Instimatch - FX morning commentary - 8/1/25

Good morning

Ahead Today     G3: US Governor Waller Speech, US Initial Jobless Claims, US Continuing Claims

US data yesterday indicated good momentum in the US economy, with JOLTS jobs opening data stronger than expected at 8.1mln up from 7.7mln the previous month. In addition, ISM Services Index was also stronger than expected, rising to 54.1 from 52.1, with the prices paid sub-component spiking to 64.4 from 58.2 in a modestly worrying sign for the near-term path of inflation. US 10-year yields rose closer to 4.68% level while the US dollar strengthened by 0.26% with the index now trading around 108.60.

Today from the US we get more jobs data, including ADP employment and jobless claims. With markets prepping for Friday’s nonfarm payroll data, these numbers could push around USTs. The publication of the FOMC meeting minutes from December could provide some interesting nuances about the Fed’s more hawkish stance.

For the Eurozone we have confidence indices coming, of which the economic indicator is expected to nudge down slightly from 95.8 to 95.6. The PPI number for the Eurozone aggregate is pencilled in for -1.4%y/y, suggesting no price pressures there. In terms of speakers we have the Fed’s Waller and the ECB’s Villeroy.

EUR/USD comes under mild selling pressure and eases below 1.0350 following release of much weaker than expected German manufacturing data released earlier this morning, the recent low around $1.0226 is seen as key support level.  German factory orders fell sharply down 5.4%m/m in November well below the 0%m/m consensus. At the same time, retail sales poured cold water on hopes of a consumption revival, dropping by 0.6%m/m from -0.5%m/m in October.

EUR/CHF tracked higher during yesterday's session as Swiss inflation for December came in broadly in line with expectations, meeting the SNB's Q4 2024 forecast of 0.7%y/y. Headline came in at 0.6% y/y (cons: 0.6%, prior: 0.7%) and core at 0.7% y/y (cons: 0.8%, prior: 0.9%).  The SNB still looks on track to cut rates again in March, there are two additional inflation prints before the March meeting on 20 March.  Traders remain positive on the CHF on narrowing rate differentials to the ECB.

GBP/USD stays on the defensive below $1.2500, undermined by a risk-off market sentiment and elevated US yields. UK gilts underperformed strongly yesterday.  Net daily changes varied between 3.8bp (2-yr) and 7.3bp (10-yr). The 30-yr year added 6.7bp to hit a new 27-yr high. The same-dated auction yesterday tailed slightly and drew the lowest demand since December 2023. This suggests investor caution for upcoming bond supply after the Labour government’s near-record £297bln of planned Gilt sales this year.

USD/JPY is trading around 158.00 with the yen recovering marginally from its weakest level in nearly six months.  Jap government officials offered a verbal warning on potential currency market intervention.

AUD/USD pair recouped early losses to trade flat around $0.6232(still close to the recent low around $0.6180) as traders digested mixed inflation data. Headline consumer price index inflation read higher than expected for November, while underlying inflation eased slightly, however core inflation still remained above the RBA’s 2%-3% target.

Chinese authorities have been managing the pace of RMB weakness, in part by keeping a relatively stable onshore USD/CNY fix, but also by tightening liquidity in the offshore CNH market with further climbs in CNH Hibor rates. The consensus right now is for the CNY to weaken further towards 7.50 level by Q2 2025 as Trump implements tariffs, but in the near-term the PBOC is unlikely to allow sharp exchange moves.

Meanwhile, the 1st advance estimate for India’s FY2024/25 GDP was in line with expectations at 6.4%, but this was notably slower than the 8.2% seen last fiscal year. We think there is a good chance that this may be revised somewhat lower and see softer growth momentum, weaker capital inflows and a wider current account deficit as supporting the view for USD/INR to rise steadily through 2025. The Indian rupee this morning is setting testing a fresh record low against the dollar in the USD/INR 85.84 area.