EUROPEAN FX UPDATE: USD firm as trade deadline looms

USD: DXY +0.3%; 97.225

• USD has kicked the week off on the front foot and is firmer vs. all peers. Strength comes despite uncertainty on the trade front with US President Trump noting that 12-15 nations will begin receiving letters today (from 17:00BST), informing them of their effective tariff rate as of August 1st should they fail to reach a deal. Recall, last week Trump suggested that tariffs will range from 10%-20% and 60%-70%. Some support for the Greenback may be being elicited from a seemingly pro-USD approach by the Trump administration with the President threatening an additional 10% tariff on nations aligning themselves with "Anti-American policies of BRICS". Furthermore, markets remain of the view that the Trump TACO trade remains in play. Note, the biggest focus for the market is likely on deals with the EU and China. This week's US calendar is a light one, aside from FOMC minutes on Wednesday. As such, trade headlines will likely control the narrative for the US this week ahead of the July 9th deadline. ING writes that negative trade headlines could hit the risk environment, however, "with a market already positioned underweight the dollar, the dollar might not have too far to fall". DXY has eclipsed Friday's peak @ 97.10 with last week's WTD high @ 97.42 now coming into view.

EUR: EUR/USD -0.3%; 1.1737

• EUR softer vs. the USD but to a lesser extent than most peers. Trade updates in recent days for the EU have leaned negatively. EU diplomats said on Friday that EU negotiators failed to achieve a breakthrough in US trade with negotiators looking to secure a US tariff pause extension if no wider trade deal is agreed. Given the ideological opposition that Trump holds towards the EU, a deal was always going to be difficult to construct. The concern for the markets is the severity of any tariffs going forward should the President become frustrated with the process, particularly given reporting that member EU states are struggling to get a consensus on how to negotiate with the US. Furthermore, the EU is also negotiating on multiple fronts with China, retaliating against the EU ban regarding public tenders for medical devices by imposing reciprocal import restrictions. EUR/USD remains on a 1.17 handle but has slipped below Friday's low @ 1.1754. Interim support ahead of the 1.17 mark comes via the 3rd July low @ 1.1718.

JPY: USD/JPY +0.4%; 145.11

• JPY has fallen victim to the broad strength in the USD with the yen not helped by softer-than-expected wage data. Expectations for BoJ rate hikes continue to recede with just under a 50% chance of a 25bps increase seen by year-end. From a trade viewpoint, Japan’s tariff negotiator Akazawa held in-depth phone talks with US Commerce Secretary Lutnick on Thursday and Saturday. Recent reporting from the Nikkei has suggested that Japan could be willing to import cars made in the US back to Japan. Recall last week, US President Trump said he doubts they'll have a deal with Japan; suggested Japan could pay 30% or 35% tariffs. USD/JPY has made its way onto a 145 handle, venturing as high as 145.28, interim resistance ahead of 146 is provided by the 25th June high @ 145.95.

GBP: GBP/USD -0.5%; 1.3585

• GBP is weaker vs. the USD and to a lesser extent EUR. The pound remains pressured following last week's tumult seen in the Gilt market as concerns surrounding the UK's fiscal position resurfaced. On which, weekend reporting suggested that Chancellor Reeves has warned ministers that taxes will need to increase after the government U-turned on its welfare bill, despite repeated pledges not to increase the taxes of working people, according to CityAM. Otherwise, UK-specific newsflow remains light and could remain the case until Friday (M/M UK GDP) given that the UK has already secured a trade agreement with the US. Cable has made its way back onto a 1.35 handle, delving as low as 1.3595. 3rd july low sits @ 1.3586.

Antipodeans: AUD/USD -0.8%; 0.6501. NZD/USD -1.0%; 0.6000

• Both are softer vs. the USD and towards the bottom of the G10 leaderboard alongside the flimsy risk tone. Antipodean-specific newsflow remains light. However, that will change, with both the RBA and RBNZ rate decisions due on Tuesday and Wednesday, respectively. For the former, consensus looks for the RBA to deliver a 25bps rate cut on account of softer-than-expected growth and inflation data. Focus will be on hints over additional easing with markets currently pricing in a total of 77bps of loosening by year-end. AUD/USD is currently oscillating around the 0.65 mark. A more pronounced decline below 0.65 could bring the 50DMA into view @ 0.6497. For the RBNZ, markets assign a circa 75% chance of an unchanged rate with inflation now within the Bank's inflation target band. NZD/USD is currently testing 0.60 to the downside. If breached, its 50DMA rests at 0.5987.

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