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Japan’s Upper House elections could be a “buy the rumour, sell the fact” event for the JPY. USD/JPY’s rise from 143 to 149 this month had priced in the ruling Liberal Democratic Party-Komeito coalition government losing its majority at the July 20 Upper House Elections. USD/JPY also took its cue from the 10Y JGB yield falling below 1.55% after it failed to break above 1.60% for the third time this year. The narrative has shifted from inflation optimism in March to missed CPI forecasts in May to concerns about recession in July. Beyond internal party leadership pressures, Prime Minister Shigeru Ishiba’s weakened position leaves him facing greater hurdles in passing additional fiscal stimulus and any trade deal agreed with the US. Let’s see if the Bank of Japan confirms market expectations at its July 31 meeting, with a reduced appetite for another rate hike this year.
The DXY Index consolidated in a 98-99 range last week following its rise from the year’s low of 96.4 on July 1. Given the Fed’s blackout period ahead of next week’s FOMC meeting, Fed Chair Jerome Powell should refrain from commenting on monetary policy in his opening remarks at the Fed’s conference on July 22. The DXY was also caught between US President Donald Trump’s discomfort with the USD’s weakness this year and his increasingly vocal push for Powell’s resignation and significantly lower US rates. Trump’s plan to nominate a successor to Powell has begun to expose political pressure on the Fed’s policymaking process. US Treasury Secretary Scott Bessent was reportedly cautioning Trump that markets could become volatile again if they see the Fed’s leadership transition turning into a political battleground.
EUR/USD consolidated in a 1.1555-1.1700 range last week, following its sell-off from 1.1830 on July 1. EUR volatility has been limited despite the uncertain US-EU trade talks. Both sides want to avoid an all-out tariff war before the August 1 deadline. The Financial Times reported that the US may push for a 15-20% minimum tariff on all EU goods, down from the earlier threat of 30%. Given the Trump administration’s recent discomfort with the USD depreciation, we reckon the European Central Bank will refrain from lowering rates at its July 24 meeting. Moreover, the deposit facility rate has halved to 2% since June 2024, within the 1.75-2.25% neutral range. Although ECB President Christine Lagarde supports a greater global role for the EUR, other ECB officials have flagged 1.20 as a level that could weigh on growth, exports, and inflation.
USD/SGD consolidated in a 1.2800-1.2880 range last week following its rise from 1.27 at the start of July. We expect the Monetary Authority of Singapore to hold off a third reduction in the slope of the SGD NEER policy band at the July policy review. Following a 0.5% QoQ sa contraction in 1Q25, the Singapore economy averted a technical recession after real GDP growth expanded 1.4% in 2Q25. On July 23, consensus expects CPI inflation to rise to 0.9% YoY in June from 0.8% in May and core inflation to 0.7% from 0.6%. We expect the SGD NEER, currently 1.6% above the mid-point of the band, to remain stable during Deputy Prime Minister Gan Kim Yong’s July 20-26 trip to the US to deepen economic and commercial ties and seek tariff relief, especially on pharmaceuticals.
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”Every new beginning comes from other beginning’s end.”
Seneca
July 21 in history
In 2002, Telecom giant WorldCom filed for Chapter 11 bankruptcy, the then largest such filing in US history.
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