EUROPEAN FX UPDATE: USD steady post-FOMC, EUR eyes ECB 25bps rate cut

USD: DXY +0.1%; 107.97

• DXY trivially higher as the dust settles on yesterday's FOMC policy announcement. Price action yesterday saw the USD spike higher as the FOMC removed language over progress on inflation before fading the move as Powell downplayed the change in language. As it stands, markets fully price the next 25bps cut in June with a total of 48bps loosening seen by year-end. In order for markets to price a more dovish outturn for the Fed, the US will likely need to see a more pronounced deterioration in the labour market. For today's docket, focus is on the advance release of Q4 GDP and PCE data with the former expected to print at 2.6% vs. prev. 3.1%. Greater attention will likely fall on tomorrow's monthly PCE metrics. DXY is currently steady within yesterday's 107.74-108.29 range.

EUR: EUR/USD -0.1%; 1.0409

• Marginally softer vs. the USD. This morning has seen disappointing GDP outturns for France and Germany which culminated in the EZ-wide figure printing at 0.0% Q/Q vs. Exp. 0.1%; EUR was unreactive. Looking forward, focus is very much on today's ECB policy announcement. A 25bps cut is nailed on and the policy statement will likely reiterate the bank's meeting-by-meeting and data dependent approach. Clues will be on any negative emphasis on the growth outlook which some could see as a signal to price the terminal Deposit Rate closer to 1.5/1.75% vs. the current 2% level. EUR/USD is currently tucked within yesterday's 1.0381-1.0443 range and below its 50DMA @ 1.0426.


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  EUR/USD opex: 1.0350-55 (3.7bln), 1.0365-75 (1.8bln), 1.0390 (504mln), 1.0400-05 (2.4bln), 1.0415 (450mln), 1.0425-30 (1.1bln), 1.0435-40 (1bln), 1.0450-60 (1.8bln).

JPY: USD/JPY -0.5%; 154.35

• JPY firmer vs. the USD with not much in the way of fresh macro drivers out of Japan. USD/JPY is ultimately lower on the week on account of the risk-aversion triggered on Monday by the sell-off in US large cap tech stocks. USD/JPY is back below its 50DMA @ 154.86 but has been unable to make a return towards Monday's 153.70 low as US equity markets have stabilised to an extent after declines seen at the start of the week.

GBP: GBP/USD U/C; 1.2448

• GBP steady vs. the USD and EUR with fresh drivers for the UK lacking as yesterday's speech by Chancellor Reeves failed to have any follow-through into the GBP. From a forward-looking perspective, attention is slowly pivoting towards next week's BoE rate decision and MPR with markets assigning a circa 85% chance of a 25bps rate cut. Focus will be on whether the announcement will push market pricing in a more dovish direction than the current 71bps of loosening seen by year-end. Cable currently sits towards the top end of yesterday's 1.2393-1.2463 range.

Antipodeans: AUD/USD U/C; 0.6228. NZD/USD -0.2%; 0.5647

• Both lacking firm conviction and failed to sustain overnight gains in the absence of pertinent drivers and tier-1 data releases. AUD/USD is steady after three consecutive sessions of losses which dragged the pair to a 0.6209 low yesterday. If downside resumes, focus will be on a test of 0.62 to the downside; not breached since 20th January (0.6189 was the low that day). NZD is faring slightly worse than its antipodean counterpart with NZD/USD extending downside for a fourth consecutive session but managing to hold above yesterday's 0.5634 trough.

30 Jan 2025 - 10:15- ForexEU Research- Source: Newsquawk