EUROPEAN FX UPDATE: USD steady, EUR digests French political turmoil, JPY marginally outpaces peers

USD: DXY U/C 98.41

• DXY is steady after yesterday's paring of the post-Powell downside. The DXY took a brief leg lower overnight after US President Trump posted a letter removing Fed Governor Cook from her position. If successful, this would put Trump on course for a majority on the Fed board. That being said, Cook has been defiant in stating that she will not resign and that President Trump has no authority to fire her. Bloomberg Intelligence noted that mere allegations are not enough to meet the cause for removal standard. Nonetheless, the US curve has seen a clear bear-steepening and the USD could face a more notable decline if selling in the long-end becomes more pronounced. For today's docket, US durable goods orders and consumer confidence are both due on deck. Focus for the latter will be on any concerns over the employment landscape. DXY held above support via its 50DMA @ 98.06 but failed to sustain a move back above yesterday's best @ 98.54.

EUR: EUR/USD U/C 1.1623

• EUR is resilient despite an unfavourable Eurozone risk backdrop over the past 24 hours. French politics is back in the headlines after French PM Bayrou called for a vote of no confidence on his government's fiscal plans on September 8th. Due to the parliamentary arithmetic, ING writes that the "most likely scenario by far is that the Prime Minister will not win the vote of confidence and the French government will fall". In this event, President Macron will either need to appoint a new PM or call for fresh elections. Whilst the EUR is unfazed today, French assets are showing greater concern with the CAC 40 down over 2% and the FR/GE spread at its widest level since April. An additional potential headwind for the bloc comes via threats from US President Trump that he will impose "substantial additional tariffs" on nations that do not remove discriminatory actions such as digital taxes, legislation, and rules against US tech companies - the EU is an obvious target. EUR/USD is back below its 50DMA @ 1.1651 and towards the bottom end of yesterday's 1.1603-1.1723 range.

JPY: USD/JPY -0.2%; 147.53

• JPY is slightly firmer vs. the USD but unable to hold onto a bulk of its APAC gains that were seen as the risk mood soured post-Trump/Cook. A decline in services PPI had little follow-through to the JPY, with more focus on the trade docket ahead of Japanese top trade negotiator Akazawa set to visit the US this week to flesh out the details of Japan's USD 550bln investment in the US. USD/JPY delved as low as 147.00 overnight, with the pair unable to test its 50DMA to the downside @ 146.91. The rebound has taken USD/JPY as high as 147.90, stopping just shy of yesterday's 147.93 peak.

GBP: GBP/USD +0.1%; 1.3462

• GBP is slightly firmer vs. the USD as UK participants return to market after the long weekend. UK traders return to little in the way of positivity however, with the latest BRC shop price data showing that UK food inflation in August rose to its highest level since February 2024. Pressure has been seen on the back end of the UK curve with the 30yr yield at its highest level since April. That being said, ING writes that EUR/GBP looks to stay offered this week as French politics prompts some reassessment of long euro exposure. Cable ran out of steam ahead of its 50DMA @ 1.3492 and has since pulled back to levels closer to 1.3450.

Antipodeans: AUD/USD -0.1%; 0.6476. NZD/USD -0.1%; 0.5840

• Both are marginally weaker vs. the USD alongside the downbeat risk tone. There was little follow-through into AUD from the RBA minutes release, which showed that the board saw a strong case for a 25bps cut in the Cash Rate and judged some further reduction in the Cash Rate is likely needed over the coming year. Note, Monthly Australian CPI is due tomorrow. AUD/USD has slipped further onto a 0.64 handle but failed to sustain a move below yesterday's trough @ 0.6471. NZD/USD briefly trickled below its 200DMA @ 0.5835 before posting a mild recovery.

26 Aug 2025 - 10:00- ForexEU Research- Source: Newsquawk