United States
The greenback entered the session with considerable momentum following yesterday’s Federal Reserve decision, which the market interpreted as a hawkish hold despite the committee’s neutral language. The three dissenting votes in favor of maintaining a neutral bias were read by traders as a hawkish signal, prompting broad-based dollar strength. However, follow-through selling has been minimal this morning, and the greenback is now displaying a softer profile as participants digest the implications of the Fed’s stance alongside a crowded economic calendar.
The dollar index remains elevated but lacks the conviction seen in yesterday’s rally. The key driver of recent dollar dynamics has been the sharp rise in US Treasury yields, with the 30-year yield touching 5% for the first time since July 2024—a development that has supported the greenback despite the modest pullback in the currency itself this morning. The 10-year Treasury is currently trading a few basis points softer, straddling the 4.40% level, suggesting some profit-taking in fixed income after the recent surge.
Today’s US economic calendar is exceptionally dense and will dominate market sentiment. The March PCE deflator is expected to rise by 0.7%, which would lift the headline pace to 3.5% from 2.8%. The core rate is forecast to increase by 0.3%, bringing the year-over-year rate to an estimated 3.5% from 3.0%. These readings will be overshadowed, however, by the first estimate of first-quarter GDP. The median forecast in Bloomberg’s survey stands at a 2.3% annualized pace, while the Atlanta Federal Reserve’s real-time tracker is considerably more pessimistic at just 1.2%. This significant divergence reflects uncertainty about the underlying momentum of economic activity, with strong capital expenditure offsetting softer consumption trends.
Personal income and expenditure data will also be released but are likely to take a backseat to the GDP headline. Weekly initial jobless claims will similarly be overshadowed by the broader economic picture, though they remain a key indicator of labor market resilience. Looking ahead to next week, the non-farm payroll report will be critical, with early expectations centered around 60,000 positions after the 178,000 increase in March (subject to revision). The sharp deceleration in hiring expectations reflects growing concern about labor market momentum, a development that could eventually support a more dovish Fed interpretation if the trend continues.
Eurozone
The euro has come under considerable selling pressure in recent sessions, with strong US economic data and the Federal Reserve’s hawkish hold driving the single currency lower. Yesterday, the euro was sold through the prior week’s low of approximately $1.1670, a technical breakdown that signaled renewed weakness. In the Asia Pacific session this morning, the euro declined further to $1.1655 before mounting a partial recovery to almost $1.17.
Option expiries represent a significant technical consideration for EUR/USD traders today. Nearly 1.5 billion euros in options at the $1.1725 strike are set to expire today, creating a potential pinning effect at that level. On the downside, nearby support may be found near $1.1645, and a decisive break of this level could signal another half-to-full-cent loss, opening the door toward $1.1545 or lower. The momentum indicators are deteriorating, suggesting that further downside could be in store if technical support fails to hold.
The eurozone economic backdrop remains mixed. First-quarter GDP expanded by 0.1%, following a 0.2% increase in the fourth quarter of 2025, slightly disappointing expectations for a more robust rebound. The preliminary April Consumer Price Index rose 1.0% for a year-over-year pace of 3.0%, while the core rate slipped to 2.2% from 2.3%, suggesting some moderation in underlying inflation pressures.
The European Central Bank’s decision is due imminently and will be closely scrutinized by market participants. A hawkish hold is the most likely scenario, with the market expressing considerable confidence in a rate hike in June. The ECB faces a delicate balancing act: supporting the euro amid its recent weakness while maintaining credibility on inflation management. How policymakers communicate around the June decision will be critical for EUR/USD direction, as a more dovish tilt could accelerate selling while a hardline stance might provide a floor.
United Kingdom
Sterling has slipped to marginal new lows for the week, trading slightly below the $1.3460 level, though last week’s low of approximately $1.3450 is still holding. The technical picture remains challenged, with falling momentum indicators suggesting further downside potential. A decisive break of the $1.3440 area would open the door for another cent decline, representing a significant technical breakdown. Yesterday’s high was near $1.3530, and overcoming this level would be required to improve the technical tone and attract fresh buying interest.
The Bank of England decision is imminent and is nearly universally recognized to result in a hold. The swaps market is pricing in approximately a 70% probability of a hike at the next meeting in June, with the market fully pricing in two hikes for the year and assigning about a 40% chance of a third. This forward guidance suggests that while the BOE is on hold today, the market expects a gradual tightening cycle to unfold over the coming months. The BOE’s communication regarding inflation persistence and labor market dynamics will be critical in determining whether sterling can stabilize or whether further weakness is in store.
China
The Chinese yuan has come under renewed pressure from broad dollar strength, though the People’s Bank of China has been actively managing the currency through its daily fixing mechanism. The dollar rose to almost CNH6.85 yesterday, marking its best level in three weeks, and has held this morning while easing to almost CNH6.8320, just ahead of yesterday’s low. There appears to be scope for gains toward CNH6.8650-CNH6.8750 during this corrective phase, particularly if dollar strength persists.
