North American FX Open - Usd/Jpy tumbles on BoJ rate hike speculation

Concerns over global growth were heightened overnight after a miserable set of German flash PMIs. The manufacturing reading fell to 42.6 in July vs the 44.0 consensus and the 43.5 print in June, while the services number fell to 52.0 from 53.1, below the 53.3 consensus forecast. The composite came in at 48.7, slipping back below the 50 level after three months above. It looks like Germany's economy is now back in contractionary territory, dragged down by a steep and dramatic fall in manufacturing output. The EZ print was slightly less disappointing, but the composite reading barely remained above 50, at 50.1 in July down from 50.9 in June.

Eur/Usd slipped to a two week low down at 1.0826 in response.

Usd/Jpy has been the big mover again overnight, with long liquidation continuing apace. So far 154.29 has been the base, which is the pair's lowest level since mid May.

Speculation was rife that the Bank of Japan will raise rates by 15bps next week, with Tokyo-based accounts leading the selling. In a Bbg survey, while only about 30% of BOJ watchers say authorities will hike interest rates when they gather on July 31st, more than 90% see the risk of such a move.

Meanwhile, Japan's flash composite PMI spiked to 52.6 vs 49.7 last, with services leading the way even as the manufacturing version slipped into contraction territory.

The UK flash PMIs delivered further good news on the economy, with the composite reading rising to 52.7 in July, from 52.3 in June. The manufacturing PMI rose to 51.8, its highest level since July 2022. In addition UK businesses raised prices by the smallest amount since February 2021, driven by a moderation in the service sector and they also reported one of the smallest increases in costs since January 2021. Eur/Gbp dipped to 0.8397, a one week low.

Further commodity price index pushed Aud/Usd down to 0.6584, its lowest level since June 10th.

A Reuters/Ipsos poll showed that Kamala Harris leads Donald Trump 44% to 42%, as the vice president assailed her Republican rival Donald Trump in her first rally since launching her bid for the White House, describing their contest as a choice between two starkly divergent agendas for the US economy. Trump said he is willing to debate Harris.

Today's main event is the Bank of Canada meeting, where a 25bps rate cut to 4.5% is expected. Now that all main measures of Canadian inflation are now within the 1-3% BoC tolerance band, with the headline and median core rates coming in lower than expected in June at 2.7% and 2.6% respectively, while the jobs market has also weakened more than expected, with employment growth turning negative and unemployment rising to 6.4% in June, the BoC looks set to widen the gap between the overnight rate and the Fed funds rate to 1.5%, the largest divergence since the late 1990s.

Usd/Cad has hit its highest level in over three months up at 1.3800, ahead of the verdict. The decision is accompanied by the quarterly Monetary Policy Report, which provides a guide to what the central expects economy wise in Q3. A press conference with Governor Macklem and Deputy Governor Rogers then follows.

US data includes the advanced goods trade balance, wholesale inventories, the flash PMIs and new home sales.

We should hear from the ECB's Lane, while the Fed's Bowman and Logan are scheduled to speak just after the close.

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