EUROPEAN FX UPDATE: USD on the backfoot as EUR/USD hits a fresh YTD peak

USD: DXY -0.2%; 103.31

• USD is broadly on the backfoot vs. peers with the exception of the JPY once again as the risk environment in Europe is currently an upbeat one. From a macro perspective, some desks are taking encouragement from the lack of fresh tariff threats from the Trump admin over the weekend and yesterday. In fact, reports suggest that USTR Greer is imposing a policy process on the reciprocal tariff plan in an attempt to inject order into new tariffs expected next month, after previous announcements roiled markets and fuelled business uncertainty. Today's calendar is a light one from a US perspective and therefore, USD may follow the direction provided by dynamics in the equity space. DXY has delved as low as 103.23 with the YTD low just below @ 103.22.

EUR: EUR/USD +0.2%; 1.0947

• EUR is firmer vs. the USD and at the top of the G10 leaderboard ahead of the German Bundestag vote on the bill to unlock debt-financed spending on defence and infrastructure. A coalition of the Conservatives, Social Democrats, and Greens already has enough votes to secure the Bill's passage. As such, a successful vote should not come as much of a surprise for EUR. Elsewhere, this morning's ZEW data showed a greater-than-expected improvement in economic sentiment amid fiscal hopes. Broader EZ newsflow remains light and markets remain divided over the prospect of an April rate cut. Markets remain attentive to the fallout of the Trump-Putin call on Ukraine. EUR/USD printed another YTD peak in early European trade @ 1.0954; next target comes via the 9th October peak @ 1.0980.


• EUR/USD opex: 1.0870-75 (500mln), 1.0900 (1.6bln), 1.0910-15 (872mln), 1.0950 (894mln) 1.0960-65 (673mln), 1.0950 (765mln), 1.0960-65 (674mln).

JPY: USD/JPY +0.3%; 149.65

• After a solid start to the month, the JPY is continuing to hand back its gains vs. the USD as the bounce in stocks in the past two sessions has dwindled the appeal of safe havens. From a fundamental perspective in Japan, attention is turning to tomorrow's BoJ policy announcement with the central bank expected to stand pat on rates. Accordingly, attention will be on the statement and BoJ Governor Ueda’s press conference for any clues on when the BoJ may hike rates again. USD/JPY has ventured as high as 149.91 with focus on a test of 150. If breached, the 5th March high kicks in @ 150.17.


• USD/JPY opex: 148.50 (1.6bln), 149.00 (1.4bln), 149.75 (475mln), 150.00 (1.6bln).

GBP: GBP/USD U/C; 1.2995

• GBP flat vs. the USD but was able to eke out a fresh YTD (1.3004) and make its way onto a 1.30 handle for the first time since 7th November. Attention for the UK this week is on Thursday with the latest jobs data and BoE rate decision due on deck. On the former, attention will be on the resilience of wage growth and the rate of loosening in the labour market. However, this is unlikely to have much follow-through into the BoE's decision a few hours later. Markets are primed for an unchanged rate with consensus suggesting a 7-2 vote split.

Antipodeans: AUD/USD +0.1%; 0.6388. NZD/USD +0.2%; 0.5829

• Both are marginally firmer vs. the USD following a solid showing yesterday in the wake of encouraging Chinese data and the broad risk-on environment. Overnight, RBA assistant Governor Hunter noted that the February statement reflected the RBA board being more cautious than the market about prospects for further easing, adding that the rebound in household consumption in the December quarter is not just a temporary pick-up. AUD/USD has matched yesterday's best @ 0.6390. Attention is on a test of 0.64. If breached, the YTD high lies @ 0.6409. NZD/USD is up to a fresh YTD high @ 0.5831.

CAD: USD/CAD -0.1%; 1.4277

• CAD is trivially lower vs. the USD in the run-up to Canadian inflation metrics which are expected to show Y/Y CPI in Feb rising to 2.2% from 1.9% on account of the end of the sales tax holiday, according to ING. The desk adds that "any meaningful core inflation rebound in the month before US tariffs on steel and aluminium took effect can probably prompt markets to price out one of the two rate cuts currently expected". As a reminder, the most recent BoC policy statement saw the Bank caution that it must protect against tariff-induced inflation. USD/CAD struggled to hold above the 1.43 mark with a session peak @ 1.4307, if downside extends, the next target comes via the MTD low @ 1.4239.

18 Mar 2025 - 10:25- ForexEU Research- Source: Newsquawk