Yen continues to outperform in the FX market this week so far, drawing strong support from the ongoing slide in US Treasury yields. The benchmark 10-year yield slipped to close at 4.2% overnight, as Fed rate cut bets gaining traction. Market consensus is solidifying around the idea that Fed will deliver at least two rate cuts this year, with some pricing in the possibility of a third. While that sounds aggressive, it still aligns broadly with the Fed’s latest dot plot, which showed a median year-end rate of 3.9% — roughly 50bps below the current target range of 4.25–4.50%. The dovish shift is not much inconsistent with official guidance. For now, much depends on the strength of upcoming US data, with ISM Services PMI due later today offering the next key signal.
Sterling is currently the second strongest major this week, benefiting from broad Euro and Swiss Franc weakness. However, GBP strength is relative, and the currency still faces a key test later this week with BoE’s policy decision. The BoE is expected to deliver another 25bps cut, but the focus will be on the vote split and inflation forecasts amid last month’s upside CPI surprise. Swiss Franc is languishing near the bottom of the performance table, alongside Euro and Kiwi. Commodity currencies and Dollar are mixed in the middle in this early part of the week
On the trade front, tensions remain despite some diplomatic progress. The EU has postponed a package of countermeasures for six months, as it is working with the US to finalize a joint statement on tariffs . However, key disagreements remain — particularly around US tariffs on EU automotive and strategic sectors, which were left untouched in Washington’s July 31 executive order.
In Asia, Japan’s lead negotiator Ryosei Akazawa is heading to Washington today to push for the implementation of the agreed tariff reduction on Japanese autos. The US had pledged to lower duties to 15% from 27.5%, but formalization via executive order is still pending.
India is also in the spotlight after US President Donald Trump threatened new tariffs in response to its Russian oil purchases. New Delhi defended its position, noting that Russian imports only began after Europe diverted traditional suppliers during the war. India accused the US and EU of hypocrisy, stating their own trade with Russia is not similarly constrained by strategic necessity — a sign that political heat may remain in focus even as markets try to look past it.
In Asia, at the time of writing, Nikkei is up 0.62%. Hong Kong HSI is up 0.27%. China Shanghai SSE is up 0.53%. Singapore Strait Times is up 0.46%. Japan 10-year JGB yield is down -0.034 at 1.477. Overnight, DOW rose 1.34%. S&P 500 rose 1.47%. NASDAQ rose 1.95%. 10-year yield fell -0.020 to 4.200.
BoJ minutes hint at hikes post-tariff deal, AUD/JPY extends decline
BoJ’s June meeting minutes, released today, confirmed that several policymakers were open to resuming rate hikes once trade uncertainty subsides. While the minutes are somewhat dated — the meeting took place before the announcement of the US–Japan trade agreement — they reveal a growing consensus that the central bank may return to a normalization path sooner than previously expected. Markets are now turning to Friday’s Summary of Opinions from the more recent July meeting, which should reflect a more upbeat outlook following the tariff deal.
Some BoJ members noted that as wages remain firm and inflation slightly exceeds expectations, the Bank would likely “shift away from the current wait-and-see approach and consider resuming rate hikes, if trade friction de-escalates” Others emphasized that while the BoJ should pause rate hikes for now due to uncertainty, it must stay “flexible and nimble,” ready to resume hikes depending on US policy and global developments.
Yen continues to strengthen this week, underpinned by falling US Treasury yields and a pickup in BoJ tightening expectations. In contrast, the Australian Dollar is under pressure as markets increasingly price in another RBA rate cut next week. The shift follows last week’s soft Q2 CPI data, which undercut arguments for extended policy pauses and revived dovish speculation.
Technically, a short term top should be in place at 97.41 in AUD/JPY with breach of 55 D EMA (now at 95.08). Sustained trading below the EMA will bring AUD/JPY further lower to 38.2% retracement of 86.03 to 97.41 at 93.06, as a correction to the rise from 86.03. Nevertheless, break of 95.85 minor resistance will dampen this bearish view and turn intraday bias neutral first.
China’s Caixin Services PMI surges to 52.6, on stronger demand and renewed optimism
China’s Caixin Services PMI jumped sharply from 50.6 to 52.6 in July, well ahead of expectations at 50.4, marking the fastest pace of expansion since May 2024. PMI Composite, owever, fell from 51.3 to 50.8 as dragged down by weak manufacturing.
According to S&P Global’s Jingyi Pan, the rise was driven by better domestic demand and a notable improvement in external demand, with new export business expanding for the first time in three months. Business sentiment also improved, reaching the highest level since March.
Firms also began hiring again, albeit mostly part-time. Importantly, companies felt confident enough to raise output charges for the first time in six months — a sign that inflation pressures are being more easily passed on to clients.
GBP/JPY Daily Outlook
Daily Pivots: (S1) 194.79; (P) 195.67; (R1) 196.29; More…
GBP/JPY’s fall from 199.96 short term top continues today and intraday bias stays on the downside. Deeper fall should be seen to 193.99 cluster support (38.2% retracement of 184.35 to 199.96 at 193.99). Strong support should be seen there to bring rebound, at least on first attempt. On the upside, above 196.51 resistance will turn intraday bias neutral again first. However, sustained break of 193.99 will raise the chance of near term bearish reversal.
In the bigger picture, price actions from 208.09 (2024 high) are seen as a correction to rally from 123.94 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. Meanwhile, decisive break of 208.09 will confirm long term up trend resumption.
