EUROPEAN FX UPDATE: Choppy trade in JPY amid US-Japan trade deal and PM resignation rebuttal

USD: DXY U/C; 97.44

• DXY is flat with the USD showing a mixed performance vs. peers (softer vs. antipodes, firmer vs. havens). Incremental macro drivers for the US remain on the light side with price action for the USD in recent sessions led by the retreat in US yields. Over the past 24 hours, the US has struck trade deals with Japan (see JPY section for details), Indonesia and the Philippines. These agreements have reduced fears surrounding the August 1st deadline. Albeit, deals with its two largest trading partners, the EU and China, are yet to be reached. Until these agreements are made, there remains a high level of uncertainty around the implications of the Trump tariff policy. Today's data docket sees Existing Home Sales, which will be eyed given fears over the fragility of the sector. More housing data is due tomorrow, alongside flash PMI metrics. Note, the Fed remains in its blackout period. DXY sits towards the bottom end of yesterday's 97.30-99 range.

EUR: EUR/USD -0.2%; 1.1733

• EUR is a touch weaker vs. the USD with macro drivers lacking. Trade headlines regarding the EU and US remain on the light side following weekend reports that the EU is looking at a wider set of potential countermeasures against the US if a deal is not reached by August 1st. As recently mentioned, the closer we get to August 1st without a trade deal, the greater the risk premium EUR is likely to embed. Attention tomorrow will be on the ECB policy announcement, which is expected to be a placeholder event given current uncertainties and the judgment that policy is currently "well-positioned". Flash PMI metrics are due a few hours before, but are unlikely to impact the ECB announcement. EUR/USD trades towards the top end of yesterday's 1.1679-1.1760 range.

JPY: USD/JPY +0.1%; 146.77

• JPY is a touch softer vs. the USD alongside an encouraging risk tone, which has been buoyed by news of the US-Japan trade agreement. The deal will see Japanese goods subject to a 15% tariff (including autos, which had been threatened by a 25% rate). Additionally, Japan will invest USD 550bln into the US and is expected to sign an LNG deal with the US. The deal has notably bolstered Japanese equities with Auto names leading the charge. However, the FX reaction is more muted. One driver behind this is the ongoing fallout from Sunday's Upper House election. Reports in Japanese press suggest that PM Ishiba is set to announce his resignation - something, which he has since refuted. Whilst pricing for BoJ policy tightening has risen to 20bps vs. circa 14bps by year-end yesterday, BoJ Deputy Governor Uchida has done little to encourage expectations of imminent policy tightening, noting that the deal roughly falls in line with assumptions BoJ made in projections at prior quarterly report on May 1st. Policymakers likely will require more time to assess the economic impact of the deal. USD/JPY sits towards the middle of its current 146.21-147.21 range.

GBP: GBP/USD +0.1%; 1.3538

• GBP is marginally firmer vs. the USD with UK-specific newsflow on the light side. Cable is trading higher for its third session in a row, however, this appears to be more of a USD story, than a GBP one. That could change tomorrow with flash PMI metrics for July due on deck. Expectations for marginal upticks in the services and manufacturing components. Ahead of which, Investec writes “while some uncertainty might have been removed with the signing of the UK-US trade deal, there is likely to be more uncertainty over purely domestic matters, with the growing speculation of tax rises come the Autumn Budget”. Elsewhere, retail sales data is due on Friday. Cable has extended its run on a 1.35 handle and breached its 50DMA @ 1.3523. Next upside target comes via the 11th July high @ 1.3585.

Antipodeans: AUD/USD +0.4%; 0.6582. NZD/USD +0.5%; 0.6030

• Both sit at the top of the G10 leaderboard following the upbeat risk sentiment seen in the wake of the US-Japan trade deal. Newsflow out of Australia and New Zealand remains light. AUD/USD has gained a firmer footing on a 0.65 handle with a current session high @ 0.6581. The YTD peak sits @ 0.6595. NZD/USD has moved back onto a 0.60 handle with a session high @ 0.6034. The next target comes via the 11th July high @ 0.6043.

23 Jul 2025 - 10:15- ForexData- Source: Newsquawk