData- Source: Newsquawk