GBP/USD Rebounds Amid Fresh US Tariff Headlines
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GBP/USD recovered near 1.3449, as investors await fresh developments on US tariffs. However, US Commerce Secretary Howard Lutnick expressed confidence that the Trump administration will secure trade deals with key US trading partners in the coming weeks before steep tariffs kick in for dozens of countries. "The next two weeks are going to be weeks for the record books. President Trump is going to deliver for the American people," Lutnick said. Last week, San Francisco Fed President Mary Daly said that expecting two rate cuts this year is a "reasonable" outlook, while warning against waiting too long. Daly added that rates will eventually settle at 3% or higher, which is higher than the pre-pandemic neutral rate. Fed Governor Christopher Waller also said that the labour market is doing fine overall, but less so in the private sector. The Fed should reduce its interest rate target at the July meeting, citing mounting economic risks, Waller added.
On the data front, the latest University of Michigan's (UoM) preliminary Consumer Sentiment Index for July rose to 61.8 from 60.7 in June, surpassing expectations of 61.5. Both the Current Conditions and Expectations components improved, indicating cautious optimism among US households. US Retail Sales increased by 0.6% month-over-month in June compared to -0.9% previously. This figure exceeded the market consensus of 0.1%. Meanwhile, annual Retail Sales grew by 3.9%, up from 3.3% in May. The US Producer Price Index (PPI) was unexpectedly unchanged in June, against the market consensus of a 0.2% rise. Additionally, the core PPI increased by 2.6% year-on-year compared to 3.0% previously, softer than the 2.7% expected.
On the sterling front, market speculation that the Bank of England (BoE) will implement multiple interest rate cuts for the rest of the year following the release of the hotter-than-expected UK Consumer Price Index (CPI) data for June and weaker-than-anticipated labour market data for the three months ending in May will boost the pound. The UK unemployment rate increased to 4.7% in the three months to May, up from 4.5%, and came in below the expected 4.6% for that period. Last week, the UK CPI report indicated that inflationary pressures accelerated faster than anticipated. The headline and core CPI rose by 3.6% and 3.7% year-on-year, respectively. Meanwhile, labour market data revealed that the decline in the number of employees who are already on payroll was smaller than previous readings suggested. The employment report revised the number of laid-off workers down to 25,000 from an earlier estimate of 109,000.
In the absence of data from both economies, any fresh developments on US tariffs will influence the GBP/USD exchange rate.
AUD/JPY Sinks Amid Trade Uncertainty
AUD/JPY fell near 96.32, following the People's Bank of China (PBoC) decision to leave its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively. Additionally, ongoing trade tensions between the United States (US) and China continue to weigh on the Aussie. August 12 is the deadline for China to finalise a long-term tariff agreement with the US, following a preliminary deal last month to halt escalating tariffs. China's Commerce Minister Wang Wentao stated on Friday that, despite recent storms, economic and trade relations with the United States remain significant. He emphasised that mutual benefit is the core of US-China trade relations. Wentao also noted that the Geneva agreement and London framework have effectively stabilised commercial ties and reduced tensions.
On the domestic front, the recent easing of labour market expectations has prompted traders to increase bets on interest rate cuts by the Reserve Bank of Australia (RBA) in the upcoming August policy meeting, strengthening the Australian dollar. The employment report released Thursday indicated that the Unemployment Rate rose to 4.3%, surpassing expectations and the previous 4.1%. In June, 2,000 new workers were added, significantly below the expected 20,000. Additionally, Australia's labour force contracted by 1,100 in May. Meanwhile, Westpac Consumer Confidence in Australia increased by 0.6% in July from June's 0.5% rise, following a similar gain in June.
On the other hand, the Japanese Yen (JPY) remains steady as Prime Minister Shigeru Ishiba is expected to stay in office despite the ruling Liberal Democratic Party (LDP) coalition losing its majority in the upper house election, as anticipated. However, the JPY may face difficulties as the opposition is likely to advocate for increased government spending and tax cuts, which could push Japanese Government Bond (JGB) yields to multi-year highs. Nonetheless, Ishiba stated that the opposition's proposal to cut taxes would take too long and requires quicker action to support struggling households. On Monday, Japanese Prime Minister Ishiba apologised to the ruling Liberal Democratic Party (LDP) for the election defeat, adding that he will continue to govern in coalition with Komeito. Ishiba also emphasised that political stability is the most important thing for Japan, as it confronts several challenges.
Investors will closely monitor the tariff jitters and Japan's political headlines for fresh impetus on the AUD/JPY exchange rate.
