US

USD bounces after a string of losses, the MSCI All Country World Index surged to a record high, and global bond yields are drifting higher. Trade deal optimism has turbocharged risk assets. Yesterday, the media reported the US was closing in on an agreement with the EU that would set a 15% tariff for most products. This would be down from the threatened 30% levy if both sides fail to reach an agreement by August 1.

USD can find additional near-term support if the US July S&P Global PMI points to faster private sector growth momentum (9:45am New York, 2:45pm London). The composite PMI is projected at 52.8 vs. 52.9 in June, services is expected at 53.0 vs. 52.9 in June, and manufacturing is seen at 52.7 vs. 52.9 in June. Nonetheless, the year-to-date USD downtrend is intact in our view. See here for details.

EUROZONE

EUR/USD pared back some of yesterday’s gains but is holding above 1.1700. The ECB is widely expected to keep the policy rate unchanged at 2.00% (8:15am New York, 1:15pm London). With no new ECB economic projections released at this meeting, President Christine Lagarde’s post-meeting press conference will be key for policy insights.

In our view, the bar for more ECB interest rate cuts is high which is EUR supportive. First, Eurozone services inflation (3.3% y/y in June) still has some distance to travel to make sure that inflation stabilizes at the target on a sustainable basis.

Second, the Eurozone July PMI suggests private sector economic activity is slowly picking up pace. The composite PMI rose more than expected to an 11-month high at 51.0 (consensus: 50.7) vs. 50.6 in June driven by faster services sector growth momentum (51.2 vs. 50.5 in June) and a slower contraction in manufacturing activity (49.8 vs. 49.5 in June).

UK

GBP is underperforming most major currencies. The UK composite PMI fell more than expected to a 2-month low at 51.0 (consensus: 51.8) vs. 52.0 in June driven by an unexpected slowdown in services sector activity. The services PMI dropped to a 2-month low at 51.2 (consensus: 52.9) vs. 52.8 in June, while the manufacturing PMI improved to a 6-month high at 48.2 (consensus: 48.0) vs. 47.7 in June.

Meanwhile, prices charged by private sector businesses increased at a robust pace in July, with the rate of inflation picking up for the first time since April. Sticky underlying inflation suggests the Bank of England has limited room to dial-up easing to support growth. The swaps market price-in 95% odds of a 25bps cut to 4.00% at the August 7 meeting and a total of 75bps of easing over the next 12 months.

Bottom line: the unfavorable UK macro backdrop of sluggish growth and elevated price pressure spells trouble for GBP, especially versus EUR.

JAPAN

USD/JPY recovered above 146.00 after testing a two-week low yesterday around 145.86. Japan private sector growth traction held steady in July. The composite PMI printed at 51.5 for as second consecutive month in July. The increase in service sector activity (53.5 in July vs. 51.7 in June) was offset by a contraction in manufacturing output (48.8 in July vs. 50.1 in June).

Japan’s swaps market still price-in 80% odds of a 25bps Bank of Japan rate hike to 0.75% in December. In the next two years, markets imply just 50bps of rate increases. In our view, the BOJ’s cautious normalization cycle limits JPY upside.

AUSTRALIA

AUD/USD broke higher through key resistance level at 0.6600, reaching its highest level since August 2024. Improved financial market risk sentiment from easing trade tensions, rising iron ore prices, and faster Australian private sector growth momentum underpin the rally in AUD.

Australia’s composite PMI increased to 53.6 vs. 51.6 in June, the highest since April 2022. The improvement was broad-based with faster service sector growth and a renewed expansion in manufacturing production.

Meanwhile, RBA Governor Michele Bullock stuck to the bank’s guidance for “a measured and gradual approach” to monetary policy easing. Bullock brushed off Australia’s weak June labor force report noting that “leading indicators are not pointing to further significant increases in the unemployment rate in the near term.” Bullock also warned that “the monthly CPI Indicator data, which are volatile, suggest that the fall [in trimmed mean inflation over Q2, due next week] may not be quite as much as we forecast back in May.” The RBA forecasts trimmed inflation of 2.6% y/y in Q2 vs. 2.9% in Q1.

The RBA looks set to resume easing on August 12. RBA cash rate futures continue to fully price-in a 25bps cut in August and 75bps of total easing in the next 12 months.

NEW ZEALAND

NZD/USD is consolidating yesterday’s gains around 0.6050. RBNZ Chief Economist Paul Conway maintained a dovish tone. Conway warned that “Global tariffs and economic uncertainty are likely to mean less inflation pressures in New Zealand and a pullback in business investment and household spending.” Importantly, Conway reaffirmed the bank’s view that it “sees scope to lower the OCR further if medium-term inflation pressures continue to ease as projected.”

In our view, the RBNZ has one more cut in the pipeline. New Zealand inflation is within the target band and the policy rate is close to the RBNZ mid-point estimate of the neutral range between 2% and 4%. The swaps market price-in 86% probability of a 25bps RBNZ rate cut at the August 20 meeting. Over the next 12 months, the swaps market price-in 40bps of easing and the policy rate to bottom between 2.75% and 3.00%. Bottom line: there is room for New Zealand rate expectations to adjust higher in favor of NZD.

TURKEY

Turkey central bank is expected to resume easing and cut rates 250bps to 43.50% (7:00am New York, 12:00pm London). The risk is the bank keeps rates on hold for a second consecutive time because the lira remains under downside pressure and the decline in Turkey core inflation stalled in June. Over the next six and twelve months, the swaps market is pricing in 10 and 16 percentage points of total easing, respectively.