EUROPEAN FX UPDATE: USD broadly firmer vs. peers as NFP looms large

USD: DXY +0.1%; 100.08

• DXY is steady with the USD showing a mixed performance vs. peers. Markets are currently digesting the fallout from the latest executive orders from US President Trump, which has seen the imposition of tariffs on countries ranging from 10%-41%. This includes a tariff rate of 10% for Brazil, 30% for South Africa, 20% for Taiwan and 25% for India. Canada’s tariff increased from 25% to 35%, while Mexico received a 90-day extension of the current tariff rates. Accordingly, the average US tariff rate has risen to 15.2% (prev. 13.3%; 2.3% pre-Trump). ING attributes the modest FX reaction to the view that "deals are still likely to be agreed in the coming weeks", adding that it does not "expect any meaningful implications for the dollar in the near term". It's also worth noting that the July payrolls release looms large with consensus looking for the rate of job growth to slow to 110k from 147k and the unemployment rate to rise to 4.2% from 4.1%. A soft outturn could reignite expectations of a September cut; currently priced at 45% with a total of 33bps of loosening seen by year-end. Elsewhere, ISM manufacturing data is also due on deck and we expect to hear statements from Waller and Bowman on the justification of their dissent - likely to be non-incremental for the market given they are very much in the minority on the FOMC and we heard a fair bit from them ahead of the decision. DXY has gained a firm footing on a 100 handle with a current session high @ 100.17.

EUR: EUR/USD U/C; 1.1415

• EUR steady vs. the USD with a firmer-than-expected outturn for Eurozone inflation unable to provide much traction for the shared currency. HICP Y/Y for July remained at the 2% target (Exp. 1.9%), whilst both core metrics came in 10bps over consensus, and services declined to 3.1% from 3.3%. From a policy perspective, as stressed at last week's meeting, the ECB is very much of the view that policy is well-positioned to deal with the current uncertainties in the economy. Additionally, the recent pullback in the EUR has also dampened the need for policymakers to consider a rate cut in the near-term. Accordingly, markets price a less than 50% chance of a 25bps reduction by year-end. That being said, a deterioration in the EZ economy or potential retaliation by the EU in response to the latest trade agreement with the US could reignite loosening expectations. For now, today's NFP print is likely to provide the greatest source of traction for EUR/USD. EUR/USD remains supported by the 1.14 mark.

JPY: USD/JPY -0.1%; 150.53

• JPY is marginally firmer vs. the USD in what has been a bruising week for the Yen vs. the dollar. Part of this has been a USD story and part has been stemming from the fallout from the latest Japan deal, political uncertainty and a reticence yesterday from the BoJ in attempting to bolster rate hike bets. The Yen depreciation has not gone unnoticed in Tokyo with the Japanese Finance Minister Kato stating that he is "alarmed over FX moves". On the trade front, the Nikkei reports that Japan is eyeing a 15% rate for the US chip tariff, which would be on par with the EU. Additionally, Japanese Economy Minister Akazawa said Japan will continue to push the US to execute the agreed-upon cut to auto tariffs. After hitting a multi-month high @ 150.91 overnight, USD/JPY has pulled back but remains above the 150 mark and its 200DMA @ 149.56.

GBP: GBP/USD -0.3%; 1.3163

• GBP remains on the backfoot vs. the USD with Cable extending its losing streak to a 7th session in a row. It remains the case that macro drivers for the UK remain on the light side, however, next week will see the latest BoE policy announcement and MPR, which is 82% priced for a 25bps reduction. Within the vote split, Morgan Stanley expects a 1:7:1 outcome with Mann voting for a hold and Dhingra voting for a 50bp cut. Additionally, the desk expects unchanged messaging, and an uplift to near-term inflation forecasts. Cable has slipped onto a 1.31 handle for the first time since 13th May with a session low @ 1.3180.

Antipodeans: AUD/USD U/C; 0.6428. NZD/USD -0.4%; 0.5866.

• NZD is underperforming its antipodean peer in the wake of the latest Trump tariff announcements, which have seen the rate for New Zealand increase to 15% from 10% and Australia hold steady at 10%. NZD/USD has slipped onto a 0.58 handle with a session low @ 0.5866. Next downside target comes via the 200DMA @ 0.5839. AUD/USD is steady with upside capped by disappointing Manufacturing PMI data from China and currently sits towards the bottom end of yesterday's 0.6424-76 range.

01 Aug 2025 - 10:20- ForexEU Research- Source: Newsquawk