Tariffs bite, budget cracks widen, bets surge—pressure’s building and the technicals aren’t offering much relief.

• USD/JPY correlations with key macro drivers remain weak entering Q3
• Political risks and tariff policy are weighing on the U.S. dollar
• Markets now favour three Fed cuts in 2025 as data softens
• BoJ hike risk alive if trade tensions ease; markets split on timing
• USD/JPY downside favoured, with 138.00 key if 140.25 gives way

USD/JPY Outlook Summary

With weakening through Q2 and falling correlations with traditional macro drivers, markets are clearly responding to a different set of influences. Once a pair heavily dictated by U.S.–Japan rate differentials and risk sentiment, that relationship has broken down, raising the prospect that political developments—especially those linked to U.S. trade and fiscal policy—may now be playing a greater role in driving price action.

This piece explores the fundamental backdrop heading into H2 2025, including the apparent correlation breakdown, the growing political overhang weighing on the , and what’s currently priced for both the Fed and BoJ in the second half of the year.

Correlations: Drivers Go Missing

Source: TradingView

What stands out from the recent data is the clear deterioration in correlation strength between USD/JPY and its traditional macro inputs. Looking across one-month and one-quarter rolling periods, there’s been little to no sustained relationship between the pair and major variables including U.S. Treasury yields, yield differentials, and broader risk appetite proxies like the and .

This divergence suggests markets are no longer trading the pair in a textbook fashion. Despite notable moves in both and yields over Q2, the pair has largely ignored these developments. Even front-end spread changes, typically a reliable driver of JPY flows, have failed to generate a lasting directional pull. , often used as a barometer for inflation and demand dynamics, has also shown negligible influence.

Instead, what seems to be playing a larger role is a rotation out of the triggered by growing political unease. The turning point appears to have been the announcement of reciprocal tariffs on U.S. goods during U.S. ‘Liberation Day’ in early April. Since then, longer-dated U.S. Treasury yields have risen relative to short-dated yields, pointing to an increase in term premium—a concept that refers to the additional yield investors demand to hold longer-term bonds given uncertainty around inflation, growth, and fiscal stability.

Source: TradingView

Importantly, this lift in term premium hasn’t supported the dollar. If anything, it’s coincided with growing distrust from offshore buyers and rising concerns around the sustainability of the U.S. fiscal trajectory. Charts of real (inflation-adjusted) yields on 10 (blue line, 20 (red line), and (black line) show the shift clearly. With 20 and 30-year TIPS now well above levels seen for most of the past decade, it suggests investors are demanding greater compensation for long-term risk.

Given U.S. potential growth is broadly seen at around 1.8%, current real yields imply markets are not only reacting to fiscal slippage but also pricing in more structural uncertainty, likely tied to concerns about governance and trade under the Trump administration.

Fed: Policy Path Hazy Amid Political Overhang

While real yields at the long end of the curve remain elevated, the front end has moved in the opposite direction. Softer inflation prints and patchy consumer data through Q2 have led to a modest dovish repricing for the Fed, with markets now assigning a decent chance to three rate cuts before the end of the year.

The bigger risk factor, though, stems from politics. Reports suggest President Trump may name a shadow Federal Reserve chair well in advance of Jerome Powell’s term expiring in May 2026.

The move could effectively undermine the independence of monetary policy in the near term, especially if the nominee signals a preference for materially lower interest rates. While Powell remains in place for now, markets are increasingly sensitive to any commentary suggesting a new policy direction is already taking shape behind the scenes.

In short, artificially low interest rates are no longer a hypothetical—they’re a growing market concern. For now, , , and remain key for the Fed outlook, but the political backdrop could start to exert more weight on rate expectations as H2 progresses.

Source: Bloomberg

BoJ: Tariff Shadow Lingers Over Policy Normalisation

The BoJ remains in a difficult position. Had it not been for growing trade-related uncertainty, there’s a strong case it would already have hiked beyond the 25bp move delivered in January. Inflation pressures remain firm, with annual core readings still sitting well above target. Domestic wage growth has also remained robust, supported by another round of sizeable increases struck earlier this year.

