The dollar stabilises amidst intervention jitters

USD

The dollar steadied to start the week. The broad dollar touched one-month lows early on Monday after Washington and Tokyo confirmed last week's joint yen-buying operations, pledging further action if needed, with Friday's intervention alone estimated at around $34bn. As we flagged in our week ahead note, the buck should stay pressured while these efforts continue. But a blowout ISM manufacturing print offered support yesterday, with the index jumping to 55.6, well above the 54.0 consensus and the highest since May 2022, with employment expanding for the first time in 33 months. Overnight, the yen softened for the first time in five sessions, and now trades just shy of 158 this morning, a sign that traders are testing officials' resolve. JOLTS job openings and June factory orders are due at 15:00 BST today ahead of Friday's payrolls, though we expect intervention and Gulf headlines to remain the primary catalysts for the dollar.

EUR

EURUSD spent Monday consolidating last week's intervention-driven gains, easing around 0.2% to just above 1.15 as firmer buck post-ISM outweighed a constructive European backdrop. The final eurozone manufacturing PMI rose to a three-month high of 51.9, though German retail sales disappointed. Weekend de-escalation cuts both ways but should be net euro supportive - Monday's collapse in WTI blunts the energy-driven inflation impulse even as it brightens growth prospects, with futures pointing to record equity highs this morning. Today's calendar is light, so direction should again be imported from oil, Middle East headlines, and intervention flows, where we continue to see the Treasury's unusual euro-funded yen purchases as posing a downside risk for the single currency if repeated. JPY spillovers aside, a confirmed ceasefire remains necessary, in our view, for euro rallies to extend sustainably.

GBP

Sterling was Monday's laggard among European majors. Cable touched seven-week highs above 1.35 in early Asia trading amid news of a halt to hostilities against Iran, before fading to close in the low 1.34s after the final manufacturing PMI disappointed. That retreat underscores sterling's lack of domestic support in our eyes. Even after the MPC's July hold, September tightening odds sit around 20%. We continue to expect Bank Rate to remain at 3.75% through year-end, in part due to soft activity - a persistent drag on the pound if correct. Today's data docket is empty, leaving fiscal scrutiny of the new Burnham government as the key domestic driver, with housing data and Wednesday's final services PMI ahead. Until then, the dollar, oil, and intervention risk stay in charge again.

CAD

With Canadian markets shut for the Civic holiday, the loonie drifted in thin trading yesterday. USDCAD edged marginally higher as broad dollar strength and tumbling crude offset improved risk appetite, but moves remained muted, seeing only modest impact from the most recent Middle East developments. Canada returns today with July's manufacturing PMI. A soft print would reinforce caution ahead of Friday's jobs report, which lands alongside US payrolls, skewing immediate USDCAD risks modestly to the upside. That remains consistent with our medium-run call for loonie appreciation, albeit with calmer geopolitics and CUSMA review progress needed for a sustained break below 1.40, and those conditions are not in place at present.

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