EUROPEAN FX UPDATE: USD trims post-FOMC upside ahead of a slew of Fed speak

USD: DXY U/C; 97.53

• DXY has kicked the week off on the back foot after the post-FOMC gains seen in the second half of last week. FOMC officials will come thick and fast at the start of this week with today's agenda including voters Williams & Musalem, non-voters Hammack & Barkin and dovish-dissenter Miran. Throughout the week, Bloomberg flagged some 17-18 Fed speakers. Attention also remains on efforts to avert a US government shutdown after the Senate rejected a short-term funding bill; lawmakers face a September 30th deadline, though the Senate is not scheduled to return until September 29th and the House until October 7th, according to NBC. This week's main data highlight comes on Friday via August's PCE metrics. After the PPI and CPI report for August, analysts were predicting Core PCE could see a rise between 0.28 and 0.35% M/M (vs 0.27% in July), according to the WSJ's Fed watcher Nick Timiraos. As it stands, markets price a 92% chance of an October cut and a roughly 86% chance of another in December. DXY briefly eclipsed Friday's peak @ 97.80, topping out @ 97.82 before pulling back in early European trade.

EUR: EUR/USD +0.2%; 1.1764

• EUR is a touch firmer vs. the USD with incremental macro drivers for the Eurozone lacking since the ECB policy announcement earlier in the month. Over the weekend, ECB's Kazaks and Simkus gave remarks with the former noting there will be plenty of data available at the December meeting and the latter stating that a December rate cut is needed to safely reach 2% inflation. ECB pricing is little changed with just a 16% chance of another cut seen by year-end. The next potential inflection point for a shift in rate expectations could come via tomorrow's flash PMI metrics. Ahead of which, Oxford Economics notes that the data “should offer a more complete picture of what growth looked like during Q3”. The desk adds that it expects “a small improvement in the Eurozone numbers, although at current levels, the PMI still suggests a weak pace of GDP growth. Elsewhere, US President Trump has declared that the US won’t let Europeans buy Russian oil much longer. Finally, there has been little follow-through from Morningstar DBRS's downgrade of France on Friday or Fitch's upgrade of Italy. EUR/USD briefly dipped below Friday's trough @ 1.1728 before fading downside and moving back above the 1.1750 mark.

JPY: USD/JPY U/C; 147.86

• JPY is currently flat vs. the USD after a brief foray above the 148 mark overnight, which saw the pair top out @ 148.37; highest level since September 8th. Domestic focus has shifted from the BoJ to the LDP election. The latest poll suggested that dovish Japanese PM candidate Takaichi is the top pick to lead the LDP with 28.3%, according to FNN Poll. Modest JPY weakness was seen before the poll was released to Western wires. Since, Takaichi has remarked that she won't rule out cutting sales tax on food as an option, whilst second-place Koizumi, who is seen to be more fiscally prudent, says he is open to discussing options for sales tax. As a reminder, the LDP presidential election will be held on October 4th. If upside in USD/JPY resumes, the 200DMA sits @ 148.59.

GBP: GBP/USD +0.2%: 1.3497

• GBP is attempting to atone for Friday's selling pressure, which was brought about by the dreadful public sector borrowing data for August. Fresh UK newsflow has been lacking over the weekend, however, markets are awaiting comments from BoE Chief Economist Pill at 1.30pm London time, followed by Governor Bailey at 7pm. From a data perspective, tomorrow sees the release of September flash PMI metrics. Expectations are for declines across all three key metrics, with desks highlighting the potential for caution ahead of the November 26th budget announcement. With the dust settled on last week's BoE policy announcement, markets see just a 30% chance of another rate cut by year-end. Cable briefly breached the 1.35 mark but has been unable to make a meaningful move above the level. Friday's high is still some way off @ 1.3559.

Antipodeans: AUD/USD U/C; 0.6589. NZD/USD -0.1%; 0.5853

• Both are broadly steady vs. the USD. AUD showed little reaction to RBA Governor Bullock’s overall balanced remarks, highlighting increased uncertainty, while she noted scope for rate adjustments if there is a downturn in the global economy. Upticks in the AUD were seen after China pledged tighter controls on steel sector capacity, with iron ore and steel prices also supported. AUD/USD has continued to pull back further from last week's YTD high @ 0.6707, delving as low as 0.6575; lowest since 8th September. NZD/USD has been as low as 0.5843 but has stopped shy of its 200DMA @ 0.5840.

22 Sep 2025 - 09:55- ForexData- Source: Newsquawk