Dollar Rebounds on Solid Data

CURRENCY FUTURES

The USD index is higher, gaining against most major currencies as markets stay focused on signs of progress in any trade deals. The dollar strengthened Thursday following a slate of solid economic data. Jobless claims fell to a three-month low, while S&P Composite PMI data signaled an expanding private sector, adding support for the dollar. Additionally, businesses in the S&P report said rising wage costs and tariffs contributed to steeper input price inflation, which firms increasingly passed on to customers, resulting in output inflation accelerating. The inflationary print from the report underscored the Fed’s wait-and-see stance, providing support for the dollar.

Euro futures are lower after a key survey showed German business sentiment improved by less than expected in July. The ifo business climate index rose to 88.6 in July from 88.4 in June. Economists were expecting a reading of 89.0. The European Central Bank held rates steady at its meeting yesterday, in a widely anticipated move, and offered a modestly upbeat assessment of the eurozone economy, raising doubts that there could be another rate cut in 2025. ECB President Lagarde said the economy was in a “good place” and that growth was in line with projections, also saying that the bank was in a “wait-and-watch situation.” The bank will likely need to see significantly weaker growth and inflation in order to cut rates in September. A 15% tariff on the EU could reduce growth by around 0.3%, per some estimates, hitting Germany’s export-focused economy the hardest. Export front-loading earlier this year to avoid tariffs has boosted the EU economy so far, and an increase in defense spending and infrastructure by Germany will offer support as well. Although the front-loading of goods, which had a negative impact on US GDP readings in Q1 of 2025 and a positive impact on EU GDP, will likely reverse in the coming months as companies look to wind down inventory. Composite PMI data in the eurozone signaled an overall increase in private sector activity.

British pound futures are lower following data that showed retail sales grew less than expected but still rebounded from May’s sharp drop in spending. Retail sales were 0.9% higher on the month in June, the country’s Office for National Statistics said Friday. That reversed some of the -2.8% drop the previous month. The increase in sales is attributed to the warmer weather, with drink sales among the products seeing the highest sales. Despite the increase in sales, consumer confidence in the UK fell again, detailing that consumers are worried about turbulence in the global economy. UK PMI data came in weaker than expected, boosting bets of a rate cut by the Bank of England. Services and composite readings both missed expectations, signaling a slowdown in private sector growth. However, manufacturing activity posted a smaller-than-expected contraction in activity. The PMI data also showed that job cuts accelerated, a key figure in the data, as markets are expecting the BoE to prioritize growth over inflation due to weak economic data and a soft labor market.

Japanese yen futures are lower after Tokyo Core CPI came in slightly below expectations but remained above the Bank of Japan’s 2% target, adding to bets that the BoJ could hike rates again this year. Although, markets are anticipating the bank will hold rates steady at its meeting next week. Core CPI came in at 2.9%, below forecasts of 3.0% and below June’s reading of 3.1%. Japan’s private sector growth held steady in July, supported by solid services activity, though manufacturing activity fell into contraction territory. Despite the readings, market optimism remains lifted following the trade deal with the US. Speculation that Prime Minister Ishiba plans to step down next month following the upper house election defeat remains, although Ishiba said he does not plan on doing so. Rising political uncertainty regarding the leadership in Japan could have potential downside risks for the yen. The trade deal with the US offers the Bank of Japan more certainty surrounding the future of the Japanese economy and adds potential for the bank to hike interest rates later this year. Critically for Japan and its auto industry, tariffs on autos will be reduced from 25% to 15%, although tariffs on steel will remain at 50%.

