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The DXY Index retreated a second day by 0.4% to 98.8 overnight, after last Friday’s bruising 0.8% sell-off on the weaker-than-expected US jobs report. The employment indices in both the ISM Services and Manufacturing PMI surveys retreated further below the breakeven 50 level in July, backing the significantly weaker 73k and 14k nonfarm payrolls in July and June. Despite the highest ISM Services prices paid index since October 2022, the overall Services PMI retreated to 50.1 in July from 50.8 in June, keeping investors alert to US economic slowdown risks. Investors brushed aside the rebound in 2Q25 GDP as a non-recurring rebound from the trade-related distortions driven by US President Donald Trump’s tariff policy and focused on the soft underlying demand in the GDP report.
Investors are reassessing their US growth assumptions that drove the S&P 500 Index to record highs and the USD’s upward correction in July. Having wiped out July’s rise from 3.70% 3.95%, the US Treasury 2Y yield is staying low and backing the futures market’s bet for a 90% chance of a Fed cut in September. President Trump is keeping up the pressure with plans to nominate his replacement for departing Fed Governor Adriana Kugler while narrowing his shortlist to four candidates to succeed Fed Chair Jerome Powell, whose term ends in May 2026. The Fed’s Jackson Hole Symposium on August 21-23 is shaping up as a significant event for Powell to assert the cautious hold stance or signal readiness to lower rates.
USD/JPY is in focus after its spectacular 2.2% plunge on August 1, returning it inside the 142-149 range seen in May to mid-July. Speculators abandoned their attempt to break USD/JPY above 150 after the shockingly weak US jobs report narrowed the positive US-Japan 2Y bond yield differential to below 300 bps again. Speculators are assessing whether the Bank of Japan will bring forward its next rate hike, which the OIS market currently only prices in toward the end of 2025. Finance Minister Katsunobu Kato’s warning over excessive FX volatility, reinforcing official discomfort with further JPY weakness in the wake of voter frustration demonstrated at the Upper House elections. The Japanese policymakers’ concern about higher JGB yields may lessen if the Fed cut expectations, dampening global yields, provide them the window to push for economic revitalization measures while maintaining public trust in fiscal management. To revisit the 142 level, USD/JPY needs to break a critical support level at 146, near the 50- and 100-day moving averages.
USD/CHF may find near-term stability within a 0.80-0.82 range on the Swiss government’s steps to defuse the risk to its export-driven economy from Trump’s planned 39% tariff. Swiss President Karin Keller-Sutter is in Washington to pursue a strategic diplomatic reset with President Trump, presenting a more attractive offer that could narrow the disparity with lower 15% tariff for the EU and Japan, and 10% for the UK. Trump will be seeking meaningful concessions from his Swiss counterpart, who is acting without falling back on Brussels or multilateral frameworks. Keller-Sutter has bipartisan backing, which gives her some latitude to offer concessions without looking politically weak at home. The outcome will ultimately rest on whether her attempt at reasoned negotiation can provide Trump the political win that he is looking for. Any agreement to extend the tariff deadline to advance negotiations should be viewed as a relief, though markets will prefer tariff rollbacks to the levels of other US allies.
Quote of the Day
“Beauty is worse than wine, it intoxicates both the holder and beholder.”
Aldous Huxley
August 6 in history
Prometheus, the world's oldest tree, aged at least 4,862 years, was accidentally cut down in Nevada, USA in 1964.
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