Key takeaways
- US trade policy outcomes are set to shape the FX narrative in the coming weeks…
- …posing two-sided risks to the USD, barring material escalation in tariffs…
- The more optimistic could see the AUD and NZD strengthening against the USD.
Our tactical view
Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report.
USD
We look for the USD to move mostly sideways over the coming few weeks. While risks are still skewed towards weakness, especially with US policy and structural concerns, the prospect of cyclical drivers (like interest rate differentials) getting more traction could give the USD some protection so long as evidence of US economic resilience continues to emerge. US data releases, such as the non-farm payroll report (1 August) and CPI (12 August), will add some colour on this front. The Federal Reserve (Fed) is widely expected to keep its policy rate unchanged at its 29-30 July meeting, but a more pressing potential factor to worry the USD is the continued pressure on the Fed’s independence. It is also worth monitoring how the USD responds to US trade policy developments around the 1 August deadline. Higher tariff outcomes may be viewed as USD-positive (given its ‘safe haven’ status), but trade deals with lower tariff levels could support risk appetite that may weigh on the USD. Trade developments pose two-sided risks to the USD.
Short-term direction : DXY^
Current
▶ Track Sideways
Previous
▶ Track Sideways
EUR
The EUR still enjoys an unusually large premium relative to interest rate differentials, which assume a ‘good case’ outcome on EU-US trade policy. In addition, the EUR is increasingly attuned to risk appetite. In our view, risks are skewed towards EUR weakness, amid a renewed “risk on” persona (if trade tensions intensify) and weak economic activity. Data releases, such as Euro Area GDP (Advanced Estimate) for 2Q (30 July), CPI for July (1 August) and ZEW survey report (12 August), could help shape market expectations ahead of the European Central Bank’s (ECB) meeting on 11 September where a c50% chance of an ECB rate cut is currently in the price (Bloomberg, 22 July 2025).
Short-term direction : EUR-USD
Current
▶ Track Sideways
Previous
▶ Track Sideways
Short-term direction : EUR-GBP
Current
▶ Track Sideways
Previous
▲ Appreciate
GBP
The traditional drivers (like rates and risk appetite) seem to have little traction for the GBP. The GBP has the upside of already securing a trade deal with the US, but cyclical headwinds and the lack of fiscal headroom may prevent a rally. The Bank of England (BoE) is likely to deliver a rate cut on 7 August, with markets seeing a c80% chance for this to happen; but UK economic data has not built the case for an accelerated easing pace thereafter. The labour market report (12 August), 2Q GDP (14 August) and CPI for July (20 August) could shed light on the BoE’s policy path.
Short-term direction : GBP-USD
Current
▶ Track Sideways
Previous
▶ Track Sideways
JPY
The ruling Liberal Democratic Party (LDP)-Komeito coalition failed to hold onto its majority in the Upper House election on 20 July, which is likely to keep the JPY weak for now. Future fiscal concerns have already impacted the JPY, while the Bank of Japan (BoJ) is likely to keep its rate unchanged on 31 July (Bloomberg, 22 July 2025). On a positive note, Japan has secured a trade deal with US sooner than expected. US reciprocal and sectoral auto tariffs on Japan will both be lowered to 15% (from 25%). As such, there is a tug of war for influence (less tariff uncertainty versus more domestic uncertainty) over the JPY.
Short-term direction : USD-JPY
Current
▲ Appreciate
Previous
▼ Depreciate
Short-term direction : EUR-JPY
Current
▲ Appreciate
Previous
▼ Depreciate
CHF
Pharmaceuticals comprise c40% of total Swiss exports. A 200% tariff on pharmaceuticals (if enacted by the US) would be negative for Switzerland’s balance of payments in the long run but could encourage front-loading over the near term, which may be CHF-positive. The market strategy is to “assume the best”, which creates skewed risks around the 1 August tariff deadline, probably supporting the CHF. The possibility of the Swiss National Bank’s (SNB) FX intervention could still provide a ceiling on CHF strength.
