The Japanese yen declined on Friday ahead of Sunday’s House of Councillors elections in Japan, with forecasts indicating that the ruling party is at risk of losing its majority. Meanwhile, the US dollar continued to record gains for the second consecutive week against major currencies, supported by strong economic data.

The dollar rose by 0.14% against the yen on Friday to reach ¥148.81, heading toward a weekly gain of nearly 1% against the Japanese currency—larger than its gains against the euro, the British pound, and the Swiss franc.

Part of the yen’s weakness is attributed to Sunday’s elections. Opinion polls indicate that Japan’s ruling coalition is at risk of losing its majority, a development that could lead to political uncertainty and complicate tariff negotiations with the United States.

Derek Halpenny, Head of Global Markets Research for EMEA at MUFG Bank, said: “If the government loses its majority, breaching the ¥150 level per dollar will be likely,” noting that Monday’s trading could be more affected due to low liquidity resulting from a public holiday in Japan.

Halpenny added: “With most other parties calling for more support for households, speculation about additional fiscal spending is likely to drive a further rise in Japanese government bond yields, and thus more pressure on the yen.”

Trade Tensions with Washington

US tariffs add to the pressure on the yen, as Japan—despite being among the countries Washington had expected to reach an early agreement with—has failed to break the deadlock in negotiations on tariffs on cars and agricultural products.

Japan’s chief trade negotiator, Ryusei Akazawa, held talks with US Trade Secretary Howard Lutnick on Thursday, as Tokyo seeks to avoid the imposition of a 25% tariff by the August 1 deadline.

Dollar Strength

In other currency markets, the euro rose by 0.23% to $1.1624, while the British pound posted slight gains to $1.343. However, both currencies are heading for weekly losses due to strong US economic data, which has led traders to reduce expectations for near-term US rate cuts.

Meanwhile, the US Dollar Index, which measures the greenback’s performance against six major currencies, rose to 98.487 points, up by 0.6% this week after a 0.91% gain last week.

Thursday’s data showed that US retail sales rose more than expected in June, while jobless claims for the week ending July 12 fell to their lowest level in three months.

In addition, earlier data this week showed that US consumer prices rose at the fastest pace in five months in June, prompting a shift in market expectations regarding Federal Reserve decisions.

Traders are currently pricing in a potential 45 basis point cut in US interest rates for the rest of the year, down from around 50 basis points at the start of the week.

Political Uncertainty Still Looms

Despite this strength, uncertainty continues to cloud the dollar, amid concerns over expanded government spending driven by President Donald Trump’s large-scale spending plans and tax cuts, along with his repeated criticism of Federal Reserve Chairman Jerome Powell for not cutting rates.

Despite recent gains, the dollar index remains down by 9.15% since the beginning of the year, following sharp selloffs in March and April when Trump’s erratic trade policies shook confidence in US assets, causing the dollar, Treasury bonds, and US stocks to fall simultaneously.

Other Market Moves

-The Swiss franc recorded a slight move to 0.8026 francs per dollar.

-Bitcoin remained above the $120,000 mark after reaching a historic peak this week at $123,153.22, supported by the US Congress’ passage of a law regulating dollar-linked digital currencies (so-called “stablecoins”).

Gold prices rose in the European market on Friday, resuming gains that had temporarily paused yesterday, moving upward once again toward a three-week high, supported by the halt in the US dollar’s advance in the foreign exchange market.

Economic data released this week in the United States—the world’s largest economy—showed that the US economy remains on solid ground, despite Donald Trump’s trade war with several global economies, as markets await further updates on Washington’s negotiations with many of its trading partners.

The Price

• Gold prices today: Gold rose by 0.35% to ($3,350.45), from the opening level of ($3,339.23), recording a low of ($3,331.92).

• At Thursday’s settlement, gold prices lost 0.25%, as part of a correction and profit-taking move from a three-week high of $3,377.47 per ounce.

The US Dollar

The US Dollar Index fell on Friday by 0.25%, retreating from a three-week high of 98.95 points recorded yesterday, reflecting a pause in the dollar's rally against a basket of major and minor currencies.

Aside from profit-taking, the US dollar is declining as investors refrain from building new long positions, awaiting further updates on the trade negotiations Washington is conducting with several global partners.

US Interest Rates

• Data on Thursday showed US retail sales rebounded more than expected in June, while jobless claims last week fell to their lowest level in three months.

• Earlier in the week, a report showed that consumer prices rose by the most in four months in June, indicating that Donald Trump’s tariffs have started to impact inflation.

• Traders are currently pricing in about 45 basis points of US rate cuts for the remainder of the year, down from nearly 50 basis points at the start of the week.

• According to the CME Group’s FedWatch tool: the pricing of a 25 basis point rate cut at the July meeting is currently steady at 2%, while the probability of keeping rates unchanged is at 98%.

• The pricing of a 25 basis point rate cut at the September meeting is stable at 58%, with the probability of leaving rates unchanged at 42%.

Outlook on Gold Performance

• OANDA’s Asia-Pacific market analyst, Kelvin Wong, said: “We are beginning to see incoming data that still supports a somewhat resilient US economy, and market participants may still be looking at a scenario where the Federal Reserve isn’t expected to be overly dovish.”

