EUROPEAN FX UPDATE: USD bounces back following punchy Trump tariff rhetoric

USD: DXY +0.4%; 107.81

• USD is bouncing back after being sold yesterday alongside the sell-off in the large cap global tech stocks and failing to act as a safe-haven. The rebound has been bolstered by overnight commentary from US President Trump who pushed back on reports that his administration could impose a gradual 2.5% universal tariff that would increase by 2.5% each month; Trump said he wants tariffs at a much larger level than this. These comments by Trump have pared some of the optimism on the trade front seen last week. Tomorrow is FOMC day with the Fed widely expected to stand pat on rates and likely maintain a cautious approach to rate cuts. DXY briefly made its way onto a 108 handle with a current session peak @ 108.02.

EUR: EUR/USD -0.5%; 1.0439

• EUR softer vs. the USD and to a lesser extent the GBP. Despite the global risk-aversion yesterday, EUR was actually able to eke out gains vs. the USD. However, this upside has been swiftly reversed on account of the aforementioned inflammatory tariff rhetoric from Trump overnight. Of course, this week is ECB week, however, given how widely expected a 25bps rate cut from the ECB is, ING is of the view that "the shake-up in equity markets and resurging tariff risk are going to be much more relevant for EUR/USD". EUR/USD is below yesterday's trough @ 1.0453 and the 50DMA @ 1.0433 with eyes on the Jan 24th low @ 1.0411.


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  EUR/USD opex: 1.0335 (950mln), 1.0350 (443mln), 1.0375-80 (730mln), 1.0400 (1.1bln), 1.0420-30 (574mln), 1.0460 (696mln), 1.0500 (1.6bln), 1.0520-30 (1.1bln).

JPY: USD/JPY +0.6%; 155.42

• JPY has given back the bulk of yesterday's gains vs. the USD that were triggered by the sell-off in global large-cap tech stocks. The event underscored the JPY's role as a haven currency within the FX space. However, this move has been tempered during today's session in the wake of the broadly stronger USD, which has been bolstered by inflammatory tariff rhetoric from US President Trump. In terms of Japanese-specific developments, December Services PPI data fell short of expectations overnight. USD/JPY is currently tucked within yesterday's 153.71-156.24 range.

GBP: GBP/USD -0.4%; 1.2443

• Softer vs. the USD but firmer vs. the EUR. Fresh macro drivers for the UK are light aside from the BRC Shop Price Index for January showing a 0.7% Y/Y decline vs. prev. 1.0%. This week's data calendar for the UK is a light one and therefore direction for the pound may be gleaned from the broader risk environment and performance of the USD. Cable matched the bottom-end of yesterday's 1.2426-1.2524 range before staging a modest recovery.

Antipodeans: AUD/USD -0.7%; 0.6247. NZD/USD -0.6%; 0.5657

• Another session of losses for the antipodes after suffering yesterday alongside the tech sell-off. This time around, the broader recovery in the USD is acting as a drag. AUD/UD has slipped further from the YTD peak printed on 24th Jan @ 0.6330 with a current session trough @ 0.6244; lowest since January 21st. Similar price action for NZD/USD which has pulled back from its YTD peak printed on 24th Jan @ 0.5723; with a current session trough @ 0.5653; lowest since January 23rd.

28 Jan 2025 - 09:55- ForexEU Research- Source: Newsquawk