EUROPEAN FX UPDATE: USD steady ahead of crucial CPI data

USD: DXY -0.1%; 97.97

• DXY is giving back some of yesterday's gains in quiet trade as markets await crucial CPI data for June. Core M/M CPI is expected to pick up to 0.3% from 0.1% with the Y/Y rate seen rising to 3.0% from 2.8%. The release will be parsed for any evidence that Trump's tariff policy is adding to price pressures in the US. Albeit, many desks don't expect a bulk of the impact from tariffs to be seen in the data until July onwards. The clear risk for the market is an upside surprise of 0.4%, which ING notes could push up core Y/Y inflation to 3.5-4% by Q3. As it stands, a full 25bps cut is not fully priced until October with a total of 48bps of loosening seen by year-end. Elsewhere, markets remain alive to headline risk on the trade front with the Trump administration still locked in negotiations with trading partners ahead of the August 1st deadline. DXY briefly made its way onto a 98 handle, matching yesterday's best @ 98.12.

EUR: EUR/USD +0.2%; 1.1689

• EUR is firmer vs. the broadly weaker USD as markets await any material breakthrough in US-EU trade negotiations. On which, WSJ reports that the EU has drawn up retaliatory tariffs for US goods in the event a trade deal is not reached with aircraft and booze among the imports targeted. The latest trade developments are not entering the monetary policy space with Reuters sources noting that the ECB is to discuss a more negative scenario next week than previously envisaged in June after Trump's latest tariff threat, but is still seen as holding rates at the meeting with policymakers reluctant to act on a threat alone and any ECB rate cut discussion remains pushed back to September. German ZEW data showed a better-than-expected improvement for the expectations and current conditions components but failed to have any sway on EUR. Elsewhere, French political risk could be a focus later today with French PM Bayrou to outline a plan to narrow France's deficit; will likely lead to calls for a vote of no confidence. EUR/USD remains within yesterday's 1.1651-1.1697 range.

JPY: USD/JPY U/C; 147.69

• JPY flat vs. the USD, halting a recent run of declines. Yen traders are still trying to assess the likelihood of an imminent US-Japan trade deal. However, clarity on this may not come until later in the week with Japanese PM Ishiba and trade negotiator Akazawa to meet with US Treasury Secretary Bessent during his trip to Japan; the meeting is being considered for July 18 in Tokyo. That being said, Ishiba and Akazawa will not wish to be seen ceding ground to the US ahead of the upper house elections on July 20th. On which, FX traders need to be mindful of the movements in the back end of the Japanese curve, which, in part, has been supported by expectations of looser fiscal policy by Japan as a result of this weekend's election. USD/JPY ventured as high as 147.88 overnight before fading upside.

GBP: GBP/USD +0.2%; 1.3449

• GBP is a touch firmer vs. the USD and flat vs. the EUR. Newsflow surrounding the UK have been quiet at the start of the week given the UK has already secured a trade agreement with the US. However, newsflow is set to pick up with Mansion House text releases from BoE Governor Bailey and Chancellor Reeves due at 21:00BST today. Of potentially greater importance is this week's data releases. Tomorrow sees UK CPI metrics with headline Y/Y CPI expected to rise to 3.5% from 3.4% and services remain at an elevated rate of 4.6%. On the following day, UK labour market data will be scoured for further evidence of a loosening in the UK jobs market with particular focus on any upward revision to the prior HMRC payrolls change metric, which showed the largest decline since May 2020. As it stands, markets assign an 89% chance of a cut next month and see a total of 57bps of loosening by year-end.

Antipodeans: AUD/USD +0.3%; 0.6563. NZD/USD +0.3%; 0.5993.

• Both are towards the top of the G10 leaderboard on account of the bounceback in risk sentiment seen today. Both also digested mixed tier-1 data releases from China in which GDP figures for Q2 and Industrial Production in June topped forecasts, but Retail Sales and Fixed Assets Investments disappointed, while House Prices were varied and continued to contract. AUD/USD remains on a 0.65 handle and within a 0.6540-0.6571 range. NZD/USD remains capped by the 0.60 mark with a current session peak @ 0.5999.

CAD: USD/CAD -0.1%; 1.3688

• CAD is a touch softer vs. the USD in the run up to Canadian inflation metrics (coincides with the US release). As it stands, the BoC is currently on pause and avoiding forward guidance with the central bank taking a meeting-by-meeting due to economic uncertainty. Money markets are only pricing 20bps of further loosening by year-end. A soft release could see a cut fully priced by year-end. However, some conviction may be limited by the trade overhang after Trump recently threatened a 35% tariff rate as of August 1st. USD/CAD is currently pivoting around the 1.37 mark within a 1.3689-1.3709 range.

15 Jul 2025 - 10:20- ForexData- Source: Newsquawk