• Coordinated FX intervention works. JPY recovery has further to run.

• US jobs reports to take backseat to July ISM prices paid.

• BCB to cut. Banxico, RBI, and CNB to hold.

USD slumped last week against all major currencies, with JPY topping the FX leaderboard. Markets questioned the Fed’s inflation-fighting credibility, while suspected joint Japan and US intervention to strengthen JPY added to the dollar’s decline. Japanese Finance Minister Satsuki Katayama is expected to confirm the coordinated FX action on Monday.

We believe the USD rally from May has run its course, with DXY poised to retreat back into a 96.00-100.00 range. The tailwind to USD from resilient US economic activity is offset by Fed Chair Kevin Warsh failure to turn tough inflation rhetoric into a credible policy.

US 5y5y inflation swaps have retained most of their post-Warsh press conference gains after he argued that markets have done “quite a bit” of tightening. His remarks effectively outsource the inflation flight onto financial markets, raising the risk the Fed responds too late if price pressures reaccelerate and eroding the dollar’s relative real yield advantage.

Barring a major surprise, this week’s US jobs data are unlikely to be a game changer for USD. FOMC participants broadly agree that the labor market is in balance but are more divided over the durability of the inflation threat. That leaves Fed funds futures more sensitive to inflation than employment data, making this week’s July ISM price subindexes potentially bigger volatility catalysts than the jobs reports.

Coordinated FX Intervention Works

The US Treasury has apparently stepped in alongside Japan to buy $5-10bn worth of Japanese yen on Friday. History is clear, joint FX intervention packs a punch, and investors should lean with the official flow, not against it. Since 1998, all three coordinated US FX intervention episodes were successful.

• On June 17, 1998, the US sold a total of $833 million against the Japanese yen to help reverse JPY weakness. The intervention was coordinated with the Japanese monetary authorities. USD/JPY ultimately peaked at 147.66 on August 11, 1998, and bottomed out at 101.25 on November 26, 1999.

• On September 22, 2000, the US bought a total of €1.5 billion against the dollar to help put a floor on the euro. The intervention was coordinated with the ECB and the monetary authorities of Japan, Canada, and the UK. EUR/USD ultimately bottomed out at 0.8230 on October 26, 2000, and peaked at 1.6038 on July 15, 2008.

• On March 18, 2011, the US bought a total of $1 billion against the Japanese yen to curtail JPY strength following the March 11, 2011, earthquake in Japan. The intervention was coordinated with Japanese monetary authorities, the ECB and the monetary authorities of Canada and the UK. USD/JPY ultimately bottomed out at 75.35 on October 31, 2011, and peaked at 125.86 on June 5, 2015.

The broader precedents are the 1985 Plaza Accord and 1987 Louvre Accord. On September 22, 1985, the US, France, Japan, Germany, and the UK coordinated to weaken the US dollar versus the Japanese yen and German Deutsche Mark to correct trade imbalances. As the dollar fell more than expected, the same nations plus Canada signed the Louvre Accord on February 22, 1987, to stabilize the currency.

Bottom line: The uptrend in USD/JPY from early 2025 has likely peaked with the cross on track to trade closer to 140.00, the level implied by US-Japan real 10-year bond yield spread.

ISM Prices Over Jobs

July nonfarm payrolls to indicate resilient US labor demand (Friday). Consensus is looking for NFP gains of +85k vs. +57k in June and the unemployment rate is seen unchanged at 4.2% for a second consecutive month, a tick below the FOMC 2026 projection (4.3%).

June JOLTS report (Tuesday) to remain consistent with a stabilizing US labor market. ADP private payrolls (Wednesday) are seen at +68k vs. +98k in June. There is no consensus estimate for Revelio Labs employment (Thursday), but in June it showed the economy added +258.8k jobs. According to Revelio Labs, its employment data has a 0.74 correlation coefficient with the NFP survey.