• BMI analysts stated in a note: “We expect that interest rate cut announcements by the US Federal Reserve later in 2025 and 2026 will be the key to future gold price increases.”

SPDR Fund

Gold holdings at SPDR Gold Trust—the world’s largest gold-backed exchange-traded fund—fell yesterday by about 2.29 metric tons, bringing the total down to 948.50 metric tons, retreating from the 950.79 metric tons recorded as the highest level since June 30.

The euro rose with the opening of the European market on Friday against a basket of global currencies, in an attempt to recover from a three-week low against the US dollar. However, it remains on the verge of incurring a second consecutive weekly loss amid difficult trade negotiations between the European Union and the United States.

With growing doubts recently about the likelihood of a European interest rate cut at this month’s European Central Bank meeting—especially after key inflation data for June—investors are awaiting more important economic data from the eurozone.

The Price

• Euro exchange rate today: The euro rose against the dollar by 0.35% to ($1.1634), from today’s opening price of ($1.1595), recording a low of ($1.1591).

• The euro ended Thursday’s trading down by 0.4% against the dollar, marking its sixth daily loss in the past seven days, and recorded a three-week low at $1.1556 after strong economic data was released in the United States.

Weekly Trading

Over the course of this week’s trading, which officially ends at today’s price settlement, the euro—Europe’s single currency—is down so far by about 0.5% against the US dollar, on track to record a second straight weekly loss.

The US Dollar

The US currency is heading toward a second consecutive weekly gain against major currencies, supported by some strong US economic data that reinforced the view that the Federal Reserve can afford to wait longer before cutting interest rates again.

Thursday’s data showed US retail sales rebounded more than expected in June, while jobless claims fell last week to their lowest level in three months.

Earlier in the week, a report showed consumer prices rose by the most in four months in June, indicating that Donald Trump’s tariffs have begun to affect inflation.

Traders are currently pricing in about 45 basis points of US interest rate cuts for the remainder of the year, down from nearly 50 basis points at the start of the week.

Trade Negotiations

Trump has threatened to impose 30% tariffs on the European Union and Mexico—two of the United States’ largest trading partners—starting from August 1.

In a swift response, the European Union said it would extend its suspension of countermeasures to US tariffs until early August and would continue to push for a negotiated settlement.

European Interest Rates

• According to some Reuters sources, a clear majority at the latest European Central Bank meeting expressed a preference to keep interest rates unchanged in July, with some calling for a longer pause.

• Money market pricing for the likelihood that the European Central Bank will cut interest rates by about 25 basis points in July is currently steady around 30%.

• To reassess these expectations, investors will closely monitor upcoming economic data from Europe, as well as comments from European Central Bank officials.

The Japanese yen declined in the Asian market on Friday against a basket of major and minor currencies, continuing to move in negative territory for the second consecutive day against the US dollar, and is on the verge of incurring a second straight weekly loss, ahead of the House of Councillors elections in Japan during the weekend.

Data showed a slowdown in core inflation in Japan, which reduced inflationary pressures on monetary policymakers at the Bank of Japan, leading to a decline in the likelihood of a rate hike in July.

The Price

• The dollar rose against the yen by about 0.1% to (¥148.71), from today’s opening price of (¥148.60), recording a low of (¥148.30).

• The yen lost 0.5% against the dollar at Thursday’s settlement, resuming losses that had paused the previous day as part of a recovery from a three-month low of ¥149.19.

Weekly Trading

Over the course of this week’s trading, which officially concludes at today’s price settlement, the Japanese yen is down so far by about 0.85% against the US dollar, and is on track to record a second consecutive weekly loss.

Japanese Elections

On July 20, Japan will hold House of Councillors elections, where 124 out of 248 members will be elected for six-year terms. These elections are considered a key indicator of the ruling government's popularity.

This is especially significant after the October 2024 House of Representatives elections, in which the ruling coalition (the Liberal Democratic Party and Komeito) lost its majority, potentially affecting the dynamics of the upcoming elections.

The latest opinion polls in Japan showed that Prime Minister Shigeru Ishiba’s coalition is at risk of losing its majority in the House of Councillors.

Trade Negotiations

Japan’s chief trade negotiator, Ryusei Akazawa, held talks with US Trade Secretary Howard Lutnick on Thursday regarding tariffs, as Tokyo strives to avoid the imposition of a 25% tax unless an agreement is reached by the August 1 deadline.

Core Inflation

Data released today in Tokyo showed that Japan’s core Consumer Price Index rose by 3.3% in June, below market expectations of a 3.4% increase. The index had risen by 3.7% in June, the highest level since January 2023.

Undoubtedly, the slowdown in prices reduces inflationary pressures on monetary policymakers at the Bank of Japan, thereby diminishing the chances of interest rate hikes in the second half of this year.

Japanese Interest Rate

• Following the above data, the pricing of the likelihood that the Bank of Japan would raise interest rates by a quarter percentage point in the July meeting declined from 45% to 35%.

• To reassess those expectations, investors are awaiting the release of further data on inflation, unemployment, and wages in Japan.