EUROPEAN FX UPDATE: USD shunned once again after yesterday's attempted bounce

USD: DXY -0.5%; 99.42

• After an attempted bounce yesterday following encouraging flash PMI metrics, this week's downtrend for the USD has resumed. Updates from the US during today's session have been light amid a lack of material trade updates and after yesterday's passage of Trump's Tax/Spending Reconciliation bill, which will now move to various Senate committees before being debated and voted on by the Senate floor. As expected, the G7 communique didn't provide any fresh language on currencies and commentary around tariffs was limited. For today's session, the calendar is light in terms of tier 1 data but Fed's Goolsbee, Musalem, Schmid and Cook are all due on the speaker slate. However, they are unlikely to shift the dial for Fed pricing given the uncertainty clouding the outlook. DXY has just slipped below the bottom end of yesterday's 99.44-100.11 range.

EUR: EUR/USD +0.5%; 1.1339

• EUR is capitalising on the softer USD with EUR/USD back on a 1.13 handle. Today's detailed release of Q1 German GDP exceeded expectations but failed to engineer much in the way of additional support from EUR given that the beat was attributed to front-loading ahead of expected tariff actions by the Trump admin. On the trade front, the FT has reported that US President Trump is pushing the EU to lower tariffs or face additional duties with US negotiators to tell Brussels they expect unilateral concessions. Note, USTR Greer and EU Trade Commissioner are set to meet in June. On the speaker front, ECB dove Stournaras has stated that he sees a June rate cut and then a pause, whilst Rehn has backed a June rate reduction, data permitting. EUR/USD is currently sat just below yesterday's best @ 1.1344.

JPY: USD/JPY -0.5%; 143.28

• JPY is out-muscling the USD in the wake of hot Japanese core inflation data overnight. ING writes that "Excluding both fresh food and energy, core-core inflation rose to 3.0%, suggesting that underlying inflation will remain above the BoJ's target of 2.0%". From a policy perspective, ING states a BoJ hike in July is very much underpriced at just 10%, adding that last night's data should worry the BoJ enough to prompt a 25bp hike. On the trade front, Japan’s chief tariff negotiator Akazawa reiterated there is no change to the stance on requesting the elimination of US tariffs. However, he noted they aim to reach an agreement and plans to visit the US around May 30th for the fourth round of trade talks. USD/JPY currently sits within yesterday's 142.80-144.40 range.

GBP: GBP/USD +0.5%; 1.3485

• GBP stronger vs. the broadly weaker USD with Cable at its highest level since February 2022. Sentiment for the GBP has been underpinned by a strong showing for UK retail sales in April (M/M 1.2% vs. exp. 0.2%, prev. 0.1%). Pantheon Macro writes "Three-month-on-three-month growth in retail sales volumes, at 1.8%, hit the strongest since July 2021, or ignoring Covid, since August 2018. The gain in retail sales will add around 0.1pp to April GDP growth, which sets the stage for solid quarterly performance". BoE's Pill is due to speak later in the session, however, he gave quite an extensive explanation over his dissent earlier in the week and therefore is unlikely to add much more that will be of use to markets. As it stands, the next 25bps rate cut from the BoE is not priced until November. With a session peak @ 1.3486, the next target for Cable comes via the 1.35 mark.

Antipodeans: AUD/USD +0.7%; 0.6453. NZD/USD +0.8%; 0.5943

• Both at the top of the G10 leaderboard alongside a pick-up in risk sentiment with newsflow otherwise light. In what has been a choppy week for AUD/USD, the pair is currently contained within yesterday's 0.6407-58 range and in close proximity to its 200DMA @ 0.6452. NZD/USD briefly eclipsed yesterday's best @ 0.5945 but still has some ground to cover before it approaches the WTD high @ 0.5968.

23 May 2025 - 09:50- ForexData- Source: Newsquawk