EUROPEAN FX UPDATE: USD remains out of love, GBP digests hot CPI data, EUR/USD back above 1.13

USD: DXY -0.2%; 99.77

• DXY has extended its losing streak into a third session with incremental macro drivers on the light side as the data calendar remains quiet and Fed speak proves to be non-incremental given the uncertainty surrounding the outlook. On the trade front, the deal flow appears to have slowed down and there is unlikely to be much in the way of breakthroughs at the G7 finance ministers meeting this week. ING also adds that an adjustment to the communique on currencies is a very low probability outcome. Elsewhere, focus is on the fiscal front as Trump attempts to push his "big beautiful bill" through Congress. US House Speaker Johnson said a Thursday tax bill floor vote is still realistic. DXY has slipped onto a 99.0 handle with a session trough @ 99.42; next target comes via the 7th May low @ 99.28.

EUR: EUR/USD +0.3%; 1.1312

• EUR/USD has extended its rally for the week with a current session peak @ 1.1352 vs. an opening price on Monday @ 1.1172. This week has been a quiet one in terms of Eurozone newsflow with ECB speak not shifting the dial on market pricing with a June cut near-enough fully priced. The next EUR inflection point could be offered tomorrow via the latest round of flash PMI metrics. For now though, EUR remains underpinned by its appeal of being a liquid alternative to the USD. The next upside target for EUR/USD comes via the 7th May high @ 1.1378.

JPY: USD/JPY -0.2%; 144.18

• JPY is capitalising on the broadly softer USD with USD/JPY slipping as low as 143.57 overnight before returning to a 144 handle. Focus surrounding Japan remains on the trade front with reporting in the Nikkei noting that Japan’s Economy Minister Akazawa, who is the country’s top tariff negotiator, is to visit the US for the third time on Friday; a fourth visit to the US this month is also a possibility. US requests for military burden sharing from Japan remain a sticking point.

GBP: GBP/USD U/C; 1.3389

• GBP steady vs. the USD following a choppy reaction to UK CPI metrics. The series saw an across-the-board hotter-than-expected outturn with Y/Y CPI rising to 3.5% from 2.6% (exp. 3.3%) and the all-important services component rose to 5.4% from 4.7% (exp. 4.8%). This elicited a surge in Cable to a multi-year high @ 1.3468. However, the move ran out of steam given the negative connotations of a stagflationary outlook in the UK. Reacting to the data, ING noted that "services inflation...was driven by a big change in road tax and the timing of Easter. It should fall back from April’s 5.4% figure to the 4.5% area this summer, keeping the Bank of England on track for quarterly rate cuts through this year and into 2026". The next 25bps cut is fully priced for November with a total of 37bps of loosening seen by year-end.

Antipodeans: AUD/USD +0.3%; 0.6458. NZD/USD U/C; 0.5927

• Mildly diverging fortunes for the antipodeans with AUD firmer vs. the USD and NZD steady. Fresh macro drivers are lacking for both with the payback in AUD likely a by-product of yesterday's RBA-induced losses. Elsewhere, upside is being capped by the sour risk environment. AUD/USD is currently tucked within yesterday's 0.6391-0.6458 range and its 50 and 200DMAs @ 0.6339 and 0.6454, respectively. NZD/USD is currently towards the top end of yesterday's 0.5894-0.5932 range.

21 May 2025 - 10:05- ForexData- Source: Newswires