US
USD rebounds, while JPY holds on to its intervention-driven gains. Crude oil prices are down after President Donald Trump called off a massive attack on Iran, lifting stocks and bonds. We believe the USD rally from May has run its course, with DXY poised to consolidate with 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.
The July ISM manufacturing index is up next (3:00pm London, 10:00am New York). The headline index is expected to improve to 53.9 vs. 53.3 in June driven by an uptick in the New Orders and Employment indexes. The Prices Paid index is seen easing -0.2ppt to a five-month low at 71.0, signaling diminishing upside risk to inflation.
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 fund futures more sensitive to inflation than employment data. As such, the Prices Paid index will be closely scrutinized.
JAPAN
USD/JPY plunged early in the Tokyo session, dropping by roughly 2 big figures to an intra-day low around 155.23. Japan and US confirmed joint intervention to halt the yen’s slide. US Treasury Scott Bessent wrote “Friday's coordinated foreign-exchange actions countered disorderly yen movements. A few minutes later, Japanese Finance Minister Satsuki Katayama released a statement confirming it had “purchased the Japanese yen in coordination with the U.S. Department of the Treasury.” Both warned they will not hesitate to conduct further joint intervention.
We’ll know the size of Japan’s intervention by end-August, but the US figure will come much later around mid-November. Regardless, 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 have been successful (see our Drivers for the Week Ahead). Bottom line: USD/JPY is on track to trade closer to 140.00, the level implied by US-Japan real 10-year bond yield spread.
SWITZERLAND
Swiss July CPI stays muted. In line with consensus, headline CPI printed at 0.4% y/y vs. 0.5% in June while core CPI remained 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.