The PBOC’s policy stance has been notably accommodative, with the central bank raising the dollar’s daily fixing for the third consecutive day to CNY6.8628 from CNY6.8608 yesterday. This represents the sixth increase in the past seven sessions, suggesting a deliberate policy of allowing gradual yuan weakness to support export competitiveness and economic growth. This approach contrasts with the more hawkish stance of major developed-market central banks and reflects China’s ongoing focus on supporting growth amid external headwinds.
China’s manufacturing activity softened according to the official purchasing managers’ index, which eased to 50.3 from 50.4, indicating minimal expansion. The non-manufacturing PMI slipped to 49.4 from 50.1, falling below the 50 neutral threshold and suggesting contraction in the services sector. The composite reading pulled back to 50.1 from 50.5, reflecting mixed momentum across the economy. In contrast, the RatingDog manufacturing PMI (previously known as the Caixin PMI) rose to 52.2 from 50.8, suggesting that smaller manufacturers and exporters may be experiencing more resilient demand. This divergence between official and private sector PMI readings underscores the uneven nature of China’s economic recovery and the challenges facing different segments of the economy.
Japan
The Japanese yen staged a dramatic reversal this morning after falling to its lowest level since July 2024. The dollar had reached nearly JPY160.70 before heightened Japanese verbal intervention by top officials prompted a sharp reversal. Finance Minister Katayama warned of “bold action,” while Foreign Exchange Chief Mimura cautioned that this was “the final advisory if you want to escape,” language that signaled the authorities’ serious intent to defend the currency. These threats proved successful, with the dollar dumping to around JPY158.75 in the European morning, a move of nearly 200 pips from the intraday high.
The technical picture for USD/JPY remains fluid, but we suspect that the greenback can recover back toward JPY160 in the North American session as the initial shock of intervention rhetoric wears off. The dollar had fallen for three consecutive weeks prior to last week, suggesting that the recent rally has corrected an extended downtrend rather than establishing a new directional bias. Implied volatility remains low, which could amplify moves if intervention rhetoric intensifies or if technical levels are broken decisively.
The Bank of Japan again held off raising rates at its recent decision, maintaining its accommodative policy stance. Two days later, the Federal Reserve delivered its hawkish hold, creating a policy divergence that is not conducive to further intervention beyond verbal warnings. The widening interest rate differential between the United States and Japan, with the 30-year US yield now at 5%, has been a primary driver of dollar strength and yen weakness, and this fundamental dynamic is unlikely to reverse absent a significant shift in Fed policy expectations.
Japanese economic data has been mixed. Retail sales rose by 1.3% in March after a 2.0% drop in February, roughly double the increase that economists projected in the Bloomberg survey. The year-over-year pace rose to 1.7% from -0.1%, suggesting some improvement in consumer spending. March industrial production, however, disappointed expectations. It fell by 0.5%, compared with projections of a 1.1% increase, and followed a 2.0% decline in February. The year-over-year increase of 2.3% matches the best reading since mid-2024, but the month-over-month weakness is concerning. Earlier this week, the BOJ halved its GDP forecast for the year to 0.5%, well below the median forecast in Bloomberg’s survey of 0.7% growth and the International Monetary Fund’s latest projection of 0.7%. This downward revision underscores the structural challenges facing the Japanese economy and may ultimately limit the BOJ’s ability to raise rates aggressively despite verbal intervention efforts.
Canada
The Canadian dollar settled remarkably little changed yesterday despite the Bank of Canada’s neutral-sounding decision to hold rates and the hawkish cast to the Federal Reserve’s standpat decision. This lack of reaction suggests that the market had already priced in both outcomes, or that offsetting factors—a neutral BOC combined with a hawkish Fed—created ambiguous directional signals for the loonie.
The greenback tested the upper end of its recent range between CAD1.3710 and CAD1.3715 and is holding at these elevated levels this morning. A move above CAD1.3730 would be required to confirm that a bottom is in place and to signal the start of a new leg higher. Option expiries represent important technical anchors: $505 million at CAD1.3637 and $300 million at CAD1.3665 both expire today, potentially creating pinning effects at these strikes.
Canada reports February GDP this morning, with Statistics Canada projecting growth of 0.2% after a 0.1% increase in January. The broader picture remains concerning, as the economy contracted by 0.6% in the fourth quarter of 2025 on an annualized basis. The economy continues to look vulnerable, with persistent weakness in investment and consumer spending weighing on growth. This economic fragility may eventually force the Bank of Canada to adopt a more dovish stance, which could provide support for USD/CAD if the rate differential widens further in favor of the US dollar.
Australia
The Australian dollar came under significant pressure yesterday despite the likelihood of a Reserve Bank of Australia rate hike, as the greenback’s strength proved too powerful to resist. The Aussie, which kissed $0.7200 on Monday, approached $0.7100 yesterday and is holding at this level this morning before recovering to almost $0.7150. A break of the $0.7075 level could spur another half-cent loss, opening the door toward $0.7025 or lower.