NZD/USD Gains Following New Zealand's CPI Inflation
NZD/USD climbed to 0.5958, following the release of softer-than-expected New Zealand inflation data. On Monday, Statistics New Zealand reported that New Zealand's Consumer Price Index (CPI) increased by 2.7% year-on-year in the second quarter (Q2) of 2025, compared with a 2.5% rise in the first quarter. The market consensus was for growth of 2.8% during the same period. Quarterly CPI inflation slowed to 0.5% in Q2 from 0.9% previously and was below the market expectation of 0.6%. The Reserve Bank of New Zealand (RBNZ) released its Sectoral Factor Model Inflation indicator for the second quarter (Q2) of 2025, shortly after NZ Stats published the official Consumer Price Index (CPI) early Monday. The inflation rate declined to 2.8% year-over-year (YoY) in Q2 2025, down from 2.9% in Q1 2025. The RBNZ monitors these inflation measures carefully, as its monetary policy aims for inflation between 1% and 3%.
Furthermore, ongoing trade tensions between the United States (US) and China continue to weigh on the Kiwi, with China being a major trading partner of New Zealand. China's Commerce Minister Wang Wentao stated on Friday that China aims to stabilise its trade relationship with the US. Wentao also mentioned that recent talks in Europe demonstrated there was no need for a tariff war, while urging the US to act in a manner befitting a superpower. China has an August 12 deadline to reach a long-term tariff agreement with the US, following a preliminary deal reached last month to end the increase in tariffs.
On the greenback front, investors closely await the headlines surrounding US tariff policies, looking for fresh insights on the US Dollar. However, last week's better-than-expected US economic data could help limit the USD's losses. The University of Michigan's (UoM) preliminary Consumer Sentiment Index rose to 61.8 in July, up from 60.7 previously. This reading exceeded the market consensus of 61.5. US Housing Starts increased by 4.6% to an annualised rate of 1.32 million homes in June, rebounding from nearly a 10% decline in May, according to government figures released on Friday. This was higher than the expected 1.263 million homes (revised from 1.256 million). The US Producer Price Index (PPI) remained unchanged in June, contrary to the market consensus of a 0.2% rise. Meanwhile, the core PPI rose by 2.6% YoY versus 3.0% prior, softer than the 2.7% expected. FOMC Governor Adriana Kugler stated that the US central bank should not lower interest rates "for some time" as the effects of the Trump administration's tariffs are starting to appear in consumer prices. Kugler added that restrictive monetary policy is essential to keep inflationary psychology in line.
In the absence of major financial data today, the People's Bank of China (PBoC) interest rate decision and New Zealand inflation data will drive the NZD/USD exchange rate.
EUR/JPY Hovers Amid Trade Concerns
EUR/JPY struggled near 172.40, as rising market concerns over potential economic fallout from US President Donald Trump's erratic trade policies increased safe-haven flows and benefited the JPY. Japan's ruling coalition, consisting of the Liberal Democratic Party (LDP) and its junior partner Komeito, did not secure a majority in the upper house during Sunday's closely contested election. Having already lost its majority in Japan's more influential lower house last October, this defeat will weaken the coalition's power. Japanese Prime Minister Shigeru Ishiba apologised to the LDP on Monday for the election loss and stated he will continue leading the government in coalition with Komeito. He also mentioned the goal of negotiating a tariff agreement with the US while safeguarding national interests and expressed a desire to speak with President Trump as soon as possible to find a trade solution. Recently, an expected slowdown in Japan's National Consumer Price Index (CPI) growth for June has also weighed on the Japanese Yen. The inflation report, released earlier in the day, showed that the National CPI decelerated to 3.3% from 3.5% in May. National CPI excluding Fresh Food, which is closely watched by Bank of Japan (BoJ) officials, grew at a slower rate of 3.3%, as expected, compared to the previous reading of 3.7%.
On the euro front, investors will watch closely as negotiations continue between Washington and the European Union (EU), along with the European Central Bank's (ECB) monetary policy decision. EU policymakers are set to meet early this week to plan retaliatory measures if no agreement is reached with US President Donald Trump, whose tariff stance has hardened ahead of the August 1 deadline. Trump has proposed a minimum tariff of 15% to 20% on all EU goods. In addition to a broad levy, he has already imposed a 25% duty on cars, auto parts, steel, and aluminium. Concerns over trade tensions could weaken the shared currency in the near term. In the Eurozone, Friday's data showed Germany's Producer Price Index (PPI) increased by 0.1% in June, slightly above the 0% market forecast, after a 0.2% decline in May. Year-on-year, the PPI fell by 1.3%, surpassing May's 1.2% drop and signalling a continued deflationary trend for the fourth month in a row. The headline HICP rose modestly from 1.9% in May to 2.0%, while the core HICP remained steady at 2.3%, in line with expectations.
The broader market sentiment surrounding the European Central Bank's (ECB) monetary policy decision and the EU-US trade deal will significantly influence the EUR/JPY exchange rate.
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