Instimatch - FX commentary - 10/6/25

Good morning

Global markets and Asian FX were generally mixed, and range bound, and awaiting the outcomes from the US-China tariff talks that are happening right now, the focus of which is likely to be on rare earth exports coupled with export controls from the US side. Latest indications suggest that talks between both sides will continue into a second day, with the US delegation led by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer. The Chinese delegation is led by Vice Premier He Lifeng. The US signalled a willingness to remove restrictions on some tech exports in exchange for assurances that China is easing limits on rare earth shipments.

Talks came into place after a call between Xi and Trump Thursday last week and followed a period where both sides accused the other of violating the deal reached in Geneva on 10-11 May. Trump said to reporters overnight "We are doing well with China. China is not easy". The US side has expressed willingness to ease some tech restrictions but not on some of the recent controls on the advanced H20 Nvidia AI chips. China also wants the US side to withdraw new limiting guidelines on Huawei AI chips that was released shortly after the Geneva talks. Trade talks are set to resume today at 10am UK time. USD/CNY has been fairly calm through all this trading just below 7.18 vs. around 7.20 around the time of Geneva talks.

In terms of data releases, US CPI data for May and University of Michigan's preliminary June consumer sentiment survey are released later this week. In the Eurozone, today’s focus is on the Sentix investor confidence indicator, which is the first confidence indicator collected in June. The indicator rebounded sharply in May following the post-liberation day plunge in April and we think there is further room for a small increase in June. However, look out for any updates on US-China trade talks. Any good news is probably a dollar positive in the current environment.    

Risk sentiment remained positive yesterday and in overnight trading. The US dollar index rose 0.2% in Asia hours to 99.14 although FX volatility is edging lower. US yields gave up a couple of basis points from Friday’s surge yesterday in choppy trading. The move higher in yields at the end of last week was inspired by the May payrolls report not delivering a feared-for downside surprise and news of imminent trade talks between the US and China.

EUR/USD rose slightly (above 1.14) to keep the short-term upward trading channel intact in a range between 1.1370 – 1.1430.

Sterling is fractionally weaker following this morning's UK labour market data for April and May. On the face of it, it looks like a fairly dovish UK jobs report this morning. Wages are down more than expected – private sector at 5.1%y/y. These were due to come lower anyway as a result of base effects, but this is a bigger drop. More eye-catching is the sharp fall in pay rolled employees at -109k. That would be the biggest monthly drop outside of the Covid-19 pandemic since the data series began in 2014. But this data always gets revised, and more often than not, it is revised up. EUR/GBP for all of June so far hovered slightly above 0.84, 0.8445/60 looks like an important short-term resistance level.

USD/JPY rose 0.3% to around 144.49.  Bank of Japan Governor Kazuo Ueda said that the BOJ is ready to further raise interest rates once underlying inflation consistently reaches its 2% target. Though core consumer inflation has exceeded 2% for three years, underlying, demand-driven price pressures remain below target. The BOJ, which ended its large-scale stimulus last year and hiked short-term rates to 0.5% in January, is expected to hold steady at its June 16–17 meeting amid global uncertainty.

USD/KRW pair rose 0.4% to 1,363.76, while USD/SGD inched 0.2% higher to around 1.2873.