EUROPEAN FX UPDATE: USD mixed vs. peers, EUR and GBP digest PMI metrics, JPY narrowly leads

USD: DXY -0.1%; 99.64

• USD is currently relatively steady and mixed vs. peers following three consecutive sessions of losses. With trade updates lacking, focus is currently on the fiscal front as markets await the outcome of the House vote on President Trump's tax bill. If the bill passes this hurdle, attention from an FX perspective will be on how back-end US rates react to the price tag and impact on the deficit. Given the Moody's downgrade late last week, an adverse reaction in the rates space could trigger further USD weakness. For now, DXY is currently tucked within yesterday's 99.33-99 range. This week's data highlights are presented today via weekly claims and flash PMI metrics. The latter will likely carry greater sway as markets look for evidence on how the trade war is impacting US business. Elsewhere, headlines out of the G7 meeting have failed to provide any impetus into the USD. Today's Fed docket includes Barkin and Williams.

EUR: EUR/USD -0.2%; 1.1312

• After being propped up in the first half of the week on account of being viewed as a liquid alternative to the USD, the rally in the EUR has paused for breath. This morning's macro focus has been on EZ PMI metrics which have painted a picture of a stabilising manufacturing sector but a slowdown in the services industry. Commentary from S&P Global noted "service providers are seeing business activity shrink for the first time since November 2024", adding "sluggish domestic demand that seems to be dragging the sector down". The trade war is clearly acting as a cloud over the Eurozone economy; note, yesterday Bloomberg reported that the EU is preparing a trade proposal for the US to steer momentum into talks. Today's docket sees the ECB's account of the April meeting. However, this will likely pass with little in the way of fanfare given the stale nature of the release and the fluidity of the trade war. Comments later from ECB's Elderson and de Guindos are also unlikely to shift the dial for next month's widely-anticipated rate cut.

JPY: USD/JPY -0.3%; 143.19

• JPY is top of the G10 leaderboard alongside the soft risk sentiment and as markets digest comments from Japanese Finance Minister Kato and BoJ board member Noguchi. On the former, Kato noted that he agreed with US Treasury Secretary Bessent that FX rates should be set by markets and they did not directly discuss Japan's US Treasury holdings. Elsewhere, BoJ's Noguchi, in response to recent moves in Japanese yields, said that he does not think it is appropriate to recklessly intervene to correct bond yield moves. He added that the Bank should not move on rates when there is a lack of clarity on the economic outlook. USD/JPY has hit a new low for the week @ 142.81 with the MTD low @ 142.35.

GBP: GBP/USD +0.1%; 1.3425

• GBP is a touch firmer vs. the USD and extending its winning run for a fourth consecutive session. The latest round of PMI metrics from the UK saw the services component beat expectations and return to expansionary territory, manufacturing missed but ultimately, the composite rose and just about beat the consensus. The accompanying report from S&P Global noted "..although brighter news on tariffs and trade appears to have helped restore some confidence among businesses, sentiment about prospects in the year ahead is still subdued". More encouragingly though, inflationary pressures moderated considerably from the spike seen in April. Looking ahead, today's speaker slate sees a trio of MPC members with Breeden, Dhingra & Pill all due on deck. That being said, we have already heard from the latter two this week and Breeden's speech looks more geared towards climate change and as such may carry little in the way of implications for monetary policy. As it stands, a full 25bps cut is not fully priced until November with a total of 38bps of loosening seen by year-end. Cable is currently contained within yesterday's 1.3380-1.3468 range.

Antipodeans: AUD/USD +0.3%; 0.6453. NZD/USD -0.1%; 0.5933

• Mildly diverging fortunes for the Antipodes with AUD outperforming NZD as the AUD/NZD cross looks to close the post-RBA gap lower. Incremental newsflow for both has been lacking as the New Zealand Budget and forecasts garnered little fanfare and comments from RBA's Hauser proved to be non-incremental. AUD/USD is contained within yesterday's 0.6416-69 range but just about holding above its 200DMA @ 0.6452. NZD/USD sits towards the middle of yesterday's 0.5920-68 trading band.

22 May 2025 - 09:55- ForexData- Source: Newsquawk