EUROPEAN FX UPDATE: USD recovery pauses for breath ahead of upcoming US-China talks

USD: DXY -0.3%; 100.39

• The recent recovery in the USD has paused for breath with the greenback having gained in the past two sessions on account of the post-FOMC reaction and ongoing trade optimism. On the latter, yesterday saw the unveiling of a UK-US trade agreement. However, of greater importance were yesterday's remarks from US President Trump that tariffs on China can't get any higher than 145% and will likely be coming down. This was followed up by a report in the New York Post that the US is weighing a plan to slash China tariffs to as low as 50% as soon as next week. This leads us nicely towards this weekend's US-China talks in Geneva, which will likely dominate the market narrative early next week. Today sees a busy Fed speaker slate with Barr, Kugler, Perli, Williams, Goolsbee & Waller all due on deck. ING writes "none of the hawks are speaking today, and the overall message may be slightly dovish-leaning". Overnight, DXY hit its highest level since April 11th @ 100.86 before returning within yesterday's 99.60-100.76 range.

EUR: EUR/USD +0.2%; 1.1253

• EUR/USD is a touch firmer after being weighed on in the past two sessions amid ongoing trade optimism (see above section for details). This is a reversal of the pattern we saw in April as trade tensions ratcheted higher and the EUR benefitted as a liquid alternative to the Greenback. US-EU trade updates are lacking after the EU yesterday proposed potential countermeasures on up to EUR 95bln of US imports in the event that negotiations fail. Today's EZ docket is lacking and ECB speak thus far has proved non-incremental with ECB's Simkus noting ECB June projections may be a little bit worse and a cut next month is needed, whilst ECB's Rehn remarked disinflation is on track, and the growth outlook is weakening. EUR/USD briefly slipped onto a 1.11 handle overnight with a low @ 1.1197 but has since stabilised around the 1.1250 mark.

JPY: USD/JPY -0.5%; 145.19

• JPY is attempting to claw back some of its recent losses vs. the USD which has seen USD/JPY pick up from a WTD low on Tuesday @ 142.35 to a 146.18 peak (printed yesterday and matched today). Japanese-specific newsflow remains on the light side as market participants await progress on the trade front between Japan and the US. On which, US Commerce Secretary Lutnick stated that as you get to bigger economies and more work, it takes time and economies such as India, Japan and South Korea are huge and take a lot of work. USD/JPY has returned to a 145 handle with a session low @ 145.08.

GBP: GBP/USD +0.1%; 1.3261

• GBP was unable to benefit vs. the USD and only marginally gained vs. the EUR despite a "hawkish" cut from the BoE and news of a UK-US trade agreement. On the latter, Oxford Economics notes that "the limited commitments secured from the UK and the modest tariff relief offered in return will come as a disappointment to those expecting a major de-escalation". Furthermore, the deal was "low-hanging fruit, as the UK is 3% of US trade, the US runs a trade surplus with the UK", adding that, tellingly "the deal did not touch on more contentious issues, such as opening healthcare markets to US providers or the UK's digital services tax". Overnight, Cable hit a new low for the week @ 1.3213, whilst EUR/GBP is contained within yesterday's 0.8457-0.8523 range; lower bound of which coincides with the 50DMA.

Antipodeans: AUD/USD +0.1%; 0.6408. NZD/USD -0.1%; 0.5901

• Antipodeans have been choppy after the recent dollar strength and as participants digested the latest Chinese trade data, while Westpac adjusted its RBNZ call and now sees two 25bps rate cuts by July instead of its prior view for just one cut. AUD/USD sits just above the 0.64 mark after printing a fresh YTD peak earlier in the week @ 0.6514 and slipping back below its 200DMA @ 0.6458. NZD/USD is just about holding above the 0.59 mark after trading as high as 0.6023 on Wednesday. If 0.59 gives way, the 200DMA kicks in @ 0.5885.

09 May 2025 - 09:55- ForexEU Research- Source: Newsquawk