Coordinated JPY intervention continues to weigh on the buck

USD

The dollar ended last week notably softer following a second day of yen-buying, seemingly confirmed this morning as the first joint MoF-US Treasury operation to buy yen since 1998, with both sides pledging further action and flagging the Fed's FIMA repo facility for future operations. That has kept USDJPY pinned below 157 overnight, leaving the DXY index below the 100-mark. The weekend's other story was de-escalation: Trump cancelled a planned attack on Iran, claiming the "perimeters of a deal" including a reopened Hormuz, though Tehran denies this. As we noted in Friday's week ahead, the buck should stay pressured while interventions continue, with a tactical recovery likely once they conclude given the lack of a macro catalyst for sustained yen strength. Today brings the ISM manufacturing PMI at 15:00 BST, seen edging up from June's 53.3, ahead of Friday's payrolls, albeit we expect intervention risks to remain the primary FX catalyst.

EUR

EURUSD held Thursday's breakout on Friday, closing near 1.1530 after flash July HICP delivered the upside surprise we had flagged. Headline inflation rose to 2.9% as expected, but core unexpectedly accelerated to 2.5%, early evidence that war-driven energy costs may be bleeding into underlying prices. As we wrote on Friday, this validates the Governing Council's hawkish shift and confirms our base case for a September hike, now roughly 85% priced. Even so, the primary cause of last week’s euro rally stems from JPY interventions. Indeed, the US Treasury reportedly funded Friday's yen-buying by selling euros rather than dollars in an unusual move that poses additional upside risk for the euro if repeated. For now, the single currency starts the week steady in the low-1.15s, with German retail sales, Swiss CPI, and final manufacturing PMIs due today. Weekend de-escalation cuts both ways: oil down around 5% blunts the CPI impulse emboldening the hawks but brightens the growth outlook. We have argued that euro rallies remain capped while the US-Iran war rages; a confirmed ceasefire would ease that constraint, though Tehran's denials warrant caution for now.

GBP

Sterling had little of its own to trade on Friday, closing out the week just shy of 1.35 as FX interventions weighed on the buck. Indeed, these efforts rather overshadowed Thursday’s BoE decision, which, as we detailed in our reaction note, looked dovish. A majority of the MPC stressed the absence of second-round inflation effects, while Bailey urged markets not to leave the room "thinking that the Bank is edging towards a hike". September hike odds have duly slumped to around 20% as of writing. We continue to expect Bank Rate to be on hold through year-end, a persistent drag on the pound. But more immediately, the pound is trading little changed, helped on one hand by improved risk appetite and softer oil, which flatters the UK's terms of trade even as it trims the hawks' case on the other. Final July manufacturing PMI at 09:30 BST headlines a quiet docket, with housing data due later in the week; gilts also warrant attention after 10-year yields topped 5% last week amid fiscal scrutiny of the new Burnham government. Otherwise, the dollar, Gulf headlines and intervention risk remain in charge.

CAD

The loonie ended last week unable to bank good news. May GDP rose 0.3%, a tenth above consensus, with April revised up to 0.6% and June's flash estimate at 0.2%, pointing to a solid Q2 rebound. Even so, USDCAD rose back towards the mid-1.40s, with strong growth doing little for a BoC anchored by core inflation at five-year lows. The bigger weekend story was crude, with WTI slumping below $80 on Trump's cancelled strikes and deal talk, eroding more of the July oil rally that the loonie never fully captured. With Canadian markets shut for the Civic holiday, liquidity is likely to be thin, with direction imported from oil and the broad dollar until Friday's jobs report, which lands alongside US payrolls. We reiterate that a sustained break below 1.40 requires calmer geopolitics, now tentatively in prospect, and CUSMA review progress.

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