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Dollar rises against euro, mixed versus yen on trade deal progress - REUTERS
Summary
- Expectations for higher rates support yen, but politics weigh
- Expected trade deal with Europe in line with expectations
- Markets watch for possible Lagarde comments on euro strength
- Australian dollar rises on risk asset rally
July 24 (Reuters) - The dollar edged higher against the euro on Thursday following progress in U.S. trade talks with key partners, but was mixed versus the yen, which got a lift from expectations for higher rates while political risks weigh.
The Japanese central bank's deputy governor, Shinichi Uchida, said a trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes.
Analysts believe the yen will face persistent headwinds after Sunday's upper house election, with the opposition considering a no-confidence motion.
The European Union is nearing a deal that would impose a broad 15% tariff on EU goods, in line with economists' expectations, while markets await the European Central Bank policy meeting where President Christine Lagarde could comment on the recent strength of the single currency.
"The ECB faces a challenge that is quantitatively different from the BoJ's," said Thierry Wizman, global forex and rates strategist at Macquarie Group.
"The euro has appreciated by far more than the JPY so far in 2025, meaning that the disinflationary impulse from U.S. import tariffs may be greater in the EU than in Japan, or the ECB may suspect as much," he added.
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Expectations are for ECB policymakers to keep rates unchanged, though markets will look out for what they say about the outlook for monetary policy.
Analysts expect the ECB to ease monetary policy if euro strength dampens economic growth and inflation by making imports cheaper and exports less competitive.
PMI data showed fragility in France following budget cut proposals there, but also resilience in Germany and other parts of the euro zone.
Data showed that German business activity continued to grow marginally in July.
"As of now, there has been very little tariff impact on the hard data," said Mohit Kumar, economist at Jefferies.
"But that does not mean it's not coming," he added, arguing it would take at least three months to see the fallout of trade duties on hard economic figures.
ECONOMIC FALLOUT
Meanwhile, risk assets rallied as the trade deals eased fears over the economic fallout of a global trade war.
The euro fell 0.2% at $1.1749, not far from a high of $1.1830 it hit earlier this month, which marked its strongest level in more than three years. Against the yen , the dollar rose 0.05% to 146.55, snapping a three-day falling streak, after hitting a fresh 2-week low earlier in the session at 145.86. Olivier Korber, forex strategist at Societe Generale, expects the yen to strengthen further, citing support from the trade deal and prospects for higher interest rates.
"The local press reported that he (Prime Minister Shigeru Ishiba) should decide if he will resign in late August and, if that were to happen, a new party leader would probably be selected in September," Korber said. "This would ensure a smoother political transition, thus limiting market uncertainty," Ishiba denied on Wednesday he had decided to quit after a source and media reports said he planned to announce his resignation to take responsibility for a bruising upper house election defeat.
Currencies mostly shrugged off news that U.S. President Donald Trump, a vocal critic of Federal Reserve Chair Jerome Powell, will visit the central bank on Thursday, a surprise move that escalates tensions between the administration and the Fed.
Reporting by Stefano Rebaudo; editing by Shri Navaratnam, Rachna Uppal, Helen Popper and Ed Osmond