Despite that, markets remain hesitant to price in a meaningful tightening cycle, reflecting the cloud hanging over Japanese export prospects. With the reciprocal tariff extension set to expire on July 9, the key variable may be whether Japan can extract a deal from the U.S. that limits the damage to its auto sector.

At this stage, 25% tariffs on Japanese car imports remain in place, and without movement there, the BoJ may be reluctant to hike again. A global slowdown triggered by retaliatory trade actions would quickly reverse progress made on domestic inflation.

Still, markets remain split, with current pricing assigning roughly a 50/50 chance of a second rate hike before year-end. Should the trade overhang lift—or a deal be struck that shields Japan’s key export sectors—the BoJ may feel more confident acting again. That could reintroduce rate differentials as a driver of USD/JPY, but we’re not there yet.

US Dollar Index (DXY) Doldrums

Source: TradingView

The (DXY) has been under sustained pressure since reciprocal tariff rates were announced on U.S. Liberation Day, printing a string of lower highs and lower lows within a broader downtrend on the weekly timeframe. With a bearish key reversal candle printing in the last full week of Q2—sending the DXY tumbling through support at 97.70—it signals the dollar could lose even more ground in the early stages of H2.

Momentum indicators bolster this view with RSI (14) trending lower while sitting in deeply negative territory. MACD is doing the same, confirming the overwhelming bearish signal that favours downside over upside.

With the DXY trading below 97.70, the next downside levels to watch include 94.65 and 91.60. 97.70 may now revert to acting as resistance, with 100 and 101.90 other topside levels of note.

USD/JPY Technical Outlook

Source: TradingView

While USD/JPY trades lower than when the Q2 outlook was completed, the story over recent months has been one of modest upside with support running from the April lows continuing to repel bearish moves in May and June. On the topside, sellers have been parked above 148, resulting in violent downside moves, including in late June. That price action may be informative as to what direction USD/JPY is likely to break from the ascending triangle it trades in.

Even though momentum indicators like RSI (14) and MACD are signalling that selling pressure is ebbing—not increasing—downside risks remain tilted lower entering H2, keeping the risk of a potential retest of support starting from 140.25 on the table.

Should we see a weekly close beneath 140.25, it would increase the risk of a move towards major support at 138.00. Below, 134.00, 129.65 and 127.00 are the levels to watch. Should sellers parked between 148.00–70 be eventually overrun, resistance levels of note include 151.00 and 153.38.

The colour-coding signifies the potential ranges where USD/JPY may finish 2025, along with an assigned probability of each occurring as marked. The green zone between 148.00 on the topside and 138.00 on the downside is favoured at 70%, underpinned by the belief that while broader USD pressure is likely to persist, in the absence of a major U.S. market meltdown that sparks major carry trade unwind or significant economic downturn (both of which screen as unlikely over the medium term), a venture into the blue zone is deemed low probability at just 20%.

The implied probability of a push above 148 is even lower at just 10%, likely requiring a combination of policy inertia from the Fed, a positive resolution to trade and geopolitical risks, along with booming financial markets. Such a backdrop comes across as more akin to wishful thinking rather than plausible.

Original Post (NYSE:)

But if we can get above this 50 day EMA, perhaps we go climbing to the 148 yen level again, which is where the 200 day EMA sits, which is typically thought of as a major support resistance area. If we do break down below here, I see a somewhat important area in the range of 142 yen, but we’ll just have to see how that plays out. I still favor the upside simply because you get paid to wait.

AUD/USD Technical Analysis

And finally, taking a look at the Australian dollar, we continue to struggle with 0.6550. We’ve pulled back from there, yet again. We just cannot really take off to the upside and go looking to maybe 0.67 yet, despite the fact that the US dollar is weakening against multiple other currencies. But it appears to me that Pacific currencies, for example, the yen, the Australian dollar, the New Zealand dollar are all in the same boat, they just can’t launch against the greenback. So that tells me that most of what we’re seeing anti US dollar is a pro Europe, pro-UK type of situation.

