EUROPEAN FX UPDATE: Steady trade as markets await a fresh catalyst

USD: DXY U/C; 97.86

• DXY steady after declining around 0.6% yesterday. There was no obvious fundamental catalyst for the pullback in the USD yesterday with some pinning the move on the flattening of the US curve and price action being exaggerated by summer trading conditions. The macro narrative since the start of the week is relatively unchanged with trade deals between the US and global trading partners remaining elusive and the Fed in its blackout period. On the latter, both Powell and Bowman are due on the speaker slate today but are not expected to comment on monetary policy. Today's data calendar is also a light one ahead of housing data tomorrow & Thursday and PMIs, also on Thursday. DXY has failed to make its way back onto a 98 handle with a current session peak @ 97.99. If breached, yesterday's best sits @ 98.50.

EUR: EUR/USD U/C; 1.1690

• EUR steady vs. the broadly firmer USD. Focus at the start of the week has been on the trade agenda with the EU reportedly looking at a wider set of potential countermeasures against the US if a deal is not reached by August 1st. Note, if a deal is not reached by the deadline, the EU will be subject to a 30% tariff rate by the US. As August 1st draws closer and a deal is lacking, the EUR will likely embed a greater risk premium. This will provide food for thought at the ECB, which is due to meet on Thursday. The announcement 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 is currently eyeing the 1.17 mark.

JPY: USD/JPY +0.2%; 147.65

• JPY is softer vs. the USD as Japanese participants return to market and digest the upper house election results, which saw the ruling majority lose its coalition. Today's losses appear to be more of a scaling back of yesterday's upside vs. the USD rather than a reassessment of the outcome of the election. Yesterday, the narrative was one of relief that, although the LDP had suffered defeat in the election, the market was comforted that PM Ishiba had agreed to stay on and therefore could limit some of the fiscal easing plans, which some had been fearful of ahead of the election. From a policy perspective, BoJ sources via Bloomberg suggest that the Bank sees little impact from the election on its rate stance. Greater focus in the monetary sphere is on the trade war with policymakers in wait-and-see mode regarding the outcome of talks between Japan and the US. USD/JPY sits in the bottom half of yesterday's 147.08-148.66 range.

GBP: GBP/USD -0.1%; 1.3472

• GBP is marginally weaker vs. both the USD and EUR. Today's main macro highlight from the UK has come via a worse-than-expected outturn for UK borrowing figures with Borrowing in June coming in at GBP 20.7bln vs. Exp. GBP 16.75bln; the second-highest June borrowing since monthly records began in 1993, after that of June 2020. Naturally, this will increase pressure on UK Chancellor Reeves ahead of the Autumn budget to shore up the nation's finances. However, desks are largely resigned to the likelihood that any measures are going to be unpalatable and inhibit growth in the short-term. Looking ahead, BoE Governor Bailey is due before the Treasury Select Committee this morning to discuss the latest Financial Stability Report. Of greater interest this week will be flash PMI metrics on Thursday. 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”. Cable is back on a 1.34 handle and trades in a 1.3462-91 range.

Antipodeans: AUD/USD -0.3%; 0.6505. NZD/USD -0.4%; 0.5943.

• Both are at the bottom of the G10 leaderboard alongside the current flimsy risk tone. Little follow-through was seen into AUD following the RBA minutes, which provided very little incrementally. The account noted the majority agreed it was prudent to await confirmation on inflation slowdown before easing, although the Board agreed further rate cuts are warranted over time with focus on the timing and extent of easing. AUD/USD is holding above the 0.65 mark and trades in a 0.6505-30 range. NZD/USD is holding just above yesterday's 0.5938 range with a current session trough @ 0.5941.

22 Jul 2025 - 09:55- ForexEU Research- Source: Newsquawk