DXY – Outlook and Analysis
Outlook: We maintain a bearish bias on the U.S. dollar, driven by mounting geopolitical risks, the July 9 tariff deadline, rising fiscal deficits, potential tariff-induced inflation, and broader macroeconomic instability. Unless there is clearer guidance on fiscal and trade policy, the dollar's role as a global reserve currency will likely remain under pressure.
On Monday, Trump threatened that any country aligning themselves with the Anti-American policies of BRICS will be charged additional 10% tariff with no exceptions to this policy.
The USD has regained some strength after touching a low of 96.390, likely supported by recent U.S. economic data and ongoing trade negotiations. While Trump has secured trade framework agreements with China, the UK, and Vietnam, other negotiations remain in progress.
On Thursday, Pichai Chunhavajira and U.S. trade representatives held a positive meeting, aiming to pursue a mutually beneficial trade deal. However, discussions with countries like India, the EU, Canada, and Japan remain in flux, as all parties rush to reach at least a framework agreement before the July 9 deadline, or face the high tariff set on April 2, with new dateline given till August 1.
Despite Trump stating that the tariff deadline will not be extended, he clarified that countries failing to reach a deal may continue negotiations, though tariffs will be reinstated. In parallel, Trump has also publicly criticized Fed Chair Jerome Powell, suggesting he should resign and be replaced with someone who would cut rates. Such statements threaten the independence of the Federal Reserve, potentially undermining investor confidence in the USD.
On the economic front, Non-Farm Payrolls (NFP) rose by 147,000, beating expectations, while the unemployment rate declined to 4.1% from 4.3%. The participation rate slipped to 62.3% from 62.4%, driven by a 329,000 increase in the number of people not in the labor force. Meanwhile, average hourly earnings rose by $0.08 (0.2%) to $36.30. These figures reaffirm the resilience of the U.S. labor market, reducing the likelihood of a rate cut in July, though September remains a possibility.
This surge in borrowing could trigger a spike in yields over the medium to long term, as the issuance of more bonds may lead to oversupply and rising borrowing costs. If investor confidence weakens, the U.S. risks another credit rating downgrade, further undermining its economic standing and safe haven status.
As of this writing, DXY is trading at 96.946. On the 4-hour chart, a bearish flag pattern is forming, and the RSI has rejected the 50 level, suggesting further downside momentum. Resistance is seen at 97.271 and 97.473, while support is at 96.762 and 96.477.
Looking ahead, key events this week include the 10-year Bond Auction and FOMC Meeting Minutes on July 10, followed by the 30-year Bond Auction on July 11.
These releases will offer additional insights into monetary policy direction and investor appetite for U.S. debt, both of which will influence the dollar’s trajectory.
GBP/USD
Outlook: We maintain a slightly bullish stance on GBP/USD. While the UK’s latest domestic data continues to reflect economic softness, particularly in the slowing labour market, which supports the case for two potential rate cuts by year-end, the pound may still find support from broader U.S. dollar weakness. The U.S. remains challenged by rising business costs, fiscal imbalances, and heightened trade tensions, with Trump’s tariffs potentially reigniting inflationary pressures in the months ahead.
Recent signs of weakness in the pound can be attributed to several factors. These include the resilient U.S. labour market—which has reduced expectations of near-term Fed rate cuts—and domestic developments such as the UK government’s reversal of its welfare bill, creating a $5 billion gap in the Chancellor’s fiscal plan.
This reversal is significant not only because it may increase the UK’s fiscal deficit and push borrowing costs higher in the medium term, but also because it risks violating Chancellor Rachel Reeves' own fiscal rule, which states that public debt as a share of GDP must fall by FY2029–30. Should no alternative measures be taken, the UK could face a credibility challenge on fiscal discipline.
As of this writing, GBP/USD has pulled back from a recent peak of 1.37884 to 1.36381. The Relative Strength Index (RSI) remains hovering above 50, indicating bullish momentum is still intact. Key resistance levels are at 1.36732 and 1.37463, while support lies at 1.36059 and 1.34952.
Looking ahead, the upcoming week features important releases including the UK 10-Year Bond Auction on July 9 and monthly GDP data on July 11.
These events will provide further insight into the UK’s economic activity, particularly in light of ongoing trade uncertainty and tariff developments linked to U.S. policy.
USD/JPY
Outlook: We maintain a bearish bias on USD/JPY, reflecting our view that the Japanese yen retains upside potential, particularly if domestic inflation continues to exceed expectations. While the Bank of Japan (BoJ) remains divided—some policymakers signalling a readiness to respond to U.S. tariff-induced inflation with rate hikes, while others advocate a more cautious, data-driven approach—any stabilization or rise in Japanese bond yields could strengthen the yen. This would be supported by renewed safe-haven demand and capital repatriation amid global uncertainty.
Geopolitical tensions also add complexity to the outlook. Trump recently labelled Japan “spoiled” and threatened to impose unilateral tariffs if Japan does not increase imports from the U.S., particularly in areas such as rice and automobiles. These comments appear aimed at exploiting Japan’s current inflationary challenges, especially the spike in domestic rice prices, which could keep consumer inflation elevated and further pressure the BoJ.
In response, Japanese Prime Minister Shigeru Ishiba has stated that Japan will not concede easily, and the country is preparing for a wide range of scenarios. During a recent policy debate, Yoshimura emphasized the importance of pursuing a "win-win" trade solution while warning that Trump's tariff threats represent a significant country risk for Japan. He also suggested Japan should diversify trade relationships to reduce dependency on the U.S. These developments may further complicate trade negotiations between the two countries and increase market volatility.
As of this writing, USD/JPY is trading at 145.428, with the RSI trending above 50 on the daily chart, indicating that bullish momentum remains in place. Key resistance levels are located at 145.852 and 147.943, while support is seen at 144.361 and 143.357.
Looking ahead, the calendar features several key Japanese data releases: PPI y/y (July 10), Industrial Production m/m and Industrial Activity m/m (July 14)
These indicators will be closely watched for additional signs of price and production pressures, which could influence BoJ policy expectations and JPY direction.
Forecasts
Currency Pair | Jul 30 | Aug 30 |
GBP/USD | 1.36070 | 1.34787 |
USD/JPY | 142.166 | 140.853 |
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