Dollar falls against yen as markets weigh new trade deal, Japanese politics

By Alun John, Gertrude Chavez-Dreyfuss and Chibuike Oguh

LONDON/NEW YORK (Reuters) -The U.S. dollar strengthened against the Swiss franc and euro but weakened versus the yen on Wednesday as positive sentiment from a new U.S. trade deal was offset by political uncertainty surrounding Japanese Prime Minister Shigeru Ishiba's future.

President Donald Trump announced a trade deal on Tuesday with Japan, which lowers tariffs on auto imports to 15% in exchange for a $550 billion package of U.S.-bound investment and loans. It is the most significant of a clutch of agreements that Trump has bagged since unveiling sweeping global levies in April.

The dollar gained against the Swiss franc, on track to snap three straight sessions of losses. It was last up 0.24% to  0.79425.

Wall Street's main indexes were all advancing while U.S. Treasury yields rose.

The greenback weakened against the yen, hitting its lowest level since July 11 at 146.20 per dollar after reports that Ishiba intends to step down next month following a bruising upper house election defeat.

Ishiba denied the reports that he had decided to resign, calling them "completely unfounded." The yen was last down 0.06% at 146.565 yen.

"The main thing driving USD/JPY has to do with political anxiety as it looks like the prime minister is feeling some pressure to consider resigning," Juan Perez, senior director of trading at Monex USA in Washington, told Reuters in a statement.

"This deal helps automakers, for now, but leaves markets also wondering if at any point tariffs can be increased since they will not go away as tools for negotiating anything and everything. Japan, an advanced economy agreeing to new terms for trade does leave concern that successful tariff use will give incentive to keep using their threat."

The European Union and the U.S. are heading towards a trade deal that would result in a broad tariff of 15% on EU goods imported into the U.S., two diplomats told Reuters. The deal would mirror a similar agreement the U.S. struck with Japan.

The euro pared earlier losses and was up 0.08% against the dollar at $1.176250,.

The U.S. dollar has been one of the biggest losers among major currencies since Trump announced sweeping tariffs on trading partners on April 2. The weakness continued as those duties were suspended to allow further negotiations, but has steadied this month.

The August 1 deadline for tariff deals still looms for many countries and investors remain cautious on how it will play out.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.14% to 97.33, on track for four straight sessions of losses.

"I think what the market is expecting is that there will be a blanket tariff of a certain amount: let's just say 10% or so, and that has been set in place for quite a while. And I believe that it's discounted," said Jeff Young, head of investment strategy, at PGIM Quantitative Solutions in New Jersey.

"The effect on the dollar is going to be ... folded into the overall macro picture. And I think it's going to be difficult to disentangle the exact impact of the tariff versus all the other things that are affecting the currency because I do think that a lot of that is pretty much already discounted."

Sterling was up 0.26% at $1.35690.

The Aussie hit an eight-month high and was last up 0.4% at U.S.$0.6584.

Currency              

bid

prices

at 23

July​

05:27

p.m. GMT

Descript RIC Last U.S. Pct YTD High Low

ion Close Chang Pct Bid Bid

Previous e

Session

Dollar 97.272 97.462 -0.18 -10.34 97.612 97.

index % % 272

Euro/Dol 1.1763 1.1755 0.06% 13.61% $1.176 $1.

lar 5 171

1

Dollar/Y 146.48 146.645 -0.08 -6.88% 147.21 146

en % 5 .15

Euro/Yen 172.36​ 172.33 0.02% 5.6% 172.74 171

.38

Dollar/S 0.7938 0.7924 0.22% -12.5% 0.7949 0.7

wiss 913

Sterling 1.3567 1.3534 0.26% 8.49% $1.357 $1.

/Dollar 7 351

7​

Dollar/C 1.3612 1.3605 0.07% -5.32% 1.3628 1.3

anadian 576

Aussie/D 0.6587 0.6556 0.48% 6.45% $0.660 $0.

ollar 1 655

1

Euro/Swi 0.9338 0.931 0.3% -0.62% 0.9339 0.9

ss 294

Euro/Ste 0.8667 0.8683 -0.18 4.76% 0.8687 0.8

rling % 648

NZ 0.6035 0.6003 0.52% 7.84% $0.604 0.5

Dollar/D 7 997

ollar

Dollar/N 10.1092 10.067 0.42% -11.06 10.127 10.

orway ​ % 053

5

Euro/Nor 11.8906 11.8338 0.48% 1.03% 11.897 11.

way 803

Dollar/S 9.509 9.5065 0.03% -13.69 9.5357 9.4

weden % 766

Euro/Swe 11.1863 11.1749 0.1% -2.45% 11.196 11.

den 5 129

(Reporting by Alun John in London and Gertrude Chavez-Dreyfuss and Chibuike Oguh in New York; Additional reporting by Rocky Swift in Tokyo; Editing by Shri Navaratnam, Jacqueline Wong, Kim Coghill, Sharon Singleton, Philippa Fletcher, Ed Osmond and Deepa Babington)