EUROPEAN FX UPDATE: USD struggles to recoup Friday's lost ground in a quiet start to the week

USD: DXY +0.1%; 97.83

• DXY has kicked the week off slightly firmer. Gains, however, are relatively minor compared to the losses seen on Friday post-Powell. To recap, the USD was knocked lower after the Fed Chair stated that a shifting balance of risks may warrant adjusting policy and the situation suggests downside risks to employment are rising. Focus may return to the inflation side of the Bank's mandate with US PCE due on deck on Thursday. However, given that we have already seen the release of PPI and CPI, forecasters are confident that the M/M core rate will either be in the high 0.2's or low 0.3's. Concerns remain over the impact of the Trump administration's trade policies on price pressures. However, the consensus is now coalescing around the view that any subsequent upticks are likely to be temporary ones. Upside in DXY is currently capped by the 98 mark. If breached, the 50DMA sits @ 98.06.

EUR: EUR/USD -0.1%; 1.1705

• After venturing as high as 1.1742 on Friday, EUR/USD has slipped closer to the 1.17 mark as the dollar attempts to atone for recent losses. Over the weekend, we heard from ECB's Kazaks and Rehn who remarked that there was neither a need or rush to reduce rates further. However, ECB source reporting by Reuters has suggested that whilst the Bank is likely to keep rates on hold next month, discussions about further cuts may resume in the autumn if the economy weakens. ECB minutes from the July meeting are due on Thursday, but will likely prove non-incremental for EUR given the wait-and-see nature of the GC at the moment. German IFO data today saw a strong turnout for the expectations component, helping the headline print above the market consensus. That being said, the IFO President noted that "the recovery of the German economy remains weak". EUR/USD has delved as low as 1.1694 thus far with interim support provided by the 50DMA @ 1.1650.

JPY: USD/JPY +0.3%; 147.31

• After a strong showing on Friday, the JPY rally against the USD has paused for breath. The JPY has been unable to garner any further support from comments by BoJ governor Ueda, who stated that barring a major negative demand shock, the labour market is expected to remain tight and put pressure on wages. As it stands, markets see a total of 18bps of loosening by year-end. Looking ahead, markets will be presented with the latest Tokyo CPI metrics on Friday with super-core inflation projected to stay above 3%, keeping underlying pressures elevated and reinforcing the BoJ’s case that prices are on a sustained path toward 2%. USD/JPY has made its way back onto a 147 handle after delving as low as 146.57 overnight with a current session peak @ 147.52.

GBP: GBP/USD -0.1%; 1.3509

• GBP is a touch softer vs. the USD with UK market participants way from market. Subsequently, newsflow surrounding the UK is light aside from comments by BoE Governor Bailey, who remarked that the UK faces an "acute challenge" over its weak underlying economic growth and reduced labour force participation since the COVID-19 pandemic. He added that the BoE shifted its focus away from long-term trends in unemployment to looking at levels of labour force participation instead. This week's calendar is lacking in tier 1 UK highlights. GBP/USD is just about holding above the 1.35 mark and its 50DMA @ 1.3492.

Antipodeans: AUD/USD +0.1%; 0.6494. NZD/USD U/C 0.5867

• Steady trade for the antipodes with AUD supported by a much firmer-than-expected CNY reference rate setting. For AUD this week, RBA minutes are due on deck tomorrow with monthly CPI set to hit on Wednesday. On which, markets will focus on whether July CPI confirms suspected upside pressures or signals a contained rebound. A stronger-than-expected print could push back RBA easing expectations, with electricity costs remaining the key swing factor. ASX 30 Day Interbank Cash Rate Target currently sees a 36% chance of a 25bps cut at the 30th September meeting. AUD/USD briefly made its way onto a 0.65 handle, topping out @ 0.6504 before fading gains. NZD/USD is steady on a 0.58 handle but below Friday's 0.5876 peak.

25 Aug 2025 - 10:00- ForexData- Source: Newsquawk