Global equity markets are rallying on news that President Trump has announced a new trade agreement between the United States and Japan. The deal is being framed as a “win-win,” with U.S. tariffs on Japanese imports, including automobiles, set at a relatively modest 15%, down from the previously threatened rates of over 25%. In return, Japan has reportedly agreed to purchase American-made aircraft and rice, and, perhaps most surprisingly, to establish a $550 billion sovereign wealth fund that would invest in the U.S. under the direction of President Trump.
Dollar extends its decline
As yields decline and inflation concerns fade, the dollar continues its retreat from recent highs, slipping below its 60-day moving average, a technical barrier that’s held firm since February. All eyes now turn to the final days of July, which are shaping up to be one of the most pivotal market moments of Q3. Anticipation is building ahead of next Wednesday’s Fed meeting, with growing speculation that dovish voices within the FOMC may gain traction. That shift in tone has been a key factor behind the dollar’s recent slide, and as of mid-week, it’s on track for its longest losing streak in nearly three weeks. The news on the US-Japan trade deal hasn’t had a major impact on the dollar so far.
For now, below is a mix of key insights, from macro to earnings and regulation, which have had limited impact in markets these last few days, but are closely intertwined with U.S. policy dynamics and could offer valuable insight into what’s next for the dollar, the economy and markets.
- Manufacturing struggles: The Richmond Fed Manufacturing Index, a survey (i.e. soft data) tracking sentiment across a politically mixed region, fell sharply to -20 in July from a revised -8 in June, marking its lowest level since August 2024. All headline components declined, signaling deteriorating conditions for regional manufacturers. The drop suggests fresh tariff threats may be disrupting supply chains just as firms had started adjusting to recent de-escalations. Despite weaker current data, manufacturers remain cautiously optimistic, with slight upticks in expected orders and shipments over the next six months. Thursday’s upcoming PMI release could further illuminate the sector’s trajectory.
- GM adjusts to tariff shock: Over the past few months, markets have been closely watching for signs of tariff fallout in the broader economy. One lingering question: why haven’t tariffs had a more pronounced impact on inflation? The expectation has been that consumers would ultimately bear the cost, but large corporations may be absorbing some of the pressure. General Motors’ latest Q2 earnings report offers a clear example. GM posted $1.9 billion in net income for the quarter, a 35% drop YoY, after absorbing a $1.1 billion tariff-related hit. The company anticipates this strain will intensify in Q3, with total 2025 tariff costs projected between $4–5 billion. But GM’s response is telling: not all companies have the scale or flexibility to follow suit. Smaller businesses and even some large caps in thin-margin sectors may lack the cushion to absorb these costs. To stay ahead, GM is investing approximately $4 billion in expanding U.S. manufacturing, adding capacity for 300,000 units, with a focus on high-margin pickups and SUVs. The strategy aims to cut tariff exposure while meeting domestic demand.
- Crypto to the rescue? One ripple effect of recent U.S. policy turbulence, spanning unpredictable trade decisions, the credit rating downgrade, and heightened scrutiny following the approval of the tax reform, has been a rise in long-end Treasury yields, as investors pull back from long-duration U.S. debt. Scott Bessent has tried yet again to send a positive message to investors in the fixed income market, as the GENIUS act was approved. According to the Treasury secretary, a regulation framework for stablecoins will not only be dollar positive but borrowing positive. In a post on X, he mentioned that a robust stablecoin ecosystem could boost private-sector demand for Treasuries, used to collateralize these digital assets, potentially lowering borrowing costs and helping manage national debt. According to Tether, the largest stablecoin by market cap, held around 120 billion in treasuries as of Q1 2025. As institutional appetite for crypto builds, stablecoin market caps, and their Treasury exposure, are projected to climb. That raises a question: how much of this demand will favor longer maturities versus short-term Treasury bills? Meanwhile, major U.S. banks have begun aligning with the regulatory momentum. Not only are they supporting stablecoin frameworks, but many are planning to roll out their own tokenized payment solutions. Simultaneously, they’re lobbying to loosen capital restrictions, a move that could expand their Treasury holdings and help ease off the fears around high-rate refi by the US Treasury.
Euro edges up in market silence
EUR/USD confidently closed above its 21-day moving average on the daily chart yesterday—its first time doing so since 14 July—marking a two-week high. While it’s still early to confirm the resumption of a sustained uptrend, the move offers a constructive signal that further upside may be on the horizon in the near term.
On a 30-minute candle basis, after clearing the $1.1750 resistance level, the pair eyed $1.1775 but failed to breach it. Beyond that lies $1.1800, which—if cleared—could put the pair back on track to challenge the early-July YTD highs of $1.1829.
What we note is that investor anxiety builds up during prolonged periods of silence from Washington, leaving the investment community ruminating over aggressive tariff threats or what felt like the end of Powell’s career last week. It follows that dollar sentiment gets hurt.
