USD
The dollar’s post-Fed hangover deepened on Thursday. A 13:30 BST data deluge largely validated our call for rates to stay on hold through 2026: advance Q2 GDP landed at just 1.5% annualised, undershooting the 2.0% expected, while June core PCE eased to 3.3% as anticipated. The bigger fireworks came shortly after, as suspected yen-buying intervention by Tokyo, seemingly coordinated with Seoul and conspicuously unopposed by Treasury Secretary Bessent, pushed notably lower. The pair dropped from 163 to 158 before retracing modestly, leading the index to shed around 1, briefly retesting the 100-level, with the dollar weakening across the board. Overnight, the BoJ held at 1.00% in an 8-1 vote; Governor Ueda’s press conference is underway as we write, and USDJPY has already reclaimed 160 as the intervention effect fades. As noted in response to prior intervention efforts, absent an underlying macro catalyst, the impact tends to prove temporary. We think this pattern should hold again, with present yen weakness a function of domestic macro imbalances, and a catalyst for recovery lacking. As such, our expectation is for yesterday’s intervention-related currency moves to unwind in the coming days and weeks, albeit top-up efforts remain a short-term risk, with this a notable feature of the April/May intervention round. For today, these dynamics will be accompanied by the Q2 employment cost index at 13:30 BST, followed by Chicago PMI and final UMich sentiment, with month-end fixing flows and US-Iran headlines the wildcards.
EUR
Having spent a month pinned to the floor of its range, the euro finally broke out on Thursday, with climbing around half a percent to the low-1.15s, its best level in several weeks. Some of that was passive dollar weakness, but domestic data helped. Flash Q2 GDP doubled expectations at 0.4% QoQ, while German July inflation re-accelerated to 2.8%, with energy prices up 8.3% YoY as the Gulf conflict feeds through, compounding Thursday morning’s upside surprise in Spanish core prices. That mix keeps today’s 10:00 BST flash July HICP front and centre. We see upside risks to consensus, and our prior expectations, which had looked for the headline rate to tick up to 2.9%, with core steady at 2.4%. If correct, this would further embolden the Governing Council hawks pressing for a follow-up to June’s hike, with a September move now roughly 80% priced. Even so, we would caution that the same hostilities lifting the CPI path also cap the growth outlook, and we continue to see euro rallies limited while the US-Iran war rages.
GBP
The Bank of England held Bank Rate at 3.75% yesterday, with a 6-3 split that saw Mann joining Pill and Greene in voting to hike, a shift that might have appeared hawkish at first glance. The details of the decision told a different story, however, in keeping with our warning to expect pushback. A majority stressed the lack of evidence of second-round effects, Governor Bailey urged markets not to leave the room “thinking that the Bank is edging towards a hike”, and Deputy Governor Lombardelli described her vote to hold as clear-cut. September hike odds duly halved from 60% to around 30%, and sterling slipped several tenths through the press conference, before the dollar’s afternoon slide swept cable up to the mid-1.34s. The pair trades little changed this morning with the domestic calendar essentially bare, leaving month-end flows, the dollar, and Gulf headlines in charge today.
CAD
Thursday saw finish near 1.40, around one-month lows, as the narrowing US-Canada rate differential we highlighted pre-FOMC continued to weigh at the margin. offered less help, with WTI easing about 1% to below $84 as Strait of Hormuz transits improved and talk of US-Iran negotiations over the waterway offset a fresh wave of US strikes on IRGC targets, though oil still enters month-end up over a fifth in July. Admittedly, the key catalyst was USDJPY intervention spillovers, a dynamic that should unwind in the coming weeks. For today, however, the focus is domestic, with May GDP due at 13:30 BST, seen up 0.2% MoM after April’s 0.5%, as the economy climbs out of its winter slump. A firm print would keep December’s partially priced hike alive, though we still think that pricing overstates the Governing Council’s appetite given core inflation at five-year lows. Regardless of how the data lands, a sustained break below the 1.40 handle likely requires calmer geopolitics and progress in the CUSMA review.
This content was originally published by our partners at Monex Canada.
