United States
The US dollar has recovered from yesterday’s losses during North American afternoon trading, establishing a firmer bias across the session. The greenback’s strength reflects a mixed backdrop of economic data and shifting market sentiment around geopolitical developments. The currency has demonstrated resilience despite competing crosscurrents, with weakness in employment readings and preliminary PMI estimates providing some counterweight to broader dollar strength.
A substantial decline in US 10-year Treasury yields yesterday—approximately 8.5 basis points, marking the largest single-day drop since February 5—initially pressured the dollar but has not derailed its recovery. The 10-year yield has settled near 4.57%, remaining relatively stable after the sharp move. This yield compression reflects flight-to-safety positioning and reduced expectations for aggressive monetary policy tightening in the near term.
Market participants are bracing for a data-heavy session featuring several critical economic releases. Within a compressed 75-minute window, the US will report weekly jobless claims, April housing starts and permits, the May Philadelphia Fed business survey, and the preliminary PMI across manufacturing and services. Housing starts are anticipated to show a slowdown following a robust 10.8% increase in March, suggesting potential normalization in the construction sector. While the US economy appears to be re-accelerating this quarter, this improvement may not be fully captured in either the Fed survey or the composite PMI readings. The Atlanta Fed’s GDPNow model currently tracks US economic growth at 4% annualized for the current quarter, which—if accurate—would represent the strongest performance since the end of 2021.
The employment backdrop has turned decidedly weaker, with poor readings dampening sentiment around labor market resilience. This weakness has contributed to the Australian dollar’s pronounced underperformance, despite its leadership position among G10 currencies on the previous session. The combination of softer employment data and disappointing PMI estimates has reinforced expectations that the Fed may maintain a patient approach to rate policy, supporting the recent decline in longer-dated Treasury yields.
The Broad Dollar Index reflects the greenback’s mixed performance, with strength against certain currencies offset by weakness against others. The dollar’s trajectory will likely depend on how today’s economic releases are received and whether they shift expectations regarding the Fed’s forward guidance or policy trajectory.
Eurozone
EUR/USD has demonstrated notable volatility, testing critical support levels before recovering to fresh session highs amid shifting geopolitical sentiment. The euro initially probed the lower end of the established support zone near $1.1580–$1.1600 before mounting a recovery that carried it to new session highs around $1.1645. This rally was fueled by optimism surrounding President Trump’s indication that negotiations with Iran have entered their final stages, which triggered a sharp reversal in oil prices and a decline in interest rates globally.
The sense of relief proved temporary, however. As North American trading progressed, the euro settled into a consolidation pattern, oscillating mostly between $1.1620 and $1.1640 with a distinctly sideways character. The day’s session low, posted near $1.1595 following disappointing French PMI data, was quickly recovered as German figures arrived shortly thereafter. The euro subsequently stalled near $1.1635, suggesting sellers remain active at elevated levels.
Eurozone economic data has painted a picture of an economy losing momentum. The flash PMI estimates for May revealed concerning softness across the region’s two largest sectors. Manufacturing activity ticked down to 51.4 from 52.2, while services contracted sharply to 46.4 from 47.6. The composite PMI slipped to 47.5 from 48.8, marking the second consecutive month below the 50 boom-bust threshold—a significant deterioration from the entire prior year spent above this critical level. This weakness reflects the ongoing impact of geopolitical tensions on business activity and pricing pressures throughout the region.
In a separate release, the eurozone reported a March current account surplus of €14.86 billion. The first-quarter surplus totaled €80.6 billion compared with approximately €75 billion in Q1 2025 and nearly €117 billion in Q1 2024, indicating a year-over-year decline in the external surplus. This data suggests some softening in Europe’s external position, though the focus has remained squarely on the deteriorating PMI readings and their implications for ECB policy.
The ECB’s policy stance remains data-dependent, with the weak PMI likely reinforcing expectations for continued accommodative conditions. The euro’s technical backdrop suggests consolidation is likely to persist unless a clear directional catalyst emerges, with the $1.1580–$1.1650 range representing the current equilibrium zone.
United Kingdom
Sterling has demonstrated impressive resilience over recent sessions, posting an outside up day on Monday, consolidating on Tuesday, and posting another outside up day yesterday. The currency has traded on both sides of Tuesday’s range and settled above it, establishing a pattern of sustained strength. GBP/USD reached a new four-day high near $1.3465 during the session, with the session low near $1.3415 quickly recovered before the release of soft PMI data.
