Instimatch - FX morning commentary - 11/2/25

Good morning

Another light day in terms of data, with the US NFIB small businesses survey the most notable release since it could provide important clues on the path ahead including its sub-indices on the labour market and price plans. The optimism index is expected to tick slightly lower from 105.1 to 104.7. More interesting may be the various central bank speakers, including the ECB's Schnabel as well as the Fed’s Williams and Bowman. 

Looking ahead though, markets will focus on Fed Chair Powell’s testimony before the Senate Banking Committee as investors gauge his tone on inflation and interest rates, but he is unlikely to deviate from the current neutral tone from FOMC officials.

Trump singled out Europe for its imposition of VAT taxes as an example of unfair practices against US companies and exporters. Meanwhile, ECB President Christine Lagarde cited continued progress in inflation supporting lowering rates over time, but highlighted risks from global trade frictions and a challenging economic environment this year together with the importance of data dependency.

Tariff fears are strengthening the broad USD and pushing short-term US inflation expectations higher which is prompting markets to price in faster rate cuts outside of the US. Yesterday saw mostly sideways trading, and a similar pattern is likely today ahead of tomorrow's US CPI print.

The USD index rose in Asian trade to 108.33, extending gains from the previous session.  EUR/USD bearish outlook remains intact with the pair trading near 1.0300 following another tariff headline over the weekend, initial support is now noted at 1.0250.

Overnight, an interview of BoE MPC member Catherine Mann in the FT catches the eye. In the past, Mann of was seen as belonging to the hawkish camp, but last week she dissented in favour a 50bp rate cut as she sees a weakening jobs market and slowing consumer demand dampening businesses pricing power. A 50bp cut would have been a clear sign according to Mann that easier financial conditions are needed. Sterling this morning weakens slightly with EUR/GBP trading around 0.8335, while GBP/USD has extended losses to trade at $1.2350.

The Japanese yen was among the better performers overnight, with USD/JPY pair easing to around 151.91. The yen was boosted in recent sessions by some safe haven flows and increasing expectations of additional interest rate hikes from the BoJ.

Trade sensitive Asian currencies such as the South Korean won, Singapore dollar and the Australian dollar all came under modest selling pressure overnight.  USD/KRW rose 0.2% to 1,452.38 and USD/SGD rose 0.1% to 1.3354, respectively, while AUD/USD pair fell 0.2% to $0.6280. The Australian dollar took little support from data showing an improvement in local consumer sentiment. 

Within Asia ex Japan, South Korea is relatively more vulnerable to Trump’s announcement of 25% tariffs on steel and aluminium, although the macro impact to South Korea as a whole should be manageable beyond the sectoral impact. For South Korea’s steel makers, the US accounts for around 13% of their export market, but for the economy overall, the impact should be manageable as steel accounted for only about 0.6% of the country’s total export to the US.

USD/CNY pair was steady around 7.3053, amid some support from Beijing as the currency faced increased selling pressure after U.S. tariffs against the country took hold last week.  Weak inflation data released over the weekend also pressured the yuan.

USD/INR eased to 86.670 from record highs above the 88 level amid continued intervention from the Reserve Bank of India to support the rupee as well as selling by exporters.  The frequent interventions from the RBI have weighed on India’s foreign exchange reserves, which are hovering near an 11-month low.

Looking ahead to the rest of the week, Asian markets will also focus on India’s Prime Minister Modi’s trip to the US with Trump, where he is expected to discuss key areas of the partnership in areas such as technology, trade and defence. This time around in Trump 2.0, there are certainly some risks for India given that it has been singled out for its high tariff structure.