Interestingly, however, EUR/USD began the session flat until around 15:00 BST, when the Richmond Fed Manufacturing Index printed a much lower-than-expected reading (see dollar section). The subsequent rally, which topped 0.60% at one point, just highlights how investors are now reacting with heightened sensitivity to concrete data—rather than vague rhetoric. During this morning’s Asian trading session, in fact, we saw the dollar rebound, while EUR/USD dropping 0.2%, following the announcement of a trade deal between the U.S. and Japan, which offered support to the greenback.
Risks to the euro remain in play, we suspect this week’s 1% rise was predominantly the result of built-up trade anxiety with the August 1st deadline approaching. A deal with Japan, and likely more to follow, will further ease investors’ nerves and are likely to cap further euro upside.
This means that for EUR/USD to convincingly breach $1.1800, more significant (USD-negative) catalysts will be needed; put more bluntly, more bad data. For this week, flash PMIs are on the radar, but, based on recent price action, it will be soft results in weekly jobless claims or durable goods orders that would contribute more importantly to the pair reaching $1.1800.
Mexico’s economic outlook shows mixed signals
Recent data from the National Institute of Statistics and Geography (INEGI) paints a positive picture for Mexico’s retail sector, with sales rising 2.7% year-over-year in May 2025, reversing a previous decline. Gains were broad-based, led by online/catalog sales (9.6%), textiles and footwear (8.8%), and personal goods (9.5%). Employment grew by 0.7% and average wages rose 5.6%. Real income from goods and services also saw a monthly increase of 1.8%.
In contrast, the Global Indicator of Economic Activity (IGAE) stagnated in May, driven by a 0.4% contraction in the service sector. Entertainment services (-3.4%), wholesale trade (-2.6%), and professional services (-1.1%) were among the hardest hit.
While retail indicators suggest consumer activity is picking up, broader economic stagnation underscores ongoing volatility, especially in key service sectors. The data hints at a fragmented recovery, where consumer demand remains resilient but structural weaknesses in service-related industries may be slowing Mexico’s overall economic momentum.
The Mexican Peso continues to appreciate, edging toward the 18.6 mark and trading below its short-term moving averages. This upward trajectory is being fueled by a softer U.S. dollar, which is supporting high-yield Latin American currencies in a risk-on market environment. The Peso is now within striking distance of its year-to-date low of 18.5, with investors closely watching the upcoming bi-weekly CPI data scheduled for release this Thursday, alongside key U.S. PMI figures. These indicators could further sustain the Peso’s momentum through the end of the week.
Flicker of hope for sterling’s uptrend
The British pound declined against all major currencies on Tuesday—except the US dollar—after fresh data revealed a surge in debt-interest payments pushed the UK’s budget deficit to £20.7 billion, overshooting forecasts by £3.2 billion and marking a £6.6 billion increase from a year earlier. Despite the fiscal blow, GBP/USD managed to close above its 50-day moving average, buoyed by broad-based dollar softness, and is now attempting to re-enter its 2025 uptrend channel.
After finding solid support near the $1.34 handle, the pair is eyeing a break above the 21-day moving average at $1.3575—a move that would challenge the narrative of a broken uptrend. Conversely, a daily close below $1.35 could trap the pair in a $1.34–$1.35 range in the near term.
Sterling’s broader tone remains cautious this month, weighed down by disappointing macro data and sticky inflation, which have reignited stagflation concerns. The latest borrowing figures have intensified speculation that Chancellor Rachel Reeves may need to raise taxes in the Autumn budget to meet fiscal repair targets.
The UK’s fiscal metrics are increasingly under scrutiny: Deficit: Now at 5.7% of GDP, the third highest among 28 advanced European economies. Public debt: At 94% of GDP, ranking sixth highest globally. 10-year gilt yield: Recently touched 4.7%, before easing below 4.60%, mirroring global yield declines. This yield remains a key gauge of investor confidence, reflecting perceived risks around inflation and the government’s repayment capacity.
The next major test for the pound will be tomorrow’s flash PMIs and Friday’s retail sales figures, offering a vital pulse check on UK economic momentum. Together, these data points are poised to shape market expectations for the Bank of England’s policy path, especially as traders weigh the tension between weak growth signals and persistent inflation—an increasingly toxic mix for sterling’s outlook.
Drifting towards 2025 low
Despite diminishing prospects for a Canada–U.S. trade deal before August 1st, and rising expectations that tariff uncertainty will extend beyond that date, the Canadian Dollar emerged as one of the standout performers in yesterday’s market session. The latest dip in the U.S. Dollar gave a boost to several major currencies, including the CAD, which is now trending toward its 2025 low.
Longest losing streak for the Dollar in nearly three weeks
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: July 21-25
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
