# United States
The ongoing saga of US tariffs took a dramatic turn as President Trump announced an aggressive 50% tariff on copper, causing the price of the red metal to surge by more than 13%. There is an imminent threat of 200% tariffs on pharmaceuticals as well. Additional sectoral investigations are anticipated to conclude by the end of the month. The challenge remains in defining “transshipments” and determining how much domestic input is essential, leaving many questions unanswered. Despite copper’s slight pullback today, capital markets have remained relatively unshaken. The dollar is showing mixed results against G10 currencies, mostly staying within yesterday’s ranges. Among emerging market currencies, the Russian ruble and the Mexican peso are notable exceptions, with the peso reaching an impressive level not seen since last August.
In the Asia Pacific region, stock markets delivered mixed results, with gains recorded in large bourses like Japan, South Korea, and Taiwan, while declines were observed in China, Hong Kong, Australia, and New Zealand. In Europe, Stoxx 600 has increased for the third consecutive session, hinting at the longest positive streak in a month. US index futures are stable, with steady anticipation for the $39 billion sale of 10-year Treasury notes. Gold has been trending lower, reaching a new seven-day low slightly below $3,283 today, with near-term risks extending to $3,250. West Texas Intermediate (WTI) oil experienced a minor rise, climbing to nearly $69, approaching the 38.2% retracement of the downturn from the June 23 high near $78.40.
The Dollar Index initially took a hit following the first wave of tariff notifications, but in Europe, it rebounded and retained momentum through the North American morning, reaching approximately 97.85. This placed it near the 20-day moving average and approaching the 50% retracement from the downswing starting on June 23, at around 97.90. There’s a potential for further downside in North America, with an initial break of 97.40 possibly leading to 97.20. Today’s US economic schedule features wholesale trade and inventories, minutes from the previous FOMC meeting, and a $39-billion 10-year note sale. Wholesale inventories surged sharply in Q1, partly in anticipation of US tariffs and recovery from a cumulative decline over 2023 and 2024, with some of the Q2 decline potentially shifting to retail. Inventories often represent a volatile GDP component, captured as investment.
The FOMC minutes could offer insights, revealing that while the median “dot” still anticipates two rate cuts this year, the range of views has increased. However, market sentiment appears aligned with the Fed’s outlook, as futures markets have priced in nearly two cuts.
# Eurozone
The euro briefly hit a new seven-day low yesterday, slightly below $1.1685, where the 38.2% retracement of the euro’s rally since the June 23 low is found. Currently, the euro is holding above $1.1700, lacking momentum to rise above $1.1730. The next retracement (50%) and the 20-day moving average are close to $1.1640. Even absent the US’ provocation, the EU’s relations with China have worsened. Reports last week suggested Beijing might cancel the second day of a previously planned summit for July 24-25. Reciprocal trade restrictions have been announced concerning medical device procurement along with other trade tensions. China’s support to Russia is creating friction with the EU. Reports indicate a brief thawing opportunity existed between Europe and China. In crude terms, it is an exchange of Taiwan for Ukraine and improved trade deals. However, it’s suggested that China cannot allow Russia to lose in Ukraine, as it would shift US focus entirely towards China. Simultaneously, Europe cannot permit a Russian victory without risking repeated intimidation and appeasement of a territorially aggressive nation. Though Europe doesn’t typically exert its influence in the Pacific, recent reports suggest the UK, France, and Italy are coordinating deployments of aircraft carriers in the Indo-Pacific region.
# United Kingdom
The British pound briefly dipped below the 61.8% retracement objective of the rally from the June 23 low, around $1.3530, before recovering close to $1.3600. Today, it’s trading quietly, ranging between $1.3565 and $1.3610. Immediate resistance lies in the $1.3640-50 area. The 10-year UK Gilt yield has risen to its highest point in a month at approximately 4.65%. As former Prime Minister Truss commented, current yields surpass those seen during the September 2022 crisis. This year’s downtrend line could reach 4.75% by week’s end. Paradoxically, a lackluster May GDP report on Friday might not sufficiently cap yields, as weaker growth could expand the deficit as a GDP percentage, increasing supply risks.
