EUROPEAN FX UPDATE: GBP lags on soft PMIs, EUR eyes ECB and potential EU-US breakthrough

USD: DXY +0.1%; 97.28

• DXY is a touch higher after a run of four consecutive daily losses. Yesterday's downside was largely due to the appreciation of the JPY in the wake of the US-Japan trade deal. ING has made the observation that "The dollar didn’t suffer in the first half of July from trade tensions re-escalating. And it is equally finding no benefit from positive trade deal news". Instead, the Bank suggests that near-term direction for the USD will likely be gleaned from the data slate. On which, today's docket picks up with Jobless Claims, Building Permits, New Home Sales and flash PMIs all due on deck. That being said, next week's NFP print (which coincides with the August 1st tariff deadline) will likely carry greater weight for the Greenback. Noise around the Trump administration's disdain for the current direction of FOMC policy will likely pick up today with the President set to visit the Fed @ 21:00BST. However, markets remain of the view that Trump is unlikely to remove Powell from his position before his term expires next year. As it stands, markets price around 45bps of cuts by year-end. DXY has delved as low as 97.10 with focus on a test of 97.00; not breached since 7th July (96.89 was the low that day).

EUR: EUR/USD -0.1%; 1.1759

• EUR is a touch softer vs. the USD with the recent rally pausing for breath. This week has seen optimism increase on the trade front with reporting via Reuters and the FT suggesting that the US and EU are closing in on a 15% tariff deal, which would waive tariffs on some products. Note, should a deal not be reached, EU members have given the green light for potential tariffs on EUR 93bln of US goods. Attention this morning has switched to the data slate whereby flash EZ PMI metrics for July showed minor improvements and beats on expectations for the manufacturing, services and composite metrics. The accompanying report said the data was indicative of "robust" economic growth for Q3 and a continuation of the disinflation trend. That being said, the release is unlikely to have any sway on the upcoming ECB rate decision with markets fully priced for an unchanged rate as the GC views current policy as well-positioned. Additionally, President Lagarde is viewed as unlikely to attempt to engineer a move lower in EUR despite concerns over the disinflationary impact of recent appreciation. Note, this is not a forecast meeting. EUR/USD remains on a 1.17 handle and within a 1.1756-80 range.

JPY: USD/JPY -0.1%; 146.35

• JPY is mildly extending on its recent run of gains vs. the USD with the Yen buoyed after securing a trade deal with the US, which will see Japanese goods subject to a 15% tariff (including autos). Additionally, Japan will invest USD 550bln into the US and is expected to sign an LNG deal with the US. Accordingly, markets have continued to bolster bets on BoJ tightening this year with 22bps of hikes seen by year-end vs. circa 14bps at the start of the week. That being said, potential political instability is somewhat clouding the outlook with ongoing speculation over whether PM Ishiba will step down in the wake of Sunday's upper house election defeat for the LDP. USD/JPY has briefly made its way onto a 145 handle with a session low @ 145.86; lowest since July 10th.

GBP: GBP/USD -0.3%; 1.3547

• GBP is struggling and sits at the bottom of the G10 leaderboard in the wake of disappointing flash PMI metrics for July. The services metric unexpectedly declined to 51.2 from 52.8, manufacturing nudged higher to 48.2 from 47.7 with the composite coming in at 51.0 vs. previous 52.0. The accompanying release was a gloomy one with S&P Global noting the data showed "output growth weakened to a pace indicative of the economy growing at a mere 0.1% quarterly rate, with risks tilted to the downside in the coming months". The report suggested that sluggish output growth was "widely linked to the ongoing impact of the policy changes announced in last autumn’s Budget and the broader destabilising effect of geopolitical uncertainty". The release has helped to underpin the difficult balancing act facing the MPC with policymakers attempting to balance stubborn inflation growth with a clearly slowing economy and labour market. As it stands, markets price an 84% chance of a rate cut next month and see 51bps of loosening by year-end. Cable has slipped to a low of 1.3547 but is holding above its 50DMA @ 1.3529 and yesterday's low @ 1.3515.

Antipodeans: AUD/USD +0.2%; 0.6613. NZD/USD +0.1%; 0.6051

• Both remain buoyed by the encouraging risk tone in the absence of any antipodean-specific drivers. As such, both will likely take direction from the trade environment in the short-term. AUD/USD has extended its recent rally and printed a fresh YTD high @ 0.6624. NZD/USD has gained a firmer footing on a 0.60 handle with a current session high @ 0.6059. Next incremental target comes via the July 10th high @ 0.6063.

24 Jul 2025 - 10:05- ForexEU Research- Source: Newsquawk