USD flows: USD under pressure

PMIs will be the main focus on Thursday, but the USD is starting the day under pressure. After some initial USD gains overnight on hopes of some support for USD/JPY from the meeting between US and Japanese finance ministers Bessent and Kato, the meeting ending with statements from both saying FX rates should be set by markets, and USD/JPY resumed its decline and is now at its lowest since May 7. The EUR/USD tone has been more neutral, despite yield spreads widening in favour of the USD helped by rising US yields due to a weak 20 yar auction and disagreements on fiscal policy among House Republicans.

The playbook from Trump’s first term continues – with higher US yields failing to prevent USD declines. However, things might change if the market regains confidence in the US economy, so today’s PMIs will be important, although the modest moves forecast by both ourselves and the consensus seem unlikely to change the tone significantly.