# China
The greenback nearly reached CNH7.1855 yesterday, its highest since June 23, settling above the 20-day moving average (~CNH7.1760) for the second consecutive session. The June 23 high of CNH7.1925 is the forthcoming target, with today’s trading climax near CNH7.1880. It’s been since June 3 that the dollar traded above CNH7.20. Remarkably, the People’s Bank of China set the dollar’s reference rate higher for a second consecutive session (CNY7.1541 vs. CNY7.1534). China’s June CPI showed a 0.1% annual rise after three months of -0.1%. However, the weak demand narrative can be misleading. Certain CPI components like food (-0.3% year-over-year) are influenced more by supply than demand. Food prices last surged year-over-year in January. Services prices increased by 0.5% and haven’t declined since February. Core prices, devoid of food and energy, rose by 0.7%. Earlier this week, Switzerland reported a 0.6% increase in core prices for June, year-over-year.
Producer-price inflation deepened, with a 3.6% drop year-over-year (-3.3% in May), marking the largest decline since July 2023. The narrative of under-consumption is gradually being replaced by over-investment. The under-consumption story often confuses consumer goods with capital equipment. Boosting household consumption may not readily absorb extensive steel or concrete output. Chinese companies often compete on market share rather than profit, potentially due to access to affordable capital from state-owned banks, contrasting the impatient market-driven capital focused on quarterly returns.
# Japan
The dollar reached its highest point against the Japanese yen since June 23, around JPY147.20, but has since retraced to session lows near JPY146.55 during the European morning. Breaking this level could see the yen fall to JPY146.20. The consensus suggests the dollar’s decoupling from interest rates. However, on July 1, the US dollar bottomed near JPY142.70, coinciding with the US 10-year yield falling below 4.20% for the first time in two months. The yield peaked at 4.43% yesterday, the highest since June 20. The rolling 30-day correlation between exchange rate changes and the US 10-year yield attained nearly 0.60, a three-month high, after bottoming below 0.10 on May 20.
Despite soaring long-term Japanese rates over the past 5-6 sessions (albeit consolidation today), the yen didn’t see significant support. Japanese real wages dropped by 2.9% over the year through May, matching the largest decline since April 2023. Rates at the long end of the Japanese yield curve surged after a quiet June. The 30-year yield was around 2.85% last Thursday, reaching 3.10% yesterday (~3.06% today), with May’s peak near 3.20%. Last Wednesday, the 40-year yield was nearly 3.05%. It reached about 3.40% yesterday (~3.36% today), with the highest in May being almost 3.70%. Inflation persists at an elevated 3.5% as of May.
# Canada
The US dollar maintained its strength against the Canadian dollar yesterday, holding around CAD1.3940 while reaching almost CAD1.3695. The 50% retracement of losses since the June 23 high lies at CAD1.3680. The 61.8% retracement slightly exceeds CAD1.3700. Today, the greenback is firm (~CAD1.3660-CAD1.3695). A surprisingly strong IVEY PMI (53.3 vs. 48.9) contrasts the S&P PMI, where all three readings—manufacturing, services, and composite—declined further below the 50 boom/bust threshold. Attention now turns to Friday’s June labor market report.
Trump’s recent announcement of a 50% copper tariff has significant implications. Canada, being the second largest supplier of US-imported copper (holding around a 16.5% market share, trailing Chile’s 70%), will see direct impacts. Given copper’s commodity nature, the tariff is unlikely to boost domestic production but will serve as revenue.
# Australia
The Reserve Bank of Australia’s unexpected decision to maintain interest rates steady at yesterday’s meeting propelled the Australian dollar to nearly $0.6560. However, it failed to trade above $0.6550 in Europe or North America, eventually relinquishing all gains following the RBA’s decision, falling slightly below $0.6510. Today, $0.6510 holds, with the Aussie ascending to $0.6545 amid consolidation.
# Mexico
Early dollar upticks to nearly MXN18.74 were met with new peso-for-dollar trades. The greenback slid to MXN18.60, about MXN18.5850, hitting its lowest since last August. Today, a slight new low near MXN18.5775 emerged. The lower Bollinger Band is about MXN18.5160, while the next chart focus is near MXN18.40. Mexico’s June CPI is set for release today, with forecasts hinting at a slight decrease to 4.3% from 4.42%. The core rate might rise to 4.22% from 4.06%, marking the first headline rate decline since January if accurate. On the flip side, an increasing core rate would elevate it to the highest level since last April.
Brazil reported a surprising 0.2% drop in May retail sales following a 0.3% decline in April. Brazil’s June IPCA CPI, expected to remain around 5.3% year-over-year, will be announced tomorrow. On Monday, the dollar appreciated against BRL, but the lower end of the gap, Monday’s low (~BRL5.390), was breached, with a low recorded near BRL5.4355. The gap’s bottom, last Friday’s high (~BRL5.4260), is the next prospective target ahead of BRL5.40, which remained intact last week, the lowest since last September.