For a look at all of today’s economic events, check out our economic calendar.

• EUR/USD fluctuates in a narrow channel above 1.1700 on Monday.
• The near-term technical picture suggests that the bullish bias remains unchanged.
• Comments from central bankers could trigger the next big action in the pair.

EUR/USD seems to have entered a consolidation phase above 1.1700 on Monday following the previous week’s impressive rally.

While the technical outlook remains bullish in the near term, investors could refrain from taking large positions ahead of European Central Bank (ECB) President Christine Lagarde’s and Federal Reserve (Fed) Chairman Jerome Powell’s speeches at the ECB Forum on Central Banking on Tuesday.

Lagarde and Powell will participate in a policy panel. According to the CME FedWatch Tool, markets are currently pricing in about a 20% probability of the Fed lowering the policy rate by 25 basis points at the July meeting. This market positioning suggests that the US Dollar (USD) could stay resilient against its peers in case Powell reaffirms that they are unlikely to ease the policy until September.

The data from Germany showed on Monday that annual inflation, as measured by the change in the Consumer Price Index (CPI), edged lower to 2% in June’s preliminary estimate from 2.1% in May. On a monthly basis, the CPI remained unchanged. This reading came in below the market expectation for an increase of 0.2% and made it difficult for the Euro to gather strength.

Meanwhile, Wall Street’s main indexes started the day in positive territory, not allowing the USD to gather recovery momentum and helping EUR/USD limit its downside.

Later in the day, EUR/USD’s could experience heightened volatility due to position adjustments and profit-taking on the last day of the second quarter.

EUR/USD Technical Analysis

EUR/USD fluctuates within the upper half of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60, despite retreating slightly in the first half of the day. On the upside, 1.1730 (static level) aligns as an interim resistance level before 1.1760 (upper limit of the ascending channel) and 1.1800 (static level, round level).

In case EUR/USD fails to hold above 1.1700 (static level, 20-period Simple Moving Average) and flips that level into resistance, 1.1660 (mid-point of the ascending channel) and 1.1620 (static level) could be seen as next support levels.

June 30, 2025 – Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: 1.17 Today, 1.19 Next Target

Foreign exchange analysts at MUFG forecast that the Pound to Euro exchange rate (GBP/EUR) will hit selling interest on any gains to 1.19 and retreat to 1.1560 by the end of 2025.

In contrast, Credit Agricole still backs GBP/EUR gains to 1.2050 by the end of the year.

GBP/EUR secured marginal gains during the week, although it failed to hold 2-week highs just above 1.1750 and settled just above 1,1700.

The Pound and Euro both gained net support in global markets from an easing of Middle East tensions and a sustained improvement in risk appetite, liming moves on the cross.

Credit Agricole sees scope for Pound gains on valuation grounds; “We continue to think that EUR/GBP is looking quite overvalued compared to fair value metrics that we estimate based on EUR-GBP rate spread among other drivers. We therefore think that the cross should continue to drift lower in the very near term, especially if risk sentiment continues to recover.

It did, however, add; “That being said, we are also conscious of the risk that a more dovish BoE rhetoric in particular could remain a key downside risk for the GBP.”

Many investment banks have continued to focus on fiscal policy with Germany planning a EUR500bn boost over the next few years.

Deutsche Bank commented; “In the short term, the planned ramp-up in debt-financed spending is remarkably ambitious. The government plans a deficit of more than 3% of GDP as early as this year and almost 4% next year. In light of the front-loading of the fiscal expansion, we raise our growth forecast for 2025 to 0.5%.”

It added; “Not only is the fiscal impulse over this period likely to be more positive than we previously assumed, but the economy is also heading into this fiscal expansion with greater momentum than expected. It would now take a serious exogenous shock or escalation in the trade conflict to scupper the recovery this year.”

The UK, however, is still struggling with fiscal policy with a government U-turn on welfare reform adding to long-term reservations and the risk of further tax increases later in the year.