Australian dollar futures are lower, but the AUD is set to end the week on a solid gain as the prospect of more trade deals out of the US helped boost risk sentiment. Key inflation data is due next week, which could play a role in shaping the Reserve Bank of Australia’s policy outlook. RBA Governor Michele Bullock recently emphasized that the central bank is reluctant to cut interest rates until there is stronger evidence that inflation is sustainably returning to its 2.5% target, as she defended the RBA’s slow and steady approach. Meanwhile, investors are closely watching developments in US-Australia trade relations. In the latest development, Australia has agreed to ease restrictions on US beef imports, a decision that follows tensions over previous trade limitations. PMI data also showed Australia’s business activity grew at its fastest pace in July, as manufacturing output rose for the first time in three months and services expanded sharply, driven by strong new orders and ongoing hiring. Markets are fully pricing in that the bank will deliver a rate cut in August.

STOCK INDEX FUTURES

Stock index futures are little changed as markets digest corporate earnings, trade deals, and President Trump’s visit to the Federal Reserve. Durable goods orders fell less than expected, with a -9.3% fall in orders in June compared to expectations of a -10.4% decline. Core durable goods orders grew 0.2%, beating expectations of 0.1%, while goods orders excluding defense fell -9.4%.

On the data front, weekly initial jobless claims came in lower than expected, with 217,000 new claims vs. an expected 227,000. The S&P Global US Composite PMI rose to 54.6 in July 2025 from 52.9 in June, marking the fastest pace of growth in 2025 and the 30th consecutive month of expansion. New home sales increased 0.6% to a seasonally adjusted annualized rate of 627,000 units in June, a third report from the Commerce Department’s Census Bureau showed. That was below economists’ expectations for a rise to a rate of 650,000 units. Sales fell -6.6% on a year-over-year basis in June. The inventory of unsold homes on the market increased to 511,000 units, the highest level since October 2007, from 505,000 in May. That could make it difficult for builders to break more ground on new single-family housing projects and drag on Q2 GDP.

INTEREST RATE MARKET FUTURES

Futures are little changed across the curve, with yields edging higher. President Trump continued to pressure Fed Chair Jerome Powell to cut rates in an unusual meeting to the Fed on Thursday while criticizing the cost of the renovations taking place at the Fed’s headquarters.

Treasurys were pressured Thursday by a string of positive economic data and PMI data that showed an increase in price pressures. Weekly initial jobless claims came in lower than expected, hitting a three-month low as employers are holding out against layoffs and opting to put a pause on hiring instead. The unemployment rate has held steady at 4.1%, largely due to people dropping out of the labor force. Meanwhile, a decline in labor supply and reduced flows of immigrants means the economy will only need to create roughly 100,000 jobs per month to keep up with growth in the working-age population. A sell-off in German bunds also weighed on Treasury prices, as the ECB decided to hold rates steady at its latest meeting.

S&P Composite PMI data pointed to an expanding private sector, with a reading of 54.6 for July, up from 52.9 in June and marking the fastest pace of growth in 2025. The upturn was driven by strong services sector activity, while activity in the manufacturing sector declined slightly. Businesses also reported that employment continued to grow across the private sector. However, businesses noted that rising wage costs and tariffs directly contributed to steeper input price inflation, which firms passed onto customers. As a result, output price inflation increased, reaching one of the highest levels recorded of the past three years. The lack of labor market deterioration, paired with increasing price pressure from tariffs as evident in the PMI data, gives the Fed little reason to consider cutting rates at the July meeting and potentially the September meeting as the bank waits to see how prices are affected by tariffs.

Thursday’s 10-year Treasury Inflation-Protected Securities auction worth $21 billion was well received following Wednesday’s sale of 20-year bonds that also saw strong demand. Fears over US fiscal health and a widening deficit have calmed in recent weeks after the US bond market wobbled in recent months. Sweeping US tariffs, a downgrade in credit rating, and the passage of the tax-cut bill that is expected to add trillions to the government debt sent worries in the market about the safe-haven quality of Treasuries.

The 10-year Treasury yield is 4.41%, and the 30-year yield is 4.95%. The spread between the two- and 10-year yields fell to 48 bps from 50 bps on Thursday.

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