Instimatch - FX morning commentary - 7/3/25

Good morning

For a change this week, the main focus should turn to the US again with the release of the US payrolls data. The consensus forecast is for a rise by 160k in February after 143k in January and for the unemployment rate to remain at 4%, while average hourly wage growth should also remain steady at around the 4% level.

Bloomberg’s ‘whisper’-number at 120k points to some downside risk for the US dollar. In the wake of the jobs data markets will also be watching a number of Fed speakers, with the list starting at Bowman, Williams and Kugler and ending with Chairman Powell.

Tariff delays and exemptions could also be a drag on the US dollar. US President Trump plans to defer the 25% tariffs on Canada and Mexico for goods covered by USMCA till 2 April.

Central bank speakers will also be one focus for European markets after yesterday’s ECB rate cut decision. Lagarde will speak, but also Nagel and Knot from the more hawkish spectrum of the Governing Council.

The USD index fell slightly in Asian trade to 103.97.  Atlanta Federal Reserve President Raphael Bostic said on Thursday that Trump’s policies were clouding the U.S. economy’s outlook and also warned that his tariffs could underpin inflation. The Fed is widely expected to keep rates unchanged as it seeks more clarity on the economy. 

The president of the Eurogroup – the bloc’s finance ministers – Donohoe said there’s a clear path for the Euro to improve its position as a global currency. This is currently a dollar privilege. The USD makes up about 57% of global reserves compared to 20% for the Euro. However, that USD share is down from 61%, with some analysts expecting that to go down further in the coming years, driven by amongst others increasing US isolationism. Donohoe said the Euro must take advantage of this huge opportunity.

EUR/USD has largely stabilised around the 1.08 mark following this week's rally, driven by the seismic shift in fiscal spending in the Eurozone. As expected, the ECB meeting had a limited impact after the widely anticipated 25bp rate cut.  The central bank maintained a meeting-by-meeting approach with no pre-commitment to a specific rate path. However, a shift in the ECB's statement, describing policy as now "meaningfully less restrictive," signaled that the current rate level is closer to the terminal rate, initially providing a slight boost to EUR/USD.

GBP remains under pressure in an environment characterised by elevated uncertainty and high volatility.

Meanwhile in Japan, the Japanese Trade Union Confederation, known as Rengo, has said that its member unions are demanding a 6.09% wage hike this year. This is higher than the 5.85% wage growth demand in 2024, and it has been unheard of since 1993. Social norms of deflation appear to be ending in Japan, which will keep BoJ on its rate normalisation path. Notably, Japan’s 10-year yield rose 9bp to 1.54%, a level not seen since mid-2009.  USD/JPY has broken back below 148, hitting an overnight low of 143.71.

Asian ex-Japan currencies have been relative muted against the US dollar overnight, as markets wait for the upcoming US jobs report.

AUD/USD pair fell 0.3% to $0.6299, reversing course after a strong rebound in the past week. USD/SGD pair rose 0.1% to 1.3326, while the South Korean won’s USD/KRW pair fell 0.1% to 1,445.86.

The Chinese yuan also clocked some gains this week leaving USD/CNY trading around 7.2450, boosted by more support from the People’s Bank, while Beijing’s promises of more stimulus also aided the currency. But this was offset by mixed trade data on Friday, which reflected some of the impact of Trump’s tariffs.  Exports were seen to grow just 2.3% in the first two months of the year.  However, a sharp jump in imports resulted in a bigger-than-expected trade surplus.

There was limited impact on the ringgit following the central bank policy meeting yesterday. Bank Negara Malaysia kept its overnight policy rate unchanged at 3.00%. This was in line with market expectations. BNM has largely continued with its neutral tone in the monetary policy statement, despite the US raising tariffs by 20% on imports from China so far this year. The central bank assessed that at the current level of policy rate, it is consistent with their assessment of growth and inflation dynamics.

USD/INR hovered above 87 rupees at 87.051, as the pair continued to tread water below recent record highs.