The US dollar rose against the euro on Thursday, supported by progress in trade talks between the United States and its key partners, while it fell against the Japanese yen, which gained strength on expectations of an interest rate hike in Japan.
Shinichi Uchida, Deputy Governor of the Bank of Japan, stated that the trade deal with Washington had reduced economic uncertainty, boosting market optimism about the potential resumption of interest rate hikes.
Nevertheless, some analysts believe the yen still faces ongoing challenges due to domestic political instability following Sunday’s Japanese upper house elections.
In Europe, the European Union is reportedly close to finalizing a trade agreement with Washington that would impose a blanket 15% tariff on European goods entering the United States — a move largely in line with economists’ expectations.
Meanwhile, risk assets climbed as market fears over the global trade war eased following progress in negotiations.
The risk-sensitive Australian dollar reached an eight-month high of $0.6625.
The euro slipped by 0.1% to $1.1760, approaching its earlier peak this month of $1.1830 — the highest level for the single currency in over three years.
Mohit Kumar, an economist at Jefferies, commented: “We continue to believe that risk assets may face some volatility in August due to a possible slowdown in US jobs data.”
He added: “So far, tariffs haven’t shown a significant impact on the hard data, but that doesn’t mean the effect won’t surface. We believe the real impact will take around three months to appear in the economic indicators.”
The dollar fell 0.10% against the yen to ¥146.35, extending its losses versus the Japanese currency for the fourth consecutive session.
Olivier Korber, a currency strategist at Société Générale, predicted that the yen would maintain its strength, supported by the trade deal and the prospect of higher interest rates.
Korber said: “Local newspapers report that Prime Minister Shigeru Ishiba will decide on resignation by late August. If that happens, a new party leader is likely to be chosen in September, which would ensure a smoother political transition and help reduce market uncertainty.”
Ishiba had denied on Wednesday that he made a decision to resign, following media reports and sources suggesting his intention to step down in order to take responsibility for the ruling party’s painful defeat in the upper house elections.
On the monetary policy front, attention is now on the European Central Bank’s meeting scheduled later today. Markets expect interest rates to remain unchanged, while investor focus will be on policymakers’ forward guidance. Broadly, markets anticipate one more rate cut from the ECB before year-end, most likely in December.
Data showed that economic activity in Germany continued to grow modestly during July.
In a surprising development, currencies largely shrugged off news that US President Donald Trump — known for his vocal criticism of Federal Reserve Chair Jerome Powell — visited the central bank’s headquarters on Thursday. The unexpected move could heighten tensions between the White House and the Fed.
As of 11:32 GMT, the US Dollar Index rose by 0.2% to 97.3 points, with a session high of 97.4 and a low of 97.1.