The cable subsequently recorded its session high shortly after the PMI release, around $1.3455, before stalling precisely where approximately GBP935 million in options expire today. This technical level represents a significant flashpoint for intraday trading activity. The 50% retracement of losses since the month’s high on May 1 is positioned near $1.3480. A decisive move above this level could target the $1.3510–$1.3520 area next, representing the next meaningful resistance zone.
The UK’s preliminary PMI for May has reinforced concerns about economic momentum. Following an already disappointing employment report earlier in the week, the PMI data showed an economy losing forward traction. While Q1 growth of 0.6% matched the strongest quarterly performance since Q1 2024, the May PMI readings suggested this momentum has stalled. The manufacturing PMI remained unchanged at 53.7, but the services PMI experienced a dramatic contraction to 47.9 from 52.7. The composite PMI fell sharply to 48.5 from 52.6, marking a concerning deterioration from the 51.4 level posted at the end of last year.
This economic softness presents a mixed picture for the Bank of England. While the weak data might suggest room for rate cuts, sterling’s continued strength suggests investors are not yet pricing in aggressive easing. The technical setup in cable remains constructive for the currency, with the option expiry at $1.3455 likely to influence near-term price action and create a focal point for traders managing exposure ahead of the print.
China
The offshore yuan has traded mostly sideways against the US dollar so far this week, with the trading range confined to approximately CNH6.7960 and CNH6.8215. USD/CNH is currently positioned in the lower end of this established range, reflecting modest pressure on the greenback relative to the Chinese currency. This consolidation pattern suggests a period of equilibrium between buyers and sellers, with neither side commanding decisive control.
The People’s Bank of China’s actions have provided important insight into official thinking regarding currency management. After raising the dollar’s reference rate for the third time in four sessions yesterday, the PBOC opted to lower the daily fixing today to a new multiyear low of CNY6.8349. This reversal suggests that the weakness of the dollar may have encouraged Chinese authorities to ease pressure on the yuan, potentially signaling satisfaction with the currency’s recent performance or concerns about excessive depreciation. The decision reflects the central bank’s careful calibration of exchange rate policy amid competing objectives around capital flows, competitiveness, and financial stability.
The PBOC’s shift in approach underscores the nuanced nature of Chinese currency management, where officials seek to maintain a balance between supporting exporters and preventing excessive volatility. The multiyear low in the reference rate represents a notable milestone and suggests the central bank may be comfortable with yuan strength at current levels.
Japan
USD/JPY has demonstrated a consolidation pattern around the psychologically significant JPY159 level, with the greenback straddling this area throughout the session. The dollar reached a two-day low near JPY158.60 yesterday before recovering to almost JPY159 in afternoon turnover. Currently, the greenback is trading in a subdued range between JPY158.80 and JPY159.10, reflecting a period of equilibrium despite the elevated level.
Japanese rhetoric regarding currency intervention has not escalated, despite the yen’s recent weakness. This measured approach suggests Japanese authorities are not yet compelled to take aggressive action to defend the currency, though the risk of intervention remains elevated given the psychological importance of the JPY159 level. Market participants remain vigilant for any signs of official commentary or action that could trigger a sharp reversal.
The yen itself demonstrated notable strength yesterday, appreciating for the first time in eight sessions. This reversal coincided closely with the sharp decline in US 10-year Treasury yields, which fell approximately 8.5 basis points—the largest single-day drop since February 5. The inverse relationship between yen strength and US yields reflects the carry trade dynamics that have dominated recent currency movements, with lower US rates reducing the incentive to maintain dollar-long positions funded by yen borrowing.
Japan’s economic data has provided a mixed backdrop for the currency. April’s trade balance narrowed by half compared with March, reflecting a seasonal pattern that has historically occurred in 16 of the past 20 years. Through April, Japan recorded a JPY184 billion trade deficit compared with a JPY1.8 trillion deficit in the first four months of 2025, representing a significant improvement in the external position. However, the IMF projects Japan’s current account surplus to decline to 3.8% of GDP this year from 4.9% last year, suggesting a structural deterioration in the external balance.
The preliminary May PMI showed a slowdown from April’s pace. Both manufacturing and services PMI readings declined but remained above the 50 boom-bust threshold. The composite PMI fell to 51.1 from 52.2 in April and an average of 53.3 in Q1 2026, indicating moderating but still-positive momentum. While PMI data does not typically draw significant attention in Japan, the modest slowdown is consistent with broader global trends reflecting geopolitical pressures and economic caution.