The Australian economic backdrop remains supportive for the RBA’s hawkish bias. Private sector credit rose by another 0.7% in March, lifting the year-over-year pace above 8%, indicating robust credit demand and potentially inflationary pressures. Australia is also experiencing a positive terms-of-trade shock, with the export price index rising 0.5% in the first quarter after a substantial 3.2% surge in Q4 2025. The import price index rose 0.9% in Q4 2025 and rose 0.1% in Q1 2026, suggesting that import price pressures have moderated. The futures market is discounting almost an 80% probability of a hike next week, signaling market confidence in the RBA’s willingness to tighten policy further. However, the recent weakness in AUD/USD suggests that the rate differential with the United States is becoming a more important driver of currency dynamics than domestic monetary policy expectations.
Emerging Markets
The Mexican peso has come under sustained pressure, with the dollar rising to a three-week high yesterday and extending gains this morning. The greenback traded to almost MXN17.5720 yesterday, with gains extended to approximately MXN17.5840 today before pulling back to MXN17.5165. Provided the MXN17.50 area holds as support, there may be near-term potential toward MXN17.60-MXN17.65.
Mexico is expected to report a 0.6% quarter-over-quarter contraction in Q1 2026 today, following growth of 0.9% in Q4 2025. The Mexican economy is struggling with weak demand and structural challenges, and although inflation remains above target, the central bank has signaled that it could cut rates again after last month’s move. The economic weakness, combined with high-profile crimes and security concerns, has seen President Claudia Sheinbaum’s support wane, creating additional political headwinds for policy implementation.
The Indian rupee has come under severe pressure, reaching record lows against the dollar despite recent exchange rate controls aimed at stemming depreciation. Higher oil prices have encouraged selling pressure on the rupee, which fell to about INR95.3337 this morning before the Reserve Bank of India reportedly intervened. The currency is finishing around INR94.92, having unwound some of the gains spurred by the earlier exchange rate controls. The RBI’s intervention suggests that authorities are concerned about the pace of rupee weakness and its potential inflationary implications.
Brazil’s central bank delivered a quarter-point rate cut for the second consecutive meeting, bringing the benchmark rate to 14.50%. The dollar closed slightly below BRL5.0, with the next target around BRL5.03. A move above that level could be worth another 1% in dollar appreciation. The Brazilian central bank’s easing cycle reflects confidence that inflation is moving toward target, though external vulnerabilities remain given the broad dollar strength.
The Colombian peso is also under pressure, with the dollar looking poised for additional gains. A push through COP3680 may spur a move into the COP3700-COP3715 area, representing a significant technical breakout for the pair. Most emerging market currencies have fallen against the strengthening greenback, reflecting the broad-based dollar rally that has accompanied higher US yields and the hawkish Fed decision.
Global Markets
Equities are displaying mixed performance across global markets this morning. The large bourses fell in the Asia Pacific region, with Singapore a notable exception, posting a 1% gain. China’s CSI 300 slipped fractionally despite the Shanghai and Shenzhen Composites rising, reflecting divergent performance across different market segments. Europe’s Stoxx 600 is attempting to snap a four-session downtrend, though conviction remains lacking ahead of the Bank of England and ECB rate announcements. US index futures are narrowly mixed, suggesting a cautious opening for North American equities.
Benchmark 10-year yields rose by 4-6 basis points in the Asia Pacific region, excluding China, reflecting the global repricing of interest rate expectations following the Fed’s hawkish hold. Yields are softer in Europe ahead of the Bank of England and ECB rate announcements, as market participants await clarity on the policy path. The US 10-year Treasury is trading a few basis points softer to straddle the 4.40% level, suggesting some consolidation after the recent surge.
Precious metals have staged a partial recovery after recent weakness. Gold approached $4,510 yesterday, a new low for the month, as the dollar’s strength and rising yields pressured the non-yielding asset. However, gold has returned bid this morning and is trading near $4,625, posting a 1.7% gain that, if sustained, would represent the largest daily advance in almost three weeks. Silver traded below $71 yesterday—a level not seen since April 7—but is up approximately 3% today and hovering around $73.50. The recovery in precious metals suggests some risk appetite has returned, or that technical oversold conditions are attracting bargain hunters.
Crude oil has experienced volatile trading following initial strength driven by reports of potential military strikes. June WTI settled at a new contract high of almost $108.20 per barrel, representing an 8.25% increase on the day and marking the third consecutive advance and the seventh in the past eight sessions. However, after approaching $111 this morning on the back of geopolitical headlines, both June WTI and July Brent have reversed lower. Ahead of the North American open, both contracts are off around half-a-dollar from their highs, trading near $107 for WTI. The initial enthusiasm for oil has been tempered by profit-taking and uncertainty about the timing and scope of any potential military action, leaving traders cautious about establishing large directional positions ahead of the North American session.