Short-term direction : USD-CHF
Current
▼ Depreciate
Previous
▼ Depreciate
Short-term direction : EUR-CHF
Current
▼ Depreciate
Previous
▶ Track Sideways
CAD
The main scope for idiosyncratic moves in USD-CAD will likely come through interest rate expectations, courtesy of shifts in US-Canada trade policy. This could be a greater risk to the CAD, as we approach the 2026 renegotiation of the United States-Mexico-Canada Agreement (USMCA) in earnest later this year. With both the Bank of Canada and the Fed likely on hold in their respective July meetings (30 July), and trade policy potentially neutral, USD-CAD should consolidate over the coming weeks.
Short-term direction : USD-CAD
Current
▶ Track Sideways
Previous
▶ Track Sideways
AUD
The favourable external environment (like expectations of monetary and fiscal easing globally), Australia’s ample fiscal capacity, and potentially a higher FX hedge ratio could support the AUD over the coming few weeks. The Reserve Bank of Australia (RBA) surprised markets by holding rates unchanged in July, but markets fully price in a 25bp cut by the RBA on 12 August (Bloomberg, 22 July 2025). AUD-USD could also be marginally supported by less front-loaded RBA easing.
Short-term direction : AUD-USD
Current
▲ Appreciate
Previous
▲ Appreciate
Short-term direction : AUD-NZD
Current
▶ Track Sideways
Previous
▼ Depreciate
NZD
NZD-USD is likely to go higher, probably driven by similar external forces to AUD-USD. Markets see a c85% chance of a 25bp cut by the Reserve Bank of New Zealand on 20 August (Bloomberg, 22 July 2025). With both central banks likely easing, AUD-NZD is likely to stay rangebound.
Short-term direction : NZD-USD
Current
▲ Appreciate
Previous
▲ Appreciate
Note: ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP, CAD, SEK and CHF. Source: HSBC
FX Data Snapshot
(from close on 23 June to 23 July*)
FX |
Spot |
200 dma |
1-month % change* |
Support |
Resistance |
|---|---|---|---|---|---|
| DXY | 97.44 | 103.46 | -0.99% | 96.38 | 98.95 |
| EUR-USD |
1.1748 | 1.0911 | 1.47% | 1.1550 | 1.1830 |
| EUR-GBP | 0.8678 | 0.8413 | -1.36% | 0.8575 | 0.8740 |
| GBP-USD | 1.3538 | 1.2966 | 0.10% | 1.3360 | 1.3680 |
| USD-JPY |
146.72 | 149.67 | -0.39% | 145.00 | 149.20 |
| EUR-JPY | 172.36 | 163.12 | -1.83% | 170.00 | 175.50 |
| USD-CHF |
0.7919 | 0.8621 | 2.63% | 0.7800 | 0.8070 |
| EUR-CHF | 0.9303 | 0.9389 | 1.12% | 0.9220 | 0.9390 |
| USD-CAD | 1.3596 | 1.4049 | 1.02% | 1.3420 | 1.3800 |
| AUD-USD |
0.6576 | 0.6394 | 1.80% | 0.6400 | 0.6688 |
| AUD-NZD | 1.0905 | 1.0954 | -0.89% | 1.0900 | 1.0955 |
| NZD-USD |
0.6030 | 0.5839 | 0.89% | 0.5900 | 0.6120 |
Note: * as at 15:22 HKT on 23 July 2025
Source: HSBC, Bloomberg
Explanation of terms
Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.
200 dma: 200-day simple moving average numberrepresents the average price of an index or a currency pair over the past 200 days.
Support (S), Resistance (R):Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of anindex or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.
HSBC Positioning Indices
Note: Priced as of market close 22 July 2025
Source: HSBC, Bloomberg
The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).
Glossary
Dovish
Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.
Hawkish
Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.
MoM / YoY
Month on month / Year on year
PMI
Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).
IMM data
International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).
G10
G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.
Fed / FOMC
Federal Reserve System (US’s Central Bank)/Federal Open Market Committee.
ECB
European Central Bank (Eurozone’sCentral Bank).
BOE
Bank of England (UK’s Central Bank).
BOJ
Bank of Japan (Japan’s Central Bank).
BOC
Bank of Canada (Canada’s Central Bank).
RBA
Reserve Bank of Australia (Australia’s Central Bank).
RBNZ
Reserve Bank of New Zealand (New Zealand’s Central Bank).
SNB
Swiss National Bank (Switzerland’s Central Bank).
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