JGB yields have moved lower in sympathy with the decline in US Treasury yields, with the 10-year Gilt yield off more than four basis points. This decline reflects both the global risk-off sentiment and the carry trade unwind dynamics that have supported yen strength.
Canada
USD/CAD has demonstrated particular strength, with the Canadian dollar proving to be the only G10 currency that did not appreciate against the US dollar yesterday. The greenback reached almost CAD1.3780, marking a new high since April 15 and reflecting persistent dollar strength in North American trading. For the past four consecutive sessions, the US dollar has traded above CAD1.3760, which represents approximately the 50% retracement of the sell-off that followed the year’s high posted at the end of March near CAD1.3965. However, the greenback has not yet settled above this critical level, suggesting resistance remains entrenched.
The loonie’s underperformance relative to other G10 currencies reflects the combination of broad dollar strength and softening commodity prices, particularly oil. Even the Norwegian krone, which typically demonstrates higher correlation with crude oil prices, managed to post a small gain of approximately 0.10% yesterday. This relative outperformance by commodity-linked currencies suggests that oil’s decline was not sufficient to overcome the broad dollar rally, highlighting the dominance of US dollar dynamics in the current market environment.
USD/CAD is currently trading inside yesterday’s range but with a firmly positive bias. The market may attempt another run at chart resistance in the CAD1.3800–CAD1.3815 area, representing the next meaningful technical hurdle. A break above this zone could open the door to further greenback strength, while a failure to sustain above these levels might trigger consolidation or a pullback toward the CAD1.3760 level.
The Bank of Canada’s policy stance and upcoming economic data releases will likely influence the loonie’s trajectory. Canadian GDP data and any commentary from central bank officials regarding monetary policy will be critical in determining whether the recent dollar strength persists or whether a reversal takes hold.
Australia
The Australian dollar has rebounded smartly from recent weakness, posting a nearly 0.65% gain that placed it atop the G10 performers. After posting its lowest settlement in a month on Tuesday slightly above $0.7105, the aussie rallied to almost $0.7175, coming within a few hundredths of a cent of Tuesday’s high. The currency is currently trading well within this week’s range, confined to the $0.7100–$0.7160 band, suggesting a period of consolidation following the recovery.
The rebound in the aussie comes despite disappointing economic data released earlier today. Australia reported both the preliminary May PMI and April employment figures, with both sets of data showing material weakness. The PMI softened considerably, with manufacturing easing to 50.2 from 51.3 and services contracting to 47.7 from 50.7. The composite PMI fell to 47.8 from 50.4, though it held well above the shockingly poor March reading of 46.6, which now appears to have been an anomalous data point.
The employment report was particularly concerning. The unemployment rate jumped to 4.5% from 4.3%, while the participation rate slipped to 66.7% from 66.8%. Most significantly, Australia lost 18.6k jobs in April against a median forecast in Bloomberg’s survey for a gain of 15k. The March series was revised to show 23.3k jobs were created versus the initially estimated 17.9k. Full-time positions slipped by 10.7k after rising by a revised 63.4k in March, suggesting a deterioration in employment quality as well as quantity.
This weak employment data has dampened sentiment around the Australian currency, contributing to its earlier underperformance as the weakest G10 currency after leading the pack on the previous session. However, the technical rebound suggests that oversold conditions may have attracted buyers back into the currency. A convincing move above $0.7200 would suggest that the downside correction may have run its course and could open the door for further recovery. Until this level is decisively breached, however, the technical picture remains mixed and subject to reversal.
Emerging Markets
The Mexican peso benefited from three converging factors yesterday that favored emerging market currencies broadly. First, the US dollar was trading with general weakness, and the JPMorgan Emerging Market Currency Index posted gains. Second, US interest rates fell, reducing the carry advantage of dollar positions. Third, risk-on sentiment dominated markets, with strong gains recorded in US equities providing tailwinds for risk assets and emerging market currencies.
USD/MXN initially set a new two-week high slightly above MXN17.43 before reversing sharply lower. The dollar fell to almost MXN17.26, slightly penetrating Tuesday’s low and reflecting the strength of the peso rally. The broad consolidation pattern has persisted, with the dollar currently trading between MXN17.29 and MXN17.3650 so far today. This range-bound behavior suggests that neither bulls nor bears have established decisive control, with the market awaiting fresh catalysts to break the equilibrium.
A significant development that drew limited market reaction was Moody’s decision to cut Mexico’s sovereign rating to Baa3, matching Fitch’s earlier downgrade. Standard & Poor’s remains one notch better at BBB, suggesting some divergence in rating agency assessments. The muted response to this credit event suggests that the market had largely priced in the possibility of a downgrade, or that near-term economic and currency dynamics are not being materially influenced by the rating action.
