EUROPEAN FX UPDATE: USD softer vs. G10 peers. Support from a conciliatory trade report proved to be fleeting

USD: DXY -0.5%; 99.61

• USD is softer across the board after a session of slight gains yesterday with the dollar struggling in the current risk environment. Focus remains on the trade war with the White House stating that over 15 trade deal proposals are being considered and some could be announced soon. However, it is becoming increasingly apparent that the US will be looking for trade partners to shun China in an attempt to isolate the nation. In recent trade, the USD was provided a modest boost after a more conciliatory report from Bloomberg that China is said to be open to talks if US President Trump "shows respect". It remains to be seen whether such an approach could lead to a breakthrough between both sides. In the interim, attention will turn to today's data and speaker slater which includes US retail sales and Fed Chair Powell respectively. On the latter, Powell is likely to reiterate that Trump tariffs could lead to higher inflation and slower growth, while maintaining that the Fed is not rushing to cut rates. DXY is back below the 100 mark and briefly slipped below yesterday's low @ 99.47.

EUR: EUR/USD +0.7%; 1.1356

• EUR firmer vs. the USD and one of the better performers across G10 FX. Fresh macro drivers for the Eurozone have been lacking during today's session after yesterday saw woeful ZEW metrics and reports that there has been little progress in trade negotiations between the EU and US. Price action today is following the theme seen in recent weeks whereby the EUR benefits from risk aversion as traders seek a liquid alternative to the USD. Today's calendar is lacking in tier 1 EZ releases and as such, markets will likely be awaiting the next development in the trade war as a source of direction for the pair. EUR/USD briefly breached yesterday's best @ 1.1378 but ran out of steam ahead of 1.14, topping out @ 1.1392. A further trimming of gains was seen after the Bloomberg US/China report.

JPY: USD/JPY -0.4%; 142.65

• JPY has retreated beneath the 143.00 level with flows into the yen amid the downbeat risk tone and after Machinery Orders topped forecasts. Elsewhere, comments from BoJ Governor Ueda failed to have any material sway on the Yen with the policymaker noting the Bank may need a policy response but will decide appropriately in line with changing developments, adding that the BoJ sees both upside and downside risks to the price outlook. In recent trade, Reuters sources reported that the BoJ is said to cut its 2025 growth forecast in its quarterly Report; no consensus within the BoJ on the extent of Trump tariff damage. USD/JPY has delved as low as 142.05, matching the YTD trough from 11th April. If breached, the 30th September 2024 low kicks in @ 141.64.

GBP: GBP/USD +0.4%; 1.3278

• GBP firmer vs. the USD but softer vs. the EUR in the wake of softer-than-expected UK inflation metrics which saw headline Y/Y inflation decline to 2.6% from 2.8% (Exp. 2.7%) and services slip to 4.7% from 5.0% (Exp. 4.8%). In response to the data, Pantheon Macro notes that "February was the calm before the storm of annual price resets, government-set price hikes and tax rises boost headline CPI inflation to 3.5% in April and then to a peak of 3.7% in September". That being said, market pricing has moved in a more dovish direction with a May cut virtually fully priced and a total of 85bps of loosening seen by year-end vs. 75bps yesterday. Cable has hit a fresh YTD peak @ 1.3288 with focus now on a test of 1.33; not traded since 2nd October 2024.

Antipodeans: AUD/USD +0.3%; 0.6363. NZD/USD +0.3%; 0.5915

• Both firmer vs. the USD but to a lesser extent than peers considering the current risk tone and after a solid showing during yesterday's European session. Support from better-than-expected Chinese GDP proved to be temporary given the consensus view that growth is set to slow in the coming months on account of the trade war with the US. AUD/USD saw some additional support from the Bloomberg US/China story and is currently contained within yesterday's 0.6315-0.6382 range. NZD/USD is back above its 200DMA @ 0.5889 and within yesterday's 0.5861-0.5944 bounds.

CAD: USD/CAD -0.3%; 1.3917

• CAD firmer vs. the USD but to a lesser degree than peers. Yesterday saw softer-than-expected Canadian inflation data which failed to have a sustained impact on pricing for today's BoC rate decision which sees an unchanged rate at around 60% vs. a 25bps cut @ 40%. Heading into today's announcement, ING suggests that "after 225bp of easing and, crucially, the USMCA goods exemption from US tariffs, we think a hold is slightly more likely than a cut today". As we highlighted yesterday, ING are of the view that for CAD, the BoC and Canadian inflation should remain secondary to the tariff theme. USD/CAD is currently contained within yesterday's 1.3849-1.3976 range.

Yuan: USD/CNH U/C; 7.3149

• Support from better-than-expected Chinese GDP proved to be fleeting for the Yuan with desks dismissing the data as stale and warning of further headwinds to come. More specifically, Capital Economics writes "China's economy regained some momentum in March thanks to fiscal support...But this wasn't enough to deliver faster growth over the quarter as a whole. And with exports set to weaken, growth is still on course to slow this year". On the trade front, WSJ reports that the US intends to use tariff negotiations to isolate China with officials planning to use the negotiations of more than 70 nations to ask them to disallow China to ship goods through their countries. In recent trade, USD/CNH was knocked lower by a report in Bloomberg that China is said to be open to talks if US President Trump "shows respect".

16 Apr 2025 - 10:10- ForexEU Research- Source: Newsquawk