Calm Markets in Face of Approaching Tariff Witching Hour – Currency Thoughts
Calm Markets in Face of Approaching Tariff Witching Hour
July 16, 2025
The dollar dipped 0.1% overnight against the yen, euro, sterling and Australian dollar but edged 0.1% versus the Swiss franc, kiwi and Turkish lira. The Canadian dollar is flat, while the Korean won lost 0.3%.
10-year sovereign debt yields slid a basis point in Germany, France and Italy, rose a basis point in Japan and held steady in the United States and Spain. The 10-year British gilt yield is two basis points firmer.
Share prices closed up by 0.9% in South Korea and Taiwan and by 0.7% in Indonesia but down 0.8% in Australia. U.S. stock futures are down marginally ahead of U.S. PPI figures due within a half hour. The German Dax and British FTSE are marginally firmer.
Bitcoin and gold rallied 1.0% and 0.4%, while oil slipped 0.5%.
The European Central Bank reveals its next interest rate decision on July 24, and the Federal Reserve will do likewise on July 30th. Neither authority is expected to change the rate. Federal Reserve District Presidents Logan of Dallas and Collins of Boston added their voices to those arguing for patience to be more confident that tariffs prove no more than modesly inflationary before easing further.
Half of Japan’s upper house parliamentary elections are up for grabs in this Sunday’s election. Japan’s prime minister is determined by the seat configuration of the lower house. PM Ishiba lacks a majority in that body, and Sunday’s vote will be an important indication of his party’s future hold on power. Above all else looms the approaching U.S. trade deals-or-tariff deadline of August 1st of President Trump. A deal was reached yesterday with Indonesia, resulting in a pull-back of the planned 32% tariff to 19% instead in exchange for no Indonesian tariffs against the United States and Indonesia’s additional promise to buy more U.S. jets and agricultural goods.
With that trade deal secured, Bank Indonesia cut its interest rate today by 25 basis points to 5.25%. The rate reduction had been expected in light of in-target Indonesian inflation and a stable rupiah. At 5.25%, the new rate level is its lowest since December 2022 and down from the 6.25% peak maintained from April into September of last year. Current CPI inflation in the economy of 1.9% lies in the lower half of the 1.5-3.5% target range and has been below the mid-point of that band since June 2024.
Prior to the U.S. PPI release, investors learned that British consumer price inflation exceeded their expectations, rising to a 17-month high overall of 3.6% and a 2-month high in core CPI of 3.7%. Inflation in the U.K. had been as low as 1.7% last September, a 41-month low in fact.
A final estimate of Italian consumer price inflation last month was left unrevised at 1.7%, while core CPI of 2.0% was now seen 0.1 percentage point lower than estimated initially.
Czech producer price inflation in June printed at minus 0.7%, 0.2 percentage points more negative than expected. This was the fifth straight negative reading.
Inflationary pressure at the U.S. producer price level undershot expectations in June. Total, core and PPI excluding food, energy and trade were each unchanged from their revised May levels. This resulted in a 9-month low of total PPI inflation of 2.3% and not far from the cyclical low of 2.1% in August/September of 2024; an 11-month low of 2.6% in core PPI (excluding food and energy); and a 19-month low in producer price inflation excluding food, energy and trade.
U.S. mortgage applications relapsed 10% last week, reversing the prior week’s 9.4% and leaving the level essentially unchanged from five weeks earlier. The 30-year fixed mortgage rate rose five basis points to a 3-week high of 6.82%.
In other news, the monthly report put out by OPEC+ envisages strengthening global demand in the second half of 2025.
Euroland’s seasonally adjusted trade balance of EUR 16.2 billion in May exceeded expectations after a EUR 15.1 billion surplus in April. The unadjusted year-to-date surplus of EUR 86.5 billion was slightly wider than the surplus of EUR 81.4 billion in the first five months of 2024.
U.S. industrial production figures will be reported shortly.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, Euroland trade surplus, U.K. CPI, U.S. PPI
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