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FX Weekly - Markets test the line on yen weakness

The yen remains deeply undervalued, but weakness reflects structural and policy factors. Coordinated US-Japan intervention suggests authorities are increasingly uncomfortable with yen weakness. FX markets may require repeated action before they believe a line has been drawn. EUR/USD should remain range-bound until US data and central bank events provide clearer direction.

Transaction Trends - When temperatures spike, consumption seeks cooling

Extreme heat not only affects health and quality of life, but also leads to noticeable shifts in household spending behavior. The recent heatwave was accompanied by a temporary decline in Dutch household consumption. Online spending and cash withdrawals declined during the heatwave, while card spending initially increased and only fell during the most extreme heat conditions. Card spending held up relatively better in highly urbanised areas than in less urbanised regions. In particular, spending at restaurants and cafés increased in these areas, while fuel expenditures declined sharply elsewhere.

Labour market weakness could re-balance Fed concerns

AI propels Dutch manufacturing output growth

The Nevi Dutch Manufacturing PMI fell slightly, from 55.5 to 54.4 in July, and thus still indicates strong growth. Demand rose slightly less rapidly than in the previous months. Nevertheless, the industry increased output at the fastest pace since February 2022.

Ireland volatility masks solid underlying eurozone growth

Eurozone Q2 GDP surprised to the upside at 0.4% q/q (consensus: 0.2%/ABN: 0.3%), and Q1 GDP was revised considerably higher – from a 0.2% contraction to a flat reading. Unsurprisingly, much of the surprise and the backward revision was driven by Ireland, with Q1’s massive contraction seeing yet another big revision to -7% q/q (from -12%). However, underlying growth was also revised a little higher, with Germany’s Q1 GDP growth revised up to 0.4% from 0.3%.

FOMC Watch - FOMC leaves door for September hike wide open

The Fed decided to leave its target for the federal funds rate unchanged at 3.5-3.75%. This was in line with our own expectations and those of the vast majority of economists. However, few would have seen the hold as a done deal. Indeed, financial markets had priced in around a 30% chance of a 25bp hike in the run-up to the decision. In addition, three (Logan, Hammack and Kashkari) of the twelve voting FOMC members dissented, preferring instead to raise interest rates. We had expected to see some votes for hikes, though there was one more dissent than we thought there would be.

FOMC Watch - July on hold, September on the table

We expect the FOMC to leave rates unchanged next Wednesday. June CPI surprised significantly to the downside and, even if June core PCE comes in somewhat firmer (indeed, we expect 0.2% m/m), the recent inflation data should provide policymakers with sufficient confidence to wait for additional evidence on both inflation and labour-market trends before the September meeting.

ECB Watch – ECB makes way for September hike

The ECB left its key policy rates unchanged at today’s Governing Council meeting, as was widely expected.

FX Weekly - Volatile moves in narrow ranges

Movement in EUR/USD has been volatile…but the overall range has remained relatively narrow. This kind of behaviour could continue during holiday season. EUR/CHF also range-bound. The FX Weekly will have a summer break until mid-August.

US Watch – Hawks under pressure