EUROPEAN FX UPDATE: USD mixed vs. peers, GBP leads and JPY lags

USD: DXY -0.1%; 98.60

• DXY is a touch lower with the USD overall showing a mixed performance vs. peers. The US macro narrative remains fixated on the recent escalation of trade tensions between the US and China with the latest salvo from Trump being that, if the US doesn't have tariffs, they don't have national security. For now, the focus for the market is whether this is merely a negotiating tactic by Trump or a genuine intention to squeeze the Chinese economy. Performance of global equity markets suggests the former. Clarity on this will likely not be provided until the potential Trump-Xi meeting at the end of the month, or failing that, the November 10th deadline for the existing 90-day rollover of tariffs. The US government remains shutdown and as such, tier 1 data points are lacking. Nonetheless, the Fed Beige book last night drew attention, with ING of the view that the release "suggests the Fed will have enough evidence to cut rates at the end of the month". For today's agenda, the Philly Fed Business Index is due following yesterday's solid NY Fed Manufacturing print. Elsewhere, the speaker slate includes Fedʼs Waller, Barkin, Barr, Miran, Bowman & Kashkari. DXY hit a WTD low overnight @ 98.41 before trimming losses.

EUR: EUR/USD +0.1%; 1.1653

• EUR is a touch firmer vs. the USD in the run-up to the no-confidence votes in French PM Lecornu. The first motion put forward by the far-right National Rally (RN) will likely fail, as RN and the Union for Democratic Change (UDR) are the only major parties that are backing it. The second motion, put forward by the far-left, La France Insoumise (LFI), has a greater potential to pass given that it could see support from both the Left and the Right. Politico sees around 270-280 votes against Lecornu vs. the 289 required. If Lecornu survives, there will likely be some additional reprieve for the EUR and a narrowing of the GE/FR spread. If he falls, odds of fresh legislative elections will rise (currently priced at just over 50% by year-end). Aside from France, the broader macro narrative in the Eurozone is very much "as it was" with inflation close to target for the ECB and growth resilient in the face of the US' trade policies. ECBʼs Lane, Lagarde, Wunsch and Kocher are due to give remarks later. EUR/USD has been as high as 1.1675 with interim resistance ahead of the 1.17 mark provided by the 50DMA @ 1.1690.

JPY: USD/JPY +0.1%; 151.20

• JPY is fractionally firmer vs. the USD with the pair extending above the 151 mark. The focus for Japan remains on domestic politics with LDP leader Takaichi scrambling to secure her position as PM. Her path to power appears to be reliant on forming an alliance with the Japanese Innovation Party (JIP) with the parties having met today and expected to continue discussions tomorrow. Barclays writes that if the LDP is able to form a partnership with JIP, this would imply less fiscal expansion. However, the desk notes that "some fiscal risk premium will still likely be priced as a minority government needs to compromise with opposition parties to pass policies". Barclays does not expect the BoJ to tighten rates again until January. Note, opposition parties are attempting to agree on a unity candidate to put forward to rival Takaichi, but this is viewed as a less likely outcome by the market. Overnight, BoJ's Tamura said the BoJ should push rates closer towards levels deemed neutral. However, his comments had little follow-through to JPY, given he is the most hawkish member on the board. USD/JPY is still some way off yesterday's peak @ 151.87.

GBP: GBP/USD +0.2%; 1.3431

• GBP is firmer vs. the USD and extending on yesterday's upside. August's M/M UK GDP printed in-line with expectations at 0.1% with the prior revised lower to -0.1% from 0%. Surmising the release, Pantheon Macroeconomics writes that "GDP growth is ticking along close to the UK’s now reduced potential, as manufacturing holds up surprisingly well in the face of tariff disruptions and the UK’s powerhouse services sector continues to grow solidly". However, a greater steer on the BoE's policy outlook will likely be provided by the September CPI report and flash October PMIs due next week. The former is set to take greater focus given expectations that Y/Y CPI could hit 4%. For this reason and the looming November 26th budget, markets remain tentative on pricing further easing by the MPC at this stage. On the budget, the latest trial balloon from the Treasury is that taxes on the wealthy "will be part of the story". For today's agenda, BoE's Mann and Greene are due to give remarks. Cable has ventured as high as 1.3442 with the next upside target coming via the 50DMA @ 1.3473.

Antipodeans: AUD/USD U/C; 0.6508. NZD/USD +0.3%; 0.5740

• AUD is flat vs. the USD after shrugging off overnight losses that were triggered by the latest Australian labour market report. The release saw an unexpected uptick in the unemployment rate and a smaller-than-forecast increase in employment change. Subsequently, AUD/USD slipped onto a 0.64 handle, delving as low as 0.6480 with odds of an RBA rate cut standing at circa 71%. However, traders are keeping their powder dry when it comes to cementing expectations of additional easing ahead of the Q3 CPI report due on October 29th. Note, earlier in the week, RBA Assistant Governor Hunter said inflation is likely to be stronger than forecast in Q3. NZD sits at the top of the G10 leaderboard after benefitting from cross-related flows in AUD/NZD. Albeit, calls for an end to the recent uptrend in the cross are likely premature at this stage. NZD/USD has extended its climb on a 0.57 handle, rising as high as 0.5755.

16 Oct 2025 - 10:10- ForexEU Research- Source: Newsquawk