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Trade agreements

US-Japan Trade Deal Supports Yen, Euro Experiences Turbulence Ahead of ECB Meeting

Strategic Insights

— 2 min read

The US-Japan trade agreement has positively impacted the yen, while the euro is experiencing mixed trading ahead of the European Central Bank's (ECB) meeting, which may lead to a revaluation of the single currency's recent strength. President Donald Trump announced the massive deal, which includes a 15% tariff on Japan's exports, and stated that Japan will invest USD550 Billion into the US, with the US receiving 90% of the profits. The deal's impact on the yen has seen the dollar fade to JPY146.23, from JPY147.14, on Wednesday.

Key Takeaways:

  • The US-Japan trade deal includes a 15% tariff on Japan's exports, which may impact the country's trade balance.
  • Japan Prime Minister Shigeru Ishiba stated that he needs to examine the deal before commenting, while analysts believe the passing of the trade deal and the upper house election could increase the likelihood of the Bank of Japan (BoJ) pushing ahead with the next rate hike before the end of the year.
  • The euro experienced a mixed trading session, rising to USD1.1728, from USD1.1687, amidst expectations that the ECB will leave rates unmoved on Thursday.
  • ING believes foreign exchange has become a concern for policymakers again, with the euro's surge beyond USD1.20 potentially giving the ECB food for thought.
  • The ECB's interest rate decision is expected to be announced at 1315 BST on Thursday, followed by a press conference with President Christine Lagarde.
  • SPI Asset Management analyst Stephen Innes comments that the AUD, BRL, and ZAR are benefiting from surging industrial metals and rising terms of trade, which may have a positive impact on the currencies.
  • Ebury analyst Matthew Ryan cautioned that sterling weakness may follow if data does not meet expectations, which could keep the GBP/USD pair around 1.15.

Statistics:

  • The dollar faded to JPY146.23 against the yen, from JPY147.14, on Wednesday.
  • The euro rose to USD1.1728, from USD1.1687.
  • Sterling traded at EUR1.1544, rising from EUR1.1530.
  • The iron ore price spiked to its highest level since February on demand hope.
  • US Treasury Secretary Scott Bessent stated that he did not see a reason for Federal Reserve Chair Jerome Powell to resign immediately.
  • The Australian dollar declined to AUD1.5151 on Wednesday, from AUD1.5326.
  • The buck fell to CAD1.3576 versus the Canadian dollar, from CAD1.3681.
  • Against the Swiss franc, the dollar faded to CHF0.7935 from CHF0.7980.
  • Sterling traded at roughly a two-week high on Wednesday.

Sources:

  • Alliance News
  • Bloomberg
  • ING
  • SPI Asset Management
  • Ebury
  • US Department of Foreign Affairs & Trade
  • Fox Business

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