Instimatch - FX morning commentary - 11/6/25

Good morning

US and China have agreed to an in-principle framework for de-escalating trade tensions by implementing the consensus they reached in Geneva in May, where significant tariffs were rolled back. US Commerce Secretary Lutnick said the issue with China’s rare earth export controls will also be resolved. There are no other bilateral meetings scheduled. The latest talks appear to be a constructive step forward, reducing the risk of a full-blown trade war.

Chinese negotiators stated that "we hope the progress made will be conducive to building trust". The talks are seen as positive for markets in the short term, but we know from previous trade talks that the good mood can fade quickly between the two sides. It will be key for China in the short term that the US does not implement new tech restrictions.

Meanwhile, the NIFB small business optimism index rose to 98.8 in May, up from 95.8 in April, and beating market estimates of 96.0. This reflects improving optimism among small business owners, despite ongoing macroeconomic uncertainties. Key components of the index, such as sales expectations and economic expectations, showed notable gains.

However, both US Treasuries and the USD were little changed overnight, US 10y yield around 4.47% and the dollar index at 99.13.

Markets will turn their focus to the upcoming US CPI data due later today. Headline inflation could begin to edge higher, partly reflecting the impact of increased U.S. tariffs – consensus sees core CPI at +0.3%m/m.  Additionally, the soft monthly inflation prints from mid-2024 may mechanically push up year-on-year comparisons. Combined with only a gradual cooling in labour market conditions, this could constrain the pace of Fed rate cuts this year. Markets have already sharply repriced expectations, now anticipating fewer than two rate cuts (44bp), down from 54bp seen prior to last Friday’s nonfarm payrolls release.

In the European morning we'll first have the ECB's wage tracker, which should point to a further easing of earnings growth. With markets already firmly attached to an ECB landing zone of 1.75%, this data is unlikely to be a game changer. EUR/USD opens the European session steady above 1.14 currently trading around 1.1417.

EUR/GBP ended yesterday’s session notably higher from a low of 0.8417 to 0.8460 after the UK labour market report for April/May surprised to the downside. Wage growth eased across measures in April with most importantly private sector ex-bonus wage growth easing to 5.1% 3M/y/y (cons: 5.3%, prior: 5.5%) and lower than the BoE estimate of 5.4%. Payrolls also came significantly lower than expected in May, although this is usually a volatile measure. While the BoE struck a hawkish tone at the latest meeting and a pause is widely expected at next week's meeting, the report yesterday opened for a softer stance further out. This could open up for further GBP weakness.

In Japan, BoJ Governor Ueda appears to have become dovish. This has likely in part weakened the Japanese yen. Ueda has emphasised that Japan’s underlying inflation is still below its 2% inflation target.  USD/JPY edged higher to 145.06.

USD/KRW pair rose 0.3% to 1,370.02 following the release of South Korea’s labour market data, the unemployment rate remained at 2.7% for a second consecutive month, in line with market expectations.  Other Asian currencies were broadly steady with the Philippine peso, Thai Baht and Taiwan dollar all muted.