EUROPEAN FX UPDATE: USD steady as markets ponder Trump's Fed Chair nominee

USD: DXY U/C 98.72

• DXY is flat in what has been an indecisive start to the week for the USD alongside (relatively) quiet market conditions. Yesterday's soft outturn for ISM services was not enough to nudge the dollar lower with some mindful of the increase in the prices paid component as the impact of the Trump administration's tariff policy filters into the US economy. Focus remains on personnel at the Fed, with US President Trump stating that the Fed Governor decision will be made by the end of the week. The shortlist is said to contain four names - two of which are almost certainly Kevin Warsh and Kevin Hassett. Given prior reporting, Fed's Waller is also assumed to be in the running. The fourth is less certain - some have suggested former World Bank Head Malpass. ING writes that it thinks the "dollar would welcome Warsh, but would get hit by Hassett’s nomination". Today's data docket is a light one, whilst the speaker slate sees comments from Fed voters Collins and Cook, and non-voter Daly (who spoke earlier in the week). DXY is currently contained within yesterday's 98.58-99.07 range.

EUR: EUR/USD U/C 1.1575

• EUR is steady vs. the USD as updates from the Eurozone remain relatively non-incremental in the wake of last week's EU-US trade agreement. Retail Sales data for June showed a M/M and Y/Y improvement and upward revisions to the priors. However, this had little follow-through into the EUR. It remains the case that the USD is providing the greatest source of traction for the pair as markets await US President Trump's pick for Fed Chair (see USD section for details). ECB pricing has barely budged since the July meeting with 14bps of cuts seen by year-end. On which, known hawk Holzmann has continued to reiterate his view that there is no reason to cut rates again. EUR/USD remains on a 1.15 handle and capped by its 200DMA @ 1.1592.

JPY: USD/JPY +0.1%; 147.81

• JPY is fractionally softer vs. the USD after losing out yesterday to the greenback. Macro focus for Japan overnight was on the latest domestic wage data, which saw Labour Cash Earnings rise to 2.5% from 1.4% (Exp. 2.5%). Pantheon Macro notes that it marks the fastest growth seen in four months, and signals companies are still willing to hike wages in the face of earnings being squeezed by the trade war impact. However, real wage growth contracted 1.3% Y/Y, suggesting that stronger wage growth is required in order to "beat" inflation. This will likely keep the BoJ cautious in the short-term with markets pricing a roughly 50-50 chance of a rate cut by year-end. USD/JPY continues to eye a test of 148 to the upside. If breached, the high from Monday kicks in @ 148.08.

GBP: GBP/USD -0.1%; 1.3285.

• GBP is marginally softer vs. the USD in the run up to tomorrow's BoE policy announcement and MPR. Expectations are unanimous in expecting a 25bps reduction in the Base Rate. Within the vote split, Morgan Stanley expects a 1:7:1 outcome with Mann voting for a hold and Dhingra voting for a 50bp cut. Additionally, the desk expects unchanged messaging and an uplift to near-term inflation forecasts. UK press has been focusing today on the fiscal situation with a report from the NIESR Institute suggesting that UK Chancellor Reeves needs to raise taxes immediately to fill a GBP 50bln hole in the public finances. NIESR's Deputy Director said the scale of tax rises required would be equivalent to a 5p increase to the basic and higher rates of income tax. GBP/USD remains within yesterday's 1.3260-3316 range.

Antipodeans: AUD/USD +0.4%; 0.6492. NZD/USD +0.4%; 0.5919

• Both are stronger vs. the USD and at the top of the G10 leaderboard alongside the firmer risk tone. NZ jobs data overnight was mixed as the unemployment rate ticked higher and wage gains outpaced analyst consensus. Overall, further easing from the RBNZ is expected given the muted inflation outlook with 52bps of loosening seen within the next year. NZD/USD has gained a firmer footing on a 0.59 handle, briefly eclipsing yesterday's high @ 0.5922. AUD/USD hit a new high for the week overnight @ 0.6495 with attention on a test of the 0.65 mark. If breached, the 200DMA sits just above @ 0.6513.

06 Aug 2025 - 10:15- ForexData- Source: Newsquawk