EUROPEAN FX UPDATE: USD remains out of favour, AUD weighed on by RBA discussion of a 50bps cut

USD: DXY -0.3%; 100.12

• After a contained start, DXY has extended on yesterday's downside which was largely attributed to the Moody's downgrade on the US on Friday. Newsflow on the trade front has been non-incremental aside from a Reuters sources piece noting that the US Treasury does not anticipate any trade deal announcements at the G7 Finance Meeting in Canada this week. In what is a quiet week of data, focus has been on the busy Fed docket with FOMC's Williams underscoring the uncertainty surrounding the US outlook by noting that the path forward might not become clearer for months and by June or July, they still won't understand what is going to happen. Today's speaker slate includes Fed's Bostic, Barkin, Collins, Musalem, Kugler, Daly & Hammack. DXY is just about holding above the 100 mark.

EUR: EUR/USD +0.1%; 1.1258

• EUR fractionally firmer vs. the USD with not a great deal in terms of Eurozone newflow aside from ongoing ECB speak with Executive Board member Schnabel noting that disinflation is on track, though new shocks could pose new challenges. As it stands, a 25bps ECB cut next month is priced at around 92%. On the trade front, FBN's Gasparino reported yesterday that "US - EU trade discussions are being complicated by an internal EU disagreement over how to approach any deal with the US, meaning this one APPEARS to have a long way to go before culmination". EUR/USD sits towards the top end of yesterday's 1.1169-1.1288 range.

JPY: USD/JPY -0.4%; 144.31

• JPY at the top of the G10 leaderboard with some of the move attributed to moves in Japanese yields with the 30yr JGB yield hitting its highest level since its debut since 1999 following a soft JGB auction overnight. On the trade front, Japanese Economy Minister Akazawa said Japan and the US conducted working-level talks on bilateral trade on Monday, while he added there was no change to Japan's stance of demanding the elimination of US tariffs. Note, Japanese Finance Minister Kato and US Treasury Secretary Bessent are expected to discuss exchange rates on the sidelines of the G7 meeting in Canada this week. USD/JPY has delved as low as 144.10 but stopped shy of the 144 mark; not breached since 8th May.

GBP: GBP/USD +0.2%; 1.3382

• GBP a touch firmer vs. the USD and steady vs. the EUR. This morning has seen remarks from BoE Chief Economist Pill, who dissented at the 8th May rate decision by voting for an unchanged rate vs. consensus for a 25bps cut. Pill noted that his dissenting vote stemmed from a concern that the pace of withdrawal of monetary policy restriction since last summer is too rapid, given the balance of risks to price stability. He added that his vote should be seen as a skip and not a halt to the withdrawal of the restriction process. The remarks had little follow-through to GBP with the pound instead focused more on tomorrow's inflation metrics. Cable has ventured as high as 1.3394 but stopped shy of yesterday's best @ 1.3404.

Antipodeans: AUD/USD -0.5%; 0.6421. NZD/USD -0.1%; 0.5922

• Both softer vs. the USD with AUD lagging across the majors post-RBA. As expected, the RBA pulled the trigger on a 25bps cut whilst offering a cautious view on the outlook and lowering its inflation forecasts in its accompanying Statement on Monetary Policy. At the follow-up press conference, AUD/USD hit a session low @ 0.6409 after Governor Bullock revealed that the board discussed cutting by 25bps or 50bps. Oxford Economics notes that it views "rates as still being in slightly restrictive territory after this cut and expects to see two more rate cuts in the second half of 2025". Markets price 72bps of easing by year-end. NZD/USD sits towards the top end of yesterday's 0.5876-0.5932 range.

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