Monetary policy developments will also remain a key area, especially given the Euro-Zone fiscal boost.

There are strong expectations that the Bank of England will cut rates in August with a further cut before year-end.

Nordea commented; “we think the ECB is done in terms of rate cuts.”

It added; “We do think risks remain tilted towards another cut for now, as many downside risks remain, not least due to trade policy uncertainty. However, trade policy is only part of the story and there are upside risks as well.”

In this context, Nordea also commented on fiscal policy; “A looming boost to growth from public spending and investment due to higher German infrastructure and EU defence spending limits downside risks, but we think also higher energy prices have the potential to reduce the odds of the ECB cutting rates further in the current circumstances.”

According to ING; “We are not major subscribers to the view that the ECB will stay on hold until December (a September cut is underpriced in our view), but admit that the latest hawkish communication means market pricing may not be revised significantly to the dovish side at least for some weeks.”

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• GBP/USD fluctuates at around 1.3700 in the European session on Monday.
• The near-term technical outlook points to a loss of bullish momentum.
• The US economic calendar will not feature any high-impact data releases.

GBP/USD corrects lower and trades at around 1.3700 on Monday after gaining about 2% last week. The pair’s technical outlook points to a loss of bullish momentum in the short term.

GBP/USD rose sharply last week as the risk-positive market atmosphere, on easing geopolitical tensions, and growing concerns over the Federal Reserve (Fed) losing its independence weighed heavily on the US Dollar (USD).

Early Monday, the UK’s FTSE 100 Index trades modestly lower on the day, while US stock index futures stay in positive territory. In case markets adopt a cautious stance in the second half of the day, the USD could find a foothold and make it difficult for GBP/USD to gather bullish momentum.

In the meantime, the UK government announced in a press release on Monday that the UK-US trade deal has officially come into force. UK car manufacturers can now export to the US under a reduced 10% tariff quota and the UK aerospace sector will have 10% tariffs on goods like engines and aircraft parts removed.

Later in the session, Dallas Fed Manufacturing Index will be featured in the US economic calendar, which is unlikely to trigger a noticeable market reaction. It’s important to note that position adjustments and profit-taking on the last day of the first half of the year could ramp up the pair’s volatility toward the end of the European session.

GBP/USD Technical Analysis

GBP/USD declined slightly below the 20-period Simple Moving Average (SMA) on the 4-hour chart and the Relative Strength Index (RSI) indicator fell below 60, reflecting a loss of bullish momentum.

On the downside, 1.3650 (mid-point of the ascending regression channel) aligns as the next support level before 1.3600 (static level, round level) and 1.3560 (100-period SMA). In case GBP/USD stabilizes above 1.3700 and confirms that level as support, 1.3750 (static level, round level) and 1.3810 (upper limit of the ascending channel) could be seen as next resistance levels.

• EUR/USD trades above 1.1700 to start the new week.
• The technical outlook suggests that the uptrend is likely to continue.
• Month-end flows could ramp up market volatility later in the day.

EUR/USD holds steady and fluctuates above 1.1700 in the European morning on Monday after gaining more than 1.5% in the previous week. Although the technical outlook suggests that the pair is likely to extend its uptrend, position adjustments on the last day of the first half of the year could ramp up market volatility and trigger irregular movements.

The broad-based selling pressure surrounding the US Dollar (USD) fuelled EUR/USD’s rally last week. Early Monday, the USD struggles to find demand and helps the pair hold its ground as the market mood remains upbeat, with US stock index futures rising about 0.5% on the day.

Earlier in the day, the data from Germany showed that Retail Sales declined by 1.6% on a monthly basis in May, following the 0.6% contraction recorded in April. This reading came in worse than the market expectation for an increase of 0.5% but failed to trigger a noticeable market reaction. In the second half of the day, Germany’s Destatis will release preliminary Consumer Price Index (CPI) data for June.

