### United States
After a solid recovery yesterday, the US dollar experienced some initial follow-through buying but has since reversed lower, erasing part of its gains against the G10 and most emerging market currencies. A key focus today is the upcoming trade talks between the US and China scheduled for tomorrow. Despite high mutual tariffs that still remain prohibitive even if halved, China has managed to more than compensate for reduced US demand with exports increasing to other regions. However, questions remain about the US’s ability to replace Chinese supply, with reduced container shipments hinting at challenges. The US economic calendar includes appearances from nine Federal Reserve officials, but expectations for any significant shift towards an imminent rate cut are subdued. Meanwhile, US Treasuries faced a sharp sell-off yesterday, raising yields today. The 10-year US Treasury yield remains relatively stable near 4.37%.
### Eurozone
The euro has dipped, breaking out of a previously choppy consolidation range. It briefly dropped below $1.12 for the first time since April 11 but recovered to $1.1260. This area now presents resistance, and without a stronger rebound, the euro is set to close lower for the third consecutive week. On the economic front, outside of Germany’s ZEW survey scheduled for next week, the macroeconomic calendar is sparse, focusing on Q1 data in the coming days.
### United Kingdom
Sterling showed signs of forming a top pattern after breaking down yesterday. It fell to around $1.3210 before slightly recovering past $1.3270. A close above $1.3260 could indicate further consolidation. The Bank of England, as anticipated, cut rates by a quarter-point (to 4.25%), suggesting a gradual easing pace. The market foresees the year-end base rate around 3.64%, a drop from the current 4.25%. The UK will report on employment data and Q1 GDP next week, expecting an economic expansion of roughly 0.3% after stagnation in the latter half of 2024.
### China
Amid the dollar’s broad recovery, it rose to approximately CNH7.2470 yesterday and nearly reached CNH7.2530 today. The next significant technical level is around CNH7.26, just shy of CNH7.30. For the second session in a row, the PBOC set a slightly higher dollar fix (CNY7.2095 from yesterday’s CNY7.0273), suggesting an openness to a stronger dollar and weaker yuan. Following a 21% decrease in exports to the US in April, China’s overall exports rose by 8.1%, with an uptick in trade with India, Southeast Asia, and the EU. Imports from the US fell by nearly 14%, while overall they decreased by only 2%. China is anticipated to report April CPI and PPI early Saturday, with the CPI expected to remain steady at -0.1% according to Bloomberg’s survey.
### Japan
The dollar achieved its highest close in nearly a month yesterday, settling around JPY145.90. Though unable to surpass yesterday’s high near JPY146.20, it retreated to nearly JPY145.00, where a close below JPY145 could weaken its technical outlook. Japan’s growth in labor cash earnings slowed (2.1% in March from 2.7% in February), with inflation-adjusted real cash earnings falling 2.1% year-over-year. Household spending, however, jumped 2.1% in real terms year-over-year, exceeding expectations. Japan is set to report its first estimate of Q1 GDP next week, with expectations of a 0.1% contraction.
### Canada
The US dollar appreciated to almost CAD1.3935 yesterday, its highest point since mid-April, before retreating to CAD1.3910 during European turnover. The next technical target is near CAD1.40, involving the 200-day moving average. Despite uncertainties surrounding the upcoming central bank meeting on June 4, a stable April employment report is expected after Canada’s employment dipped by 32.6k in March.
### Australia
Following a key reversal on Wednesday and subsequent selling yesterday, the Australian dollar hovered around the $0.6400 mark, dipping briefly to nearly $0.6370. The 20-day moving average sits at this level, indicating critical support. Upcoming reports next week include confidence surveys and indices on wages, labor costs, and productivity. The highlight will be the April employment report, coming next Thursday. Full-time employment increased by 9k in Q1 2025, with the unemployment rate recorded at 4.1% in March.
### Mexico
The Mexican peso remains resilient, often climbing alongside the S&P 500. The rolling 30-day correlation between their movements is nearing 0.65, suggesting a strong connection. The dollar rose slightly above MXN19.78 on Tuesday without follow-through, retreating to MXN19.50 today. Despite intraday breaches last month, the dollar hasn’t closed below MXN19.50 since October. Mexico reported increases in both headline and core CPI measures last month, yet the central bank is likely to proceed with another 50 bp rate cut next week. April’s vehicle production and export data are due today. In March, 88% of Mexico’s auto production was exported.
