Dollar Holds Near Flat as Yen Nears 40-Year Low Into FOMC Week

The Dollar Index closed Friday at 101.48, up 0.05% and effectively flat into the weekend. US data was mixed: June new-home sales came in at 0.628M versus a 0.610M estimate, while the flash July S&P Global Manufacturing PMI slipped to 53.8 against a 54.3 estimate. The dollar still drew broad safe-haven demand tied to Middle East tensions, even as WTI crude fell 4.06% and Brent dropped 4.17% on reports Pakistan is exploring a path toward resumption of US-Iran talks. US equities slipped — the S&P 500 fell 0.86%, the Nasdaq dropped 2.26% — while the VIX eased 3.26% to 18.09. Gold rose 0.55% and silver gained 2.08%. Markets are now closed for the weekend; the next session opens Monday in Asia.

Treasury yields eased modestly Friday: the 10-year fell 3.4bp to 4.669%, the 5-year fell 3.2bp to 4.429%, the 30-year eased 1.8bp to 5.153%, and the 3-month slipped 0.5bp to 3.795%. These are small moves, not a repricing of policy odds. The Fed funds target remains 3.50-3.75%, and the live 2026 policy question continues to be whether the Fed hikes rather than cuts. The FOMC meets July 28-29, with the decision due Wednesday July 29 at 2:00pm ET and a press conference at 2:30pm ET — the week's dominant catalyst for the dollar and the rest of the majors.

EUR/USD eased to 1.1373 Friday (-0.34%), pressured by dollar safe-haven flows despite a eurozone flash composite PMI beat of 51.9, a five-month high; the ECB held all three key rates on July 23. GBP/USD eased to 1.3326 (-0.37%) even as the UK flash composite PMI beat at 52.1 versus 49.7 expected, with a mid-week CPI undershoot to 2.6% y/y having trimmed BoE hike bets ahead of the July 30 decision. USD/JPY firmed to 163.81 (+0.45%) after touching 163.99 Thursday, still close to a 40-year yen low. USD/CAD was little changed at 1.4087 (+0.01%) as WTI crude fell more than 4% on the day.

USD/JPY firmed to 163.81 Friday (+0.45%), pressing into 40-year-low territory for the yen after Thursday's touch of 163.99. On the week the pair rose roughly 0.8-0.9%, the yen's worst performance since May, as broad dollar demand and a wide US-Japan short-rate differential (250bp+ per the policy anchors) kept the yen offered even as some BoJ board members have signalled openness to faster hikes following June's 25bp move to 1%. Verbal intervention warnings failed to move the market: Finance Minister Satsuki Katayama said Friday Japan would 'respond appropriately whenever necessary' and take 'decisive action' in FX markets, citing a US Treasury report that called yen volatility 'undesirable.' No confirmed MoF intervention spend has been reported this week. The BoJ's two-day policy meeting July 30-31 is the next scheduled catalyst, widely expected to hold the rate at 1%.

Markets are closed for the weekend; the next session opens Monday, July 27 in Asia, with no data due today. The week ahead is heavy: the BoC's quarterly Market Participants Survey lands Monday at 10:30 ET; the FOMC meets July 28-29 with the decision Wednesday July 29 at 2:00pm ET and a press conference at 2:30pm ET; the BoC's Summary of Deliberations follows Wednesday at 13:30 ET; the BoE's Monetary Policy Summary and Bank Rate decision is due Thursday July 30 at 12:00 London time, with Governor Bailey's press conference to follow; and the BoJ's two-day policy meeting runs July 30-31. German and eurozone Q2 GDP plus German CPI are due Thursday, with eurozone flash CPI on Friday.