Meanwhile, French Finance Minister Eric Lombard told newspaper La Tribune Dimanche on Sunday that he thinks that they are going to reach a trade deal with the US. “Regarding the deadline, my wish is for another postponement. I would rather have a good deal than a bad deal on July 9,” he added. In case markets remain optimistic about an EU-US trade deal, EUR/USD’s downside is likely to remain limited.

EUR/USD Technical Analysis

EUR/USD remains within the upper half of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart holds above 60. On the upside, 1.1730 (static level) aligns as an interim resistance level before 1.1760 (upper limit of the ascending channel) and 1.1800 (static level, round level).

Looking south, 1.1700 (static level, 20-period Simple Moving Average) could be seen as the first support level ahead of 1.1660 (mid-point of the ascending channel) and 1.1620 (static level).

Platinum price formed a clear correctional decline, to test the minor bullish channel’s support at $1324.75, to achieve the suggested correctional target in the previous report, then begin forming bullish waves to settle near $1363.00.

The continuation of the fluctuation within the bullish channel’s levels is expected, depending on the stability of the support to expect its rally to $1382.00 and $1400.00. While breaking the support and providing a negative close will confirm its readiness to resume the bearish correctional attack, and $1302.00 level represents the extra negative target.

The expected trading range for today is between $1330,00 and $1382.00

Trend forecast: Bullish

Platinum price formed a clear correctional decline, to test the minor bullish channel’s support at $1324.75, to achieve the suggested correctional target in the previous report, then begin forming bullish waves to settle near $1363.00.

The continuation of the fluctuation within the bullish channel’s levels is expected, depending on the stability of the support to expect its rally to $1382.00 and $1400.00. While breaking the support and providing a negative close will confirm its readiness to resume the bearish correctional attack, and $1302.00 level represents the extra negative target.

The expected trading range for today is between $1330,00 and $1382.00

Trend forecast: Bullish

June 29, 2025 – Written by Tim Boyer

STORY LINK Pound to Dollar Forecast: Next up “Psychologically Important 1.40”

The US Dollar has continued to dominated global currency markets and has continued to struggle amid an underlying loss of confidence in the US currency with a particular focus on Federal Reserve policy.

The Pound to Dollar (GBP/USD) exchange rate is trading just below 1.3750 and not far below 44-month highs of 1.3770 recorded on Thursday. There is scope for some trimming of GBP/USD longs into the weekend.

Scotiabank noted some worrying signs, but commented; “The 50 day MA (1.3438) remains a critical medium-term level of support and the chart offers little major resistance ahead of the psychologically important 1.40 level.”

It added; “The near-term range is likely to be defined by 1.3600 support and 1.3800 resistance.”

UoB noted the risk of correction; “While GBP could continue to advance, overbought short-term conditions may lead to a couple of days of consolidation first. All in all, the outlook for GBP remains positive, and the next technical objective is 1.3800.”

Dollar developments dominated with no major developments during the day, although traders were monitoring UK budget developments after the U-turn on welfare spending.

As far as US data is concerned, the core PCE prices index increased 0.2% for May compared with consensus forecasts of a 0.1% increase with the year-on-year rate edging higher to 2.7% from 2.6%.

The slightly higher than expected data could discourage centrist Federal Reserve members from backing any near-term cut in interest rates, but rhetoric will continue to be watched closely.

Elsewhere, personal income declined 0.4% on the month with a 0.1% decline for personal spending.

Scotiabank added; “We think risks are tilted squarely towards more immediate and significant dollar losses. The FOMC consensus remains cool on July but speculation of rate cuts will intensify if the run of US data continues to disappoint.”

Monex Europe head of macro research Nick Rees noted the risk of further Fed criticism by the White House and forecast revisions; “I’ll be perfectly honest, I’m currently rewriting them in light of what we are seeing right now.”

He added; “We had thought the dollar should stabilize around current levels because the macro data is about to turn really quite positive.”

Seema Shah, chief global strategist at Principal Asset Management, “Talk about having the next Fed chair announced within the next couple of months, that would be fairly disruptive.”

She added; “It brings up the whole concern about the credibility and reliability of U.S. institutions again, which is typically something that people don’t like.”

