Instimatch - FX morning commentary - 7/1/25

Good morning

Ahead Today     G3:         US JOLTS Job Openings, Eurozone CPI

FX markets had another volatile session overnight as a new report in the Washington Post suggests that Trump’s administration is exploring broad-based tariffs but only covering critical supply items.  The exact industries that will be impacted are not immediately clear, but according to the article includes key sectors the Trump team wants to re-shore production including the defence industrial supply chain (steel, iron, aluminium and copper), critical medical supplies (syringes, needles, vials and pharmaceutical materials), and energy production (batteries, rare earth and solar panels). Post the article, Trump came out to criticise the news, saying that his tariff policy will not be pared back and in effect denying plans to keep broad-based tariffs to just critical supply chains.

During his campaign, Trump had pledged tariffs of 10% to 20% on all imported goods and up to 60% on Chinese imports. Post-election, he further surprised markets by threatening additional tariffs of 10% on Chinese goods and 25% on products from Mexico and Canada.

The reports of more moderate tariffs triggered a wave of broad-based USD depreciation.  The USD index recovered from a low around 107.74 to 108.38 in Asian trading

Today's US focus will be on JOLTs job openings and December ISM services data. The latter is expected to undo some of the four-point November setback by rising from 52.1 to 53.5.

Traders now suggest some short-term upside potential for EUR/USD as the pair drift higher towards $1.04. Consensus expects the Eurozone headline inflation number to rise to 2.4%y/y from 2.2% and core to stay at 2.7%. Any upside surprise – particularly to the core reading – could further rein in the expected scale of this year's ECB easing.

EUR/CHF has hovered between the 0.93 and 0.94 the past week and has been off to a fairly quiet start to the year. The big event for Swiss markets today is the release of December inflation data. Consensus expects headline inflation to ease further to 0.6%y/y (from 0.7%) and likewise core to 0.8% (from 0.9%), hovering in the lower end of the SNB target range. The SNB expects a Q4 2024 print of 0.7%. Traders expect the SNB policy rate to bottom at 0% this summer following two consecutive 25bp cuts.

GBP/USD keeps its bid tone intact, eyeing 1.2550 in Tuesday's European morning. The pair's advance is driven by a broadly subdued US Dollar but the further upside could be capped by a mixed market mood heading into the US data releases. 

USD/JPY rose 0.4% and hit its highest level in nearly six months at 157.60, while AUD/USD was on the front foot and rose 0.2% to 0.6276. Australian consumer inflation data for November is due on Wednesday. 

CNH and onshore CNY remained under pressure to weaken even as Trump’s tariffs whipsawed FX markets, with USD/CNY in particular rising to 7.328 at the time of writing. Chinese authorities have been trying to manage the pace of CNY weakness since the start of the year even as the onshore USD/CNY rate broke above 7.30 levels.

USD/KRW fell slightly to 1,447.36. Meanwhile, USD/INR saw some brief relief with the news article on Trump’s tariffs but ultimately retraced higher in the NDF market above the 86 rupees.  The path of least resistance is for USD/INR to continue to climb even higher given a weaker outlook for capital inflows.