EUROPEAN FX UPDATE: USD remains underpinned by trade angst ahead of January PCE data

USD: DXY +0.1%; 107.35

• USD remains underpinned by the Trump administration's trade policies. As a reminder, Trump clarified that there will be a "10+10" tariff on China for a total of 20% additional tariffs and that the proposed tariffs on Canada and Mexico are scheduled to go into effect on March 4th. As we wrote yesterday, it remains to be seen whether Trump will carry through with his threats or if this is a mere negotiating tactic. Markets will likely lack conviction in moves until this is clarified. On the data slate, the obvious highlight is monthly PCE data for January with core M/M expected to tick higher to 0.3% from 0.2%, and the Y/Y metric forecast at 2.6% vs. prev. 2.8%. Given we have already had CPI and PPI, today's release may play second-fiddle to ongoing trade angst. As it stands, markets fully price the next 25bps Fed cut in July with a total of 61bps of cuts seen by year-end. There is not much in the way of upside resistance in the USD until 108 which coincides with the 50DMA.

EUR: EUR/USD U/C; 1.0400

• EUR is flat vs. the USD and pivoting around the 1.04 mark. On the data front, CPI releases thus far today have seen a softer-than-expected outturn for French inflation, whilst German state CPIs have been broadly in-line with expectations of the national release at 13:00GMT; firmer on a M/M basis and steady Y/Y. Elsewhere on the inflation front, the ECB's survey of consumer expectations saw the 12-month forecast slip to 2.6% from 2.8% and the 3yr remain at 2.4%. Next week's ECB rate decision is coming closer into view with policymakers set to deliver another 25bps rate cut; attention will be on if the GC still views policy as restrictive. Tariffs also remain on the mind of investors with the EU still in the firing line of the Trump admin, after President Trump reaffirmed his criticism of EU VAT taxes. EUR/USD briefly slipped below its 50DMA @ 1.0387 before just about returning to a 1.04 handle.


• EUR/USD opex: 1.0300 (871mln), 1.0385-95 (2.7bln), 1.04.00-05 (3.9bln), 1.0425-30 (1bln), 1.0440 (550mln), 1.0460 (655mln), 1.0475-80 (1.2bln).

JPY: USD/JPY +0.5%; 150.54

• Overnight, USD/JPY saw mild downside amid haven flows into the Japanese currency but saw two-way price action with a brief surge triggered by softer-than-expected Tokyo inflation data. That being said, Pantheon Macro notes that "today’s inflation data and the prospect of a further bump in food inflation are likely to support the Bank’s view that underlying inflation is gradually approaching the 2% target". Markets fully price the next 25bps hike in October with a total of 31bps of tightening seen by year-end. USD/JPY has gained a firmer footing on a 150 handle with a current session peak @ 150.68 vs. the YTD low printed on 25th February @ 148.55.


• USD/JPY opex: 149.50 (900mln), 150.00 (1.6bln), 151.30 (1.4bln).

GBP: GBP/USD U/C; 1.2604

• Flat vs. the USD after briefly slipping onto a 1.25 handle. GBP has been more resilient vs. the USD compared to other peers with the UK seen to have less exposure to US tariffs than peers. Furthermore, US President Trump said the US is going to have a deal done on trade with the UK "rather quickly" and that UK PM Starmer tried to convince him not to impose tariffs on the UK during their meeting. Elsewhere, BoE's Ramsden presented an even-handed speech in which he noted inflation risks "are two-sided, reflecting the potential for more inflationary as well as disinflationary scenarios". He added that there may be circumstances when a slower pace of rate cut is justified, "but there will also be times when conditions require that the pace has to quicken." If downside resumes for Cable, the earlier session low sits @ 1.2574; if breached, last week's low kicks in @ 1.2562.

Antipodeans: AUD/USD -0.2%; 0.6217. NZD/USD -0.4%; 0.5603

• Both softer alongside the risk-off tone triggered by the latest Trump tariff tirade and tech losses on Wall Street. AUD/USD is now down for a 6th consecutive session after printing a YTD peak @ 0.6408 on 21st February. The pair has extended its move below its 50DMA @ 0.6262 with focus on a potential test of 0.62; not breached since 4th February. Similar price action for NZD/USD which is lower for a 6th session in a row after printing a YTD peak @ 0.5772 on 21st February. The pair briefly slipped onto a 0.55 handle for the first time since 4th February before trimming losses.

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