EUROPEAN FX UPDATE: USD's recovery pauses for breath as markets brace for NFP

USD: DXY -0.3%; 99.85

• USD is currently softer vs. all major peers with DXY snapping a run of three consecutive sessions of gains which have in part been driven by the recent recovery in US risk assets. This in part has been linked to the performance of corporate America in Q1 earnings season and hopes of a US-China trade deal. On the former, reports suggest that China is conducting an assessment on US trade negotiations and evaluating possible US trade talks. That being said, it is worth noting the huge gaps that currently exist between both sides. The next big test for the Greenback comes via today's NFP print which is forecast at 130k (prev. 228k) with the unemployment rate seen holding steady @ 4.2%. Ahead of the release, ING notes that it will be the May report and beyond before we get the beginnings of a material impact from US tariffs. Fed pricing sees a 60% chance of a cut in June and a total of 92bps of loosening by year-end. DXY currently sits within yesterday's 99.61-100.37 range.

EUR: EUR/USD +0.3%; 1.1326

• EUR firmer vs. the USD and one of the better performers across the majors. From a fundamental perspective, attention has been on comments from EU negotiator Sefcovic who said Europe is ready to make US President Trump an offer, in which Brussels wants to increase purchases of US goods by EUR 50bln to address the “problem” in the trade relationship, adding the bloc is making “certain progress” towards striking a deal. On the data front, EZ inflation metrics saw a hotter-than-expected outturn for headline and core inflation with services Y/Y advancing to 3.9% from 3.5%. However, this was not entirely unexpected given regional prints prior to the release. As such, this had little follow-through into the EUR or ECB pricing with a rate cut next month seen at 85% and a total of 60bps of easing seen by year-end. EUR/USD is currently just about contained within yesterday's 1.1265-1.1341 range.

JPY: USD/JPY -0.4%; 144.85

• USD/JPY initially extended on the prior day's BoJ-spurred upward momentum but then pulled back from resistance just shy of the 146.00 level. There was little reaction seen following reports of US-Japan tariff talks or comments from Japanese Finance Minister Kato who said Japan's huge US Treasury holdings are among tools it can wield in trade negotiations with the US but added whether Japan wields that card is a different question. More recently, a report in the Nikkei suggested that US trade negotiators presented a framework for an agreement with Japan, however, Japan strongly opposed the proposal. USD/JPY has recently cracked 145 to the downside, however, yesterday's low is some way off @ 142.88.

GBP: GBP/USD +0.1%; 1.3288

• GBP firmer vs. the USD but modestly so and below the opening levels of the week despite the notable rally on Monday. Price action for Cable has largely been at the whim of the Greenback with incremental macro drivers for the UK exceptionally light aside from some upbeat commentary on the prospects of a UK-US trade deal. That being said, a lot of work remains in order to get such a deal over the line. Attention is now pivoting towards next week's BoE meeting and MPR which is fully priced for the MPC to pull the trigger on a 25bps rate cut. The statement is expected to retain guidance that future rate reductions are likely to be "gradual and careful". Cable currently sits towards the lower end of yesterday's 1.3260-1.3345 range.

Antipodeans: AUD/USD +0.5%; 0.6412. NZD/USD +0.2%; 0.5917

• Both firmer and supported by the current risk-environment which has been underpinned by hopes of a potential US-China trade deal (China is both nation's largest trading partner). AUD has overlooked disappointing Australian Retail Sales data and is looking ahead to Saturday's federal election with PM Albanese seen as likely to secure a second term. It's been a week of consolidation for AUD/USD with the pair stuck within a 0.6350-0.6450 range. AUD/USD is currently just above the 0.64 mark. If the pair is able to break above the WTD high @ 0.6449 peak, the 200DMA kicks in @ 0.6460. NZD/USD is currently holding above the 0.59 mark and sat within yesterday's 0.5893-0.5951 range.

02 May 2025 - 10:20- ForexEU Research- Source: Newsquawk