EUROPEAN FX UPDATE: DXY a touch higher, JPY lags, GBP digests retail sales miss

USD: DXY +0.2%; 97.61

• DXY is a touch higher, in an extension of yesterday's upside, which was brought about by upside in US yields in the wake of weekly claims and PMI metrics. That being said, DXY is still down by the best part of 1% on the week alongside the flattening of the US yield curve and a pick-up in the JPY earlier in the week. The macro narrative surrounding the US has been little changed this week with the Fed in its blackout period and a lack of tier 1 US data. That will change next week with the FOMC policy announcement and June PCE metrics due on deck. On the former, expectations are unanimous that the FOMC will stand pat on policy with attention on any potential dissent to the decision from the likes of Waller and Bowman. That being said, the broad consensus is likely for the FOMC to continue its "wait-and-see" approach. Note, Barclays month-end rebalancing model is suggestive of weak USD selling against all majors. US durable goods orders are due on deck but unlikely to shift the policy outlook. DXY briefly eclipsed yesterday's best @ 97.55 before topping out @ 97.63.

EUR: EUR/USD U/C; 1.1750

• EUR remains more resilient than peers vs. the USD in the wake of yesterday's "hawkish" ECB policy announcement. To recap, the GC stood pat on policy as expected given the current uncertainties surrounding the trade outlook. The greatest source of traction came after Lagarde reiterated that policy remains in a good place, suggesting that policymakers are not in a rush to adjust policy. Source reporting in the wake of the announcement stated that policymakers set a high bar for a September rate cut. Accordingly, pricing for a rate cut by year-end has been scaled back from circa 22bps to 14bps. The near-term policy path remains highly dependent on the trade outlook. On which, the EU and US are attempting to broker an agreement before next week's August 1st deadline. Reporting suggests that the landing zone for both sides will involve a 15% tariff on EU goods with some carve-outs. Elsewhere, German IFO metrics came in a touch below expected but failed to engineer any traction in EUR. EUR/USD remains within yesterday's 1.1731-88 range.

JPY: USD/JPY +0.5%; 147.80

• JPY is continuing to give back some of its gains vs. the USD seen earlier in the week on account of the US-Japan trade deal. Today's price action has been aided by softer-than-expected Tokyo CPI data, which showed the headline and core readings retreated beneath the 3% level for the first time since March. Attention is now pivoting to next week's BoJ policy announcement, which is widely-expected to see policymakers stand pat on rates. Source reporting today via Bloomberg noted that the BoJ sees a potential rate hike environment this year and expects to have enough data by end-2025 to consider a move. Markets price around 21bps of tightening by year-end. USD/JPY has ventured as high as 147.83 with interim resistance ahead of the 148 mark provided by the 22nd July high @ 147.94.

GBP: GBP/USD -0.4%; 1.3462

• GBP is pressured vs. the USD in the wake of softer-than-expected June retail sales metrics. M/M retail sales printed at 0.9% vs. Exp. 1.2% (prev. -2.8%), Y/Y came in at 1.7% vs. Exp. 1.8% (prev. -1.1%). That being said, Pantheon Macroeconomics is of the view that retail sales are trending up solidly, adding that "looking through the noise, retail sales volumes have averaged 0.2% month-to-month growth over the year to June, and 0.3% month-to-month so far this year. That’s a healthy clip...". Nonetheless, GBP was sent lower vs. both the USD and EUR with markets despondent regarding the current UK macro environment, which is one characterised by slowing growth, a loosening labour market and stubborn inflation. Markets price around 49bps of loosening by year-end. Cable has delved as low as 1.3460 but still holding comfortably above the weekly trough from Monday @ 1.3402.

Antipodeans: AUD/USD -0.3%; 0.6569. NZD/USD -0.3%; 0.6010

• Both softer vs. the USD alongside this morning's soft risk tone and a lack of pertinent antipode-specific drivers. As such, AUD/USD has pulled back from yesterday's YTD high @ 0.6625 and returned to a 0.65 handle with a session low @ 0.6564. The next target comes via the 23rd July low @ 0.6548. NZD/USD is just about holding above the 0.60 mark with a session low @ 0.6007; coincides with the 50DMA.

25 Jul 2025 - 09:55- ForexData- Source: Newsquawk