The Indian rupee has demonstrated extreme volatility, with the Reserve Bank of India intervening more aggressively today to support the currency, including reportedly conducting operations in the offshore market. These interventions, combined with repeated threats of additional policy actions to stem rupee weakness—including the prospect of rate hikes—have triggered a sharp short squeeze in the currency. USD/INR gapped lower today after posting a record high yesterday near INR96.9650. The dollar has fallen to the low of the week near INR96.04, representing a dramatic reversal from yesterday’s extremes and suggesting that RBI intervention and hawkish rhetoric have succeeded in dislodging speculative short positions.
The aggressive stance by Indian authorities reflects concerns about rupee weakness and its potential implications for inflation and financial stability. The combination of direct intervention and policy threats appears to have shifted market dynamics sharply, though the sustainability of this move will depend on whether the RBI maintains its aggressive posture and whether fundamental factors supporting rupee strength materialize.
Global Markets
Equity markets have demonstrated resilience, with the rally in US equities and favorable market response to Nvidia’s earnings helping to arrest a four-day slide in the MSCI Asia Pacific Index. Most of the large bourses outside China and India posted gains, reflecting broad-based risk-on sentiment. In Asia, notable developments included a last-minute deal between Samsung and its employees that avoided a strike, and a South Korea-flagged oil tanker successfully transiting the Strait of Hormuz yesterday, both of which supported sentiment in the region.
The Kospi rallied by nearly 8.5% following the Samsung labor agreement, reflecting relief that a potential supply chain disruption has been averted. Taiwan’s Taiex jumped almost 3.4%, benefiting from both regional risk-on sentiment and technology sector strength. Japan’s Nikkei gained a little more than 3%, extending the positive momentum in Asian equities. Europe’s Stoxx 600 is rising for the fourth consecutive session, and if this advance is sustained, it would match the longest winning streak of the year, suggesting building momentum in European equity markets. US index futures are narrowly mixed, indicating that overnight Asian and European gains may face consolidation when US trading commences.
Benchmark 10-year Treasury yields fell sharply yesterday during Europe’s afternoon trading, with most yields declining between 9 and 13 basis points. The UK, Italy, and Greece led the decline with 13–14 basis point drops, reflecting both the geopolitical news regarding Iran negotiations and broader flight-to-safety positioning. The 10-year US Treasury yield fell a little more than nine basis points to 4.57%, representing a significant move in a single session. Asia Pacific bond markets have played catch-up today, while European bond yields have edged lower, with the 10-year Gilt yield off a little more than four basis points. The 10-year US Treasury yield remains near 4.57%, having stabilized following yesterday’s sharp move.
Precious metals have demonstrated mixed technical action. Gold made a marginal new low yesterday since the end of March near $4,475 and subsequently set a new session high shortly before midday in New York at a little below $4,553. The precious metal reached almost $4,571 today before being turned back. For confidence that a low is in place, gold needs to overcome the $4,590–$4,600 area, representing the next significant technical hurdle. Silver held above Tuesday’s low of approximately $73.10 yesterday and settled around 3.25% higher. It reached nearly $77 but is now slightly lower on the day. A move above the $80–$81 area would lift the technical tone and suggest that the precious metals complex is shifting to a more constructive technical setup.
Oil prices have experienced notable volatility, with July WTI tumbling from almost $103 to $97 in the first hour after President Trump’s comments regarding Iran negotiations broke market news. The contract subsequently consolidated choppily for the remainder of the session and posted its lowest settlement in four sessions. WTI is currently consolidating in the lower end of yesterday’s range, having been capped a little above $100 and finding support near $97.25. The 20-day moving average is positioned a little below $97, and notably, crude has not settled below this level for a month, suggesting it may provide meaningful support. Brent crude is trading with a slightly heavier tone today, reflecting the same geopolitical dynamics affecting WTI.
The Strait of Hormuz situation remains a key focus for oil markets, though there have been no further developments to fuel optimism about the waterway’s opening. Polymarket probability assessments show little change, with the prediction market indicating approximately a 35% chance that the Strait is open by the end of next month and a 47% chance it opens by the end of July. This modest probability assessment continues to support a risk premium in oil prices, though the recent news about Iran negotiations has temporarily reduced this premium. Most preliminary May PMI estimates have shown the impact of geopolitical tensions with softer readings and higher prices reflected across the manufacturing and services sectors globally.
