EUROPEAN FX UPDATE: USD unable to stage a meaningful bounce post-US-China talks, GBP eyes UK spending review

USD: DXY U/C; 98.99

• USD flat in the wake of US-China trade talks. Whilst there was a positive readout from both nations, the agreement still needs to be signed off by both sides' respective leaders. Furthermore, the content of the agreement is not much of a game changer (focus on rare earths) and does little to address the trade imbalances between the two sides. Attention is now pivoting to the data slate with US inflation metrics due on deck. Expectations are for M/M core CPI to rise to 0.3% from 0.2% with the Y/Y print set to tick higher to 2.9% from 2.8%. MS believes "May is the starting point of a sequence of increasingly strong core inflation prints" and forecasts "the tariff push will peak in 3Q25 and start to fade in 4Q25". Note, PPI metrics are due out tomorrow and with both reports in hand, markets will have more insight into how the Fed's preferred inflation gauge, PCE, is set to print. Markets do not fully price the next Fed 25bps cut until October with a total of 43bps of loosening seen by year-end. DXY is currently tucked within yesterday's 98.86-99.39 range.

EUR: EUR/USD +0.1%; 1.1421

• Fresh macro drivers for the Eurozone remain on the light side as the ongoing drip feed of ECB speak adds little new to the narrative. The latest 2025 ECB wage tracker saw a marginal uptick to 3.114% from 3.055% but passed with little in the way of fan fare. On the trade front, Bloomberg reports that the EU is aiming for US trade talks to extend past Trump's July 9th deadline and reportedly sees reaching an agreement on the principles of a deal by July 9th as a "best-case scenario". As it stands, the USD leg of the equation is likely to do the heavy lifting for the pair in the short-term. EUR/USD is currently contained within yesterday's 1.1373-1.1447 trading band.

JPY: USD/JPY +0.2%; 145.07

• JPY is fractionally softer vs. the USD with USD/JPY back on a 145 handle but respecting yesterday's 145.29 with a current session high @ 145.24. From a fundamental perspective, Japanese PPI metrics printed softer-than-expected overnight, which is also adding to the weakness in the JPY. More recently, Japanese PM Ishiba noted that the government takes the issue of increasing prices seriously. If USD/JPY manages to eclipse yesterday's peak, there is clean air up until the 146 mark.

GBP: GBP/USD U/C; 1.3492

• Cable is unable to recoup much of the lost ground seen in the wake of yesterday's soft UK jobs report which sent the pair to a 1.3457 session low. Focus for today's session in the UK will very much be on the fiscal agenda with UK Chancellor Reeves' spending review due around 12:30BST. Reeves will announce her spending review into individual government departments and outline what their budgets will be for the next three years. The review is also a precursor to the Autumn Budget, ahead of which Reeves has once again ruled out a major tax increase for “working people", and more generally that she has “no intention of raising taxes again on the scale of the 2024 increases. ING is of the view that "the Treasury's slim fiscal headroom against its fiscal rules has fully evaporated and tax rises will be needed later this year to plug the gap.”

Antipodeans: AUD/USD -0.1%; 0.6512. NZD/USD -0.3%; 0.6031

• Both slightly softer vs. the USD in what has been a choppy week for the antipodes. The APAC session was quiet in terms of newsflow for both sides and therefore price action will likely be dictated by broader moves in the USD and the risk environment. The US-China trade talks are of relevance for AUD and NZD given their trade links, but ultimately not enough to provide any further direction at this stage. AUD/USD is holding above the 0.65 mark and is sat within yesterday's 0.6490-0.6533 range. NZD/USD is currently trading in a 0.6025-61 band.

11 Jun 2025 - 10:25- ForexData- Source: Newsquawk