Investec commented; “A successor perceived by the market to be more open to accommodating Trump’s wishes risks damaging the independence of the Fed in setting policy.”

Rabobank also noted potential risks; “An early nomination could make the nominee the “de facto shadow chair” as his comments (only men are reported to be on the shortlist) would carry a lot of weight in the markets regarding monetary policy beyond May 2026 when Powell’s term expires.”

According to Pepperstone’s Chris Weston; “For the dollar to see a sustained counter-rally, I would argue we’d need US growth to pick up and implied Fed rate cuts to be repriced — perhaps with growth data in Europe and China also slowing.”

He added; “That doesn’t seem likely in the near term, and as such, rallies in the dollar are likely to be quickly sold off, with the downtrend set to continue.”

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June 29, 2025 – Written by Ben Hughes

STORY LINK Euro to Dollar Forecast: Trader Talk of 1.20 EUR/USD Increases

The US Dollar has remained firmly on the defensive with further unease over Federal Reserve policy. There has been further speculation that the Administration will move to undermine central bank independence and aim directly or indirectly to force a near-term cut in interest rates.

The Euro to Dollar (EUR/USD) exchange rate is trading just above 1.1700 from 45-month highs just above 1.1740 reached on Thursday.

EUR/USD has posted seven successive daily gains which will potentially expose the pair to a limited correction.

UoB commented, “Further EUR strength still appears likely, but overbought short-term conditions could slow the pace of any further advance. The next level to monitor is 1.1780.”

ING notes that estimates of EUR/USD fair value have increased to around 1.1450 from 1.10 amid a decline in US yields.

According to the bank; “Geopolitical risk has been radically priced out, and most importantly, FOMC divisions have prompted material dovish speculation. This justifies a more bullish view on EUR/USD, but not necessarily a call for 1.20.

It added; “Markets’ enthusiasm for an earlier Fed cut may be misplaced, and EUR/USD may settle back around 1.15-1.16, awaiting conclusive information on inflation.”

According to Scotiabank; “This week it’s definitely been about the Fed, the prospect of easing sooner and potentially more rate cuts.”

Thursday’s US data recorded a decline in initial jobless claims to 236,000 in the latest week from 246,000 previously while there was a further increase in continuing claims to 1.97mn from 1.94mn and the highest figure since late 2021.

There was a downward revision to first-quarter GDP to -0.5% from -0.2%, but durable goods orders posted a stronger-than-expected increase.

Danske Bank noted; “There was a decent decline in US Treasury yields yesterday as well as a steepening of the yield curve on the back of weaker than expected Q1 GDP numbers from the US as well as speeches from various Federal Reserve officials that are indicating forthcoming easing of monetary policy despite the potential impact from Tariffs.”

There have been further rumours of a near-term move to name a successor to Chair Powell and effectively put a “shadow Fed” in play which would undermine official guidance ahead of May 2026 when Powell’s term as Chair is scheduled to end.

Commonwealth Bank of Australia commented; “The sooner a replacement is announced for Powell, the sooner he could be perceived to be a ‘lame duck’.”

She added; “For now, expectations President Trump will choose a more dovish chair will keep downward pressure on FOMC pricing and the USD.”

The leading contenders for next Fed chief reportedly include former Fed Gov. Kevin Warsh, National Economic Council head Kevin Hassett, current Fed Gov. Christopher Waller, and Treasury Secretary Scott Bessent.

RBC BlueBay Asset Management senior portfolio manager Kaspar Hense noted the risk of a dovish appointment: “This is not currently 100% in the price, and it would still move markets if someone like Hassett or Bessent would get the job in order to cut rates, ignoring fundamental risk.”

He added; “We are short the dollar in this environment, where there is an erosion of institutions.”

SocGen’s Kit Juckes added; “I think the market is pricing in President Trump appointing someone who at least at first sight appears more sympathetic to his cause.”

Scotiabank added; “The result of U.S. asset outperformance over the past decade is you’ve got a lot of asset managers that are long the U.S. dollar way more than I think they’re comfortable.”

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