EUROPEAN FX UPDATE: JPY leads post-election, DXY trundles lower, EUR awaits trade updates

USD: DXY -0.2%; 98.19

• USD has kicked the week off on a slightly softer footing with DXY hampered by JPY strength (see JPY section for details). Macro drivers from the US have been quiet over the weekend and this could remain the case in the near-term with the Fed in its blackout period and this week's data slate a light one aside from housing metrics on Wednesday and Thursday and flash PMI data. The market remains susceptible to headline risk around the trade war as the August 1st trade deadline nears. Ahead of which, US Commerce Secretary Lutnick said he is confident they will get a deal done with the EU, while Lutnick said that President Trump is ‘absolutely’ going to renegotiate the USMCA. There was a WSJ piece over the weekend suggesting that US Treasury Secretary Bessent reportedly advised US President Trump not to fire Fed Chair Powell. Trump pushed back on this report, suggesting that "People don’t explain to me, I explain to them!”. As it stands, the next Fed cut is not fully priced until October with a total of 47bps of loosening seen by year-end. DXY is contained within Friday's 98.09-57 range.

EUR: EUR/USD +0.2%; 1.1646

• EUR is marginally firmer vs. the USD in what could be a busy week for the bloc. Focus remains on the trade front with Bloomberg reporting that EU envoys are set to meet as early as this week to formalise a retaliation plan in the event of a possible no-deal scenario with the US. Additionally, EU's von der Leyen and Costa to visit China and meet with President Xi and co-chair the 25th China-EU summit. Also on deck this week is flash PMI data for July, which is expected to show marginal upticks in the services and manufacturing prints. However, the release is not expected to have any bearing on the ECB policy announcement due a few hours after. Analysts are unanimous in expecting the ECB to stand pat on rates after the June policy announcement saw President Lagarde label policy as "well-positioned". Accordingly, in a reversal of last week's price action, the EUR leg of EUR/USD may dictate short-term direction for the pair. EUR/USD sits within Friday's 1.1596-1.1671 range.

JPY: USD/JPY -0.7%; 147.77

• JPY is the best performing currency in the aftermath of the Japanese Upper House election. Exit polls showed that the LDP-Komeito coalition failed to secure the 50 seats required to retain a majority. A result that means PM Ishiba no longer controls a majority in the Upper or Lower Houses. Despite this, Ishiba has made clear he intends to remain PM - something which has been viewed as a positive by the market. Additionally, ING noted that opposition parties are very splintered and have little chance of coming together as a political force. As such, some of the worst fears of the outcome may have been avoided and therefore are driving the JPY strength. That being said, today is a market holiday in Japan and therefore tomorrow's price action may deliver a different verdict. On the trade front, Japanese tariff negotiator Akazawa said he will visit the US this week and they are making arrangements for ministerial-level tariff talks with the US to take place this week. USD/JPY has made its way onto a 147 handle with a session low @ 147.70.

GBP: GBP/USD +0.3%; 1.3457

• GBP is marginally firmer vs. the USD after an indecisive week last week, which saw the UK leg of the pair focused on the data slate (CPI and Jobs metrics). Weekend reporting over the UK has been light with not much traction from the latest Rightmove house price data, which showed the largest M/M decline since records began in 2001. Looking ahead for the week, flash PMI metrics for July are due on Thursday with 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 remains on a 1.34 handle and within Friday's 1.3405-75 range.

Antipodeans: AUD/USD U/C: 0.6508. NZD/USD -0.1%; 0.5955

• Antipodeans are lacklustre with mild headwinds seen in NZD following the softer-than-expected CPI data from New Zealand. Market pricing for an RBNZ rate cut next month stands at 75% with a 50% chance of another rate cut thereafter by year-end. NZD/USD remains on a 0.59 handle and within Friday's 0.5931-91 range. AUD/USD is underpinned by iron ore hitting a multi-month high (see metals section for details) and is currently holding just above the 0.65 mark and its 50DMA @ 0.6496 within a 0.5939-0.5974 range.

21 Jul 2025 - 10:00- ForexData- Source: Newsquawk