European Summary and Highlights 31 July

European morning session

USD/JPY dominated the European morning session, falling 250 pips from opening levels following the larger than expected BoJ rate hike. The JPY had surged briefly after the rate hike, but subsequently reversed gains in a sell on the news move, so that USD/JPY opened the European session clos to the level seen before the BoJ meeting. But the JPY surged higher helped by the Ueda press conference in which he indicated further rate hikes were likely if data came out in line with BoJ expectations.

There wasn’t a great deal of FX action elsewhere, with EUR/USD recovering from an initial dip helped by slightly stronger than expected Eurozone CPI data, which came in 0.1%b above expectations at 2.6% headline, 2.9% core. Otherwise, we also saw German unemployment data which was in line with expectations at 6.0% with an 18k rise on the moth.

Asia session

After the "leak" on Tuesday's New York session, USD/JPY has been front running the more hawkish expectations of 25bps hike. The BoJ officially hiked rates to 0.25% and announced 3 trillion JPY bond purchases reduction in two years in the Asia session and is met with some sell the fact trade. It is a more hawkish tilt as the forward guidance suggest more rounds of tightening to come while bond purchase reduction will be in a monthly 400b accelerating manner to roughly 3t in June 2026. USD/JPY initially dipped by a figure to 151.59 before rebound to trade 0.24% to 153.11 with JGB yields outperforming the U.S. T-yields.

The Australian headline Q2 CPI bangs in estimate of 3.8% and rose 0.2% from 3.6% in Q1 but the RBA trimmed mean is 0.1% lower than consensus at 3.9%. It seems to wash away the hawkish expectation for RBA in the coming meeting and drove the Aussie lower. AUD/USD is trading 0.67% lower at 0.6493 despite global risk sentiment positive, NZD/USD fared better to trade 0.06% higher at 0.5906 while USD/CAD slips 0.04% as oil rose almost a dollar. Else, EUR/USD is down 0.05% and GBP/USD is up 0.04%.