July Manufacturing ISM (Monday) and the Services ISM (Wednesday) surveys will be closely watched. The priced paid subindexes will offer clues on whether inflation peaked, or upside pressure remains. Either outcome is unlikely to be USD positive. Softer price pressures can pull Fed funds rate expectations lower, while rising price pressure would revive concerns that the Fed is falling behind the curve in containing inflation risks.

G10 Jobs and Inflation Checks

Switzerland July CPI to remain muted (Monday). Headline CPI is expected at 0.4% y/y vs. 0.5% in June while core CPI is expected at 0.3% y/y for a fourth straight month. The Swiss National Bank (SNB) forecasts headline CPI to average 0.6% y/y in Q3 and 0.5% in Q2.

Bottom line: the SNB has plenty of room to keep rates at 0.00% for some time, which is an ongoing drag for CHF. CHF is the worst performing G10 currency so far this quarter.

New Zealand Q2 labor market data to show stability (Tuesday). In line with the RBNZ projections made in May, employment is expected to rise 0.1% q/q vs. 0.1% in Q1, the unemployment rate is seen at 5.4% vs. 5.3% in Q1, and private regular wages are anticipated at 0.6% q/q vs. 0.5% in Q1.

The improvement in the ANZ Business employment intentions index to a five-month high in June points to more favorable labor market conditions. That and above target inflation argue for additional RBNZ rate hikes which is NZD supportive.

Sweden July CPI to remain well below the 2% target (Thursday). CPIF is expected at 0.7% y/y (Riksbank forecast: 0.5%) vs. 1.3% in June while CPIF ex-energy is projected at 0.3% y/y (Riksbank forecast: 0.2%) vs. 0.4% in June.

While inflation in Sweden is still low, the Riksbank signaled in June that “the probability that the rate will be raised later this year has increased.”

The swaps curve more than fully price in a 25bps hike to 2.00% in December. Hotter than expected inflation would reinforce rate hike expectations and underpin a firmer SEK.

Canada’s July labor force report to remain indicative of soft but broadly stable labor demand (Friday). The economy is expected to add +10.0k jobs in July vs. 18.2k in June and the unemployment rate is forecast to remain at 6.5% for a second straight month. The unemployment rate has generally stayed between 6.5% and 7.0% since the end of 2024.

The Bank of Canada (BOC) is well positioned to keep the policy rate on hold at 2.25% for an extended period some time, with underlying inflation running below its 2% target. That leaves little scope for a hawkish rate repricing and limits any CAD relief rally.

Central Bank Watch

The Reserve Bank of India (RBI) is widely expected to keep the policy rate at 5.25% for a fourth consecutive meeting (Wednesday). Positive real rates, RBI intervention to strengthen INR, and measures announced in June to bolster capital inflows bode well for INR. According to the RBI, India’s push to attract overseas capital has brought in nearly $41 billion since June, covering almost twice India’s current account deficit.

Banco Central do Bazil (BCB) is widely expected to deliver a fourth straight 25bps cut to 14.00% (Wednesday). BCB has room to remove policy restrictiveness as the policy rate is well above the bank’s estimate of the neutral rate (8%, or 5% in real terms). Brazil’s strategic exposure to commodities linked to energy, AI, and defense will continue to bode well for BRL. BRL is the top performing major currency so far this year, up nearly 8% versus USD.

Mexico’s central bank (Banxico) is widely expected to keep the policy rate unchanged at 6.50% for a second straight month (Thursday). At its last June 25 meeting, Banxico’s statement indicated “Looking ahead, the Governing Board estimates that it will be appropriate to maintain the reference rate at its current level.” A cautious Banxico and firm crude oil prices continue to underpin MXN.

Czech Central Bank (CNB) is widely expected to keep rates on hold at 3.75% after delivering a well telegraphed 25bps hike in June (Thursday). It was the bank’s first interest rate increase in four years. CZK remains supported by an attractive carry and a favorable balance of payments backdrop.