EUROPEAN FX UPDATE: USD remains pressured post-Trump tariff announcement

USD: DXY -0.2%; 106.89

• USD has extended on yesterday's selling pressure which was seen in response to President Trump's reciprocal tariff memorandum in which he pledged to impose levies on “every country” that America has a trade deficit with and took aim at countries using VAT against the US. This initially boosted the dollar although the knee-jerk reaction quickly reversed given that implementation of the tariffs was not immediate. Furthermore, the internals of yesterday's PPI data which filter through into PCE metrics, came in on the light side. For today's agenda, tariff headline risk remains, however, from a scheduled standpoint, 13:30GMT sees the release of January Retail Sales (M/M exp. -0.1% vs. prev. +0.4%). Industrial Production and Fed's Logan also due. DXY down as low as 106.82 (matching the January 18th low) vs. yesterday's 107.79 peak.

EUR: EUR/USD +0.2%; 1.0482

• EUR/USD is up for a fifth session in a row and ventured as high as 1.0486 vs. the sub 1.03 levels seen at the start of the week. Optimism has been spurred by recent trade developments (see above for details) and how thus far, the worst case scenario of immediate and far-reaching tariffs on the EU has been avoided. That being said, the EU is clearly not out of the woods yet given that the region remains within the sights of the Trump admin. Reciprocal tariffs will be implemented on April 1st if no deal is announced and specific sectors such as autos and pharmaceuticals could still be targeted. Furthermore, the hit to investor confidence in the short-term will act as a headwind. If EUR/USD is able to clear 1.05, the YTD peak from January 27th sits @ 1.0532.

JPY: USD/JPY -0.1%; 152.68

• JPY marginally firmer in what has been a choppy week for USD/JPY. Trade at the start of the week saw USD/JPY rise from around 151.20 to a 154.79 peak on Wednesday alongside the widening in yield differentials between the US and Japan on account of hot US CPI metrics on Wednesday. Since then, the reappraisal of the trade landscape and less draconian-than-expected measures from the Trump administration has seen the USD give back some ground with USD/JPY briefly back below its 200DMA @ 152.68 and a session low @ 152.39.

GBP: GBP/USD +0.1%; 1.2584

• Cable has printed a fresh YTD peak in the wake of the softer USD with a current session high @ 1.2594. For UK-specific drivers, strength was also observed yesterday on account of a better-than-expected outturn for UK GDP. That being said, as we mentioned yesterday in our commentary, the internals of the release were not particularly encouraging. Furthermore, on the trade front, the Trump administration's declaration that it will impose tariffs on countries that charge VAT has left Britain at risk of a "GBP 24bln blow to its economy", according to The Telegraph. Next upside target for Cable comes via the 30th December high @ 1.2607.

Antipodeans: AUD/USD +0.4%; 0.6338. NZD/USD +0.4; 0.5702

• Both firmer vs. the broadly weaker USD. AUD/USD has printed a fresh YTD peak @ 0.6340 with the next upside target coming via the 17th December high @ 0.6377. Attention for AUD will now be turning to next week's RBA rate decision with markets currently pricing in an 86% probability the Cash Rate will be cut by 25bps to 4.10%. NZD/USD has cleared its 50DMA @ 0.5669 with the YTD peak @ 0.5723 coming into view. The RBNZ is also due on the docket next week with money markets pricing a 68% likelihood of a 50bps cut and a 32% chance of 25bps reduction.

14 Feb 2025 - 10:00- ForexData- Source: Newsquawk