EUROPEAN FX UPDATE: DXY steady as the trade agenda continues to dominate

USD: DXY +0.1%; 97.63

• DXY is up for a third session in a row with focus for the macro narrative firmly on the trade agenda after Trump's tariff letters earlier in the week and subsequent hints over forthcoming action on copper, pharmaceuticals and semiconductors. That being said, the mood music out of the Trump administration remains one of positivity with officials talking up the likelihood of imminent deals, most notably with the EU. Markets also remain upbeat about the situation, hopeful that deals will be struck shortly or the administration will keep pushing back any "deadlines" i.e the TACO trade remains in play. That being said, as we mentioned yesterday, prolonged periods of uncertainty could come back to bite the US economy. The US data slate remains light and that will remain the case until CPI next week. In the interim, FOMC minutes are due later today with focus on the range of views on the board given the dispersion shown by the dot plot. However, trade updates will likely carry greater sway for the USD. As a footnote, given the recent pressure on back-end yields, FX traders should be mindful of US 10yr supply due later. DXY is currently contained within yesterday's 97.17-83 range.

EUR: EUR/USD -0.1%; 1.1715

• EUR/USD is currently consolidating on a 1.17 handle after hitting a multi-year high last week @ 1.1830. The pullback has been more of a USD story following last week's NFP/ISM services prints and recent trade developments. In what has been a quiet week of data, trade remains at the forefront of the Eurozone narrative after US President Trump said yesterday that the US is probably two days from sending the EU a letter, which means a deal. Reporting via the FT suggests that Brussels is ready to sign a temporary “framework” agreement that sets Trump's “reciprocal” tariff at 10% while talks continue. At this juncture, despite efforts to make an agreement, it is difficult to see how an eventual deal will look given the ideological differences between the two sides. ING also reminds us that the reaction function for the pair is unclear. In the event that the US ramps up tariffs on the EU, such an outcome would be negative for EZ growth but also likely dent the USD. ECB’s Lane, Nagel & de Guindos are all due on the docket today, however, other than potential remarks on the EUR appreciation seen this year, greater focus will fall on the trade agenda. EUR/USD is currently tucked within yesterday's 1.1682-1.1765 parameters.

JPY: USD/JPY +0.1%; 146.62

• JPY remains on the backfoot vs. the USD as a Japanese-US trade deal remains elusive. There hasn't been much in the way of commentary on a prospective deal since the Trump administration imposed a 25% tariff on all Japanese products sent to the US. As we noted yesterday, Japanese officials remain defiant ahead of the July 20th upper house elections with PM Ishiba noting that he will keep defending what needs to be defended as his administration seeks concessions on the auto sector. Elsewhere, BoJ's Koeda stated it is inappropriate to say the specific timing of the next rate hike now due to high uncertainty but added the BoJ must debate how much it should eventually shrink its expanded balance sheet and balance of JGB holdings. For now, the BoJ's hands remain tied with just 10bps of hikes priced by year-end. USD/JPY briefly made its way onto a 147 handle for the first time since June 23rd with clean air until the 148 mark.

GBP: GBP/USD U/C; 1.3592

• GBP flat vs. the USD and firmer vs. the EUR as newsflow surrounding the UK remains light following last week's spike in UK borrowing costs. Note, the UK is not a focus of the latest raft of trade updates given that it has already secured an agreement with the US. Markets await monthly GDP metrics on Friday, which may have outsized importance given the precarious nature of the UK's finances and the impact a soft print would have on the Chancellor's wafer-thin fiscal space. Until then, the USD leg of the equation will likely garner the greatest source of traction for the pair. Cable sits within yesterday's 1.3526-1.3646 parameters.

Antipodeans: AUD/USD U/C; 0.6528. NZD/USD U/C; 0.5998

• Both flat vs. the USD after yesterday's RBA-led outperformance in AUD. Overnight, the RBNZ opted not to defy market expectations and delivered an unchanged rate. The statement noted that if medium-term inflation pressures continue to ease as projected, the Committee expects to lower the OCR further. Moving forward, a total of 30bps of loosening is seen by year-end. However, as is the case for other G10 central banks, policymakers continue to await further clarity on the trade front. NZD/USD has moved back above its 50DMA @ 0.5990 after hitting its lowest level since 24th June overnight @ 0.5977. AUD/USD currently sits within yesterday's 0.6488-0.6558.

09 Jul 2025 - 10:20- ForexData- Source: Newsquawk