EUROPEAN FX UPDATE: USD softer as markets weigh potential Ukraine peace deal and lack of reciprocal tariffs (so far)

USD: DXY -0.2%; 107.71

• DXY on the backfoot after struggling to hold onto post-CPI gains yesterday. USD faded it's initial surge to 108.52 after being outmuscled by the EUR in the wake of comments from President Trump that he had a "highly productive" phone call with Russian President Putin, and they agreed to have their respective teams start negotiations immediately. Also acting as a post-inflation drag was comments from Fed Chair Powell who offered a note of caution on the latest CPI reading and said the Fed targets PCE inflation (due Feb 28th), which is a better measure. Additionally, Trump's lack of signing of reciprocal tariffs yesterday has also acted as a headwind for the USD. Albeit, it is worth noting that he is due to sign another round of executive orders @ 18:00GMT. Today's docket includes weekly claims data and PPI. DXY is now back below its 50DMA @ 107.98 with a session low @ 107.49; Feb low sits @ 107.29.

EUR: EUR/USD +0.3%; 1.0418

• One of the better performers vs. the USD with EUR/USD now up for a fourth session in a row after starting the week out just below the 1.03 mark. Yesterday, EUR was able to gain optimism largely from two drivers. Firstly, on the trade front, markets were relieved that Trump refrained from signing reciprocal tariffs on trading partners (something which was expected to target the EU), whilst Bloomberg also reported that EU trade chiefs are in discussions with the Trump admin over finding a solution on tariffs. Secondly, Trump's claim of a successful call with Putin which could pave the way for a Ukraine solution has also provided a tailwind for EUR given the ramifications for energy security in the region. As a note of caution, it is worth noting that just because reciprocal tariffs were not signed yesterday, the EU is clearly in Trump's sights. Additionally, there is still a long way to go until a sustained resolution between Russia-Ukraine is obtained. EUR/USD is back above its 50DMA @ 1.0396 and eyeing the Feb high @ 1.0442.

JPY: USD/JPY -0.3%; 153.96

• JPY attempting to claw back some of the lost ground vs. the USD which has brought USD/JPY from a 150.92 base last Friday to a peak @ 154.80 yesterday. Part of today's price action has been triggered by the broad softness in the USD (see above for details) and the firmer-than-expected outturn for Japanese PPI metrics overnight. That being said, absent a pullback in US yields (10yr hit 4.65% yesterday), desks remain cynical over how much of a recovery the JPY can make vs. the greenback. USD/JPY has been as low as 153.91 today but is still some way above its 200DMA @ 152.72 and yesterday's low @ 152.39.

GBP: GBP/USD +0.3%; 1.2482

• Firmer vs. the USD and steady vs. the EUR. Today's main macro event for the UK has come via a better-than-expected outturn for UK GDP which saw the December M/M print at 0.4% vs. Exp. 0.1%, leaving the Q4 print at 0.1% vs. Exp. -0.1%. That being said, as a note of caution, ING writes that "outperformance was solely because of a massive increase in inventories." Adding, "Consumption was flat. Business investment fell sharply despite some really good numbers earlier in the year. Net trade was poor". Note, BoE's Pill spoke in the early hours and urged caution on cutting interest rates as the disinflation process is not yet complete. As it stands, markets fully price the next cut in June with a total of 55bps of easing seen by year-end. Cable is back above its 50DMA @ 1.2472 but sub-the Feb peak @ 1.2549.

Antipodeans: AUD/USD -0.2%; 0.6266. NZD/USD -0.1%; 0.5635

• Both softer vs. the USD and unable to benefit from the broad-based weakness seen in the dollar as participants still await the touted US reciprocal tariffs. AUD's exposure to China is currently acting as a greater source of price action as opposed to domestic events with AUD/USD now just about back below its 50DMA @ 0.6267 but holding above yesterday's 0.6234 base. For NZD, New Zealand inflation expectations were mixed and had little effect on the current RBNZ market pricing of a coin flip between a 25bps or 50bps cut to the OCR from the current 4.25% level at next week's meeting. NZD/USD sits towards the middle of yesterday's 0.5600-71 range.

13 Feb 2025 - 09:55- ForexData- Source: Newsquawk