United States
The US dollar has recovered from yesterday’s losses in North American afternoon trading, establishing a firmer bias as markets digest a mixed economic backdrop. The greenback’s resilience reflects competing forces: while employment data disappointed and preliminary PMI readings came in soft, the broad dollar index has maintained its footing against most G10 peers. The currency’s strength is being tested by a data-heavy session that will provide crucial insights into the health of the American economy.
In a tightly compressed 75-minute window, the US labor market will face scrutiny through weekly jobless claims data, while housing activity will be measured through April housing starts and permits. The housing sector is expected to show moderation after jumping 10.8% in March, signaling a potential cooling in residential construction activity. Simultaneously, the May Philadelphia Federal Reserve business survey and preliminary PMI estimates will offer forward-looking signals on manufacturing and services momentum. The Atlanta Federal Reserve’s GDPNow tracker is currently projecting 4% annualized growth for the current quarter, which would represent the strongest quarterly performance since the end of 2021, though the preliminary PMI readings may not fully capture this acceleration.
US Treasury yields have experienced notable volatility. The 10-year yield fell more than 9 basis points yesterday to 4.57%, marking the largest single-day decline since February 5, driven by geopolitical developments and flight-to-quality flows. The yield is currently trading near 4.57% with a softer bias, reflecting ongoing uncertainty about the Fed’s policy trajectory and the impact of external shocks on economic growth.
Eurozone
The euro has traded within a defined technical range, testing critical support levels before recovering to session highs on intermittent risk-on sentiment. The currency pair tested the lower end of identified support near the $1.1580–$1.1600 area following disappointing French PMI data, but recovered smartly to new session highs near $1.1645 after reports that President Trump indicated Iran negotiations were in final stages. This geopolitical development triggered a sharp decline in oil prices and a corresponding fall in rates, providing temporary relief to the single currency.
However, the euro’s recovery proved transitory, as consolidation dominated North American afternoon trading, with the currency oscillating between $1.1620 and $1.1640 in what felt like a repetitive pattern. The session low was established near $1.1595 following the weak French PMI reading, though recovery began almost immediately. German PMI figures arrived shortly after the French data, and the euro stalled near $1.1635 as traders assessed the broader eurozone economic picture.
The eurozone’s economic momentum continues to deteriorate based on preliminary May PMI estimates. Manufacturing PMI ticked downward to 51.4 from 52.2, while services contracted to 46.4 from 47.6, pushing the composite index to 47.5 from 48.8. This marks the second consecutive month the composite has remained below the 50 boom/bust threshold, a concerning development after the index spent all of last year trading above that critical level. The eurozone’s current account data provided some offsetting strength, with March showing a surplus of 14.86 billion euros, bringing the Q1 surplus to 80.6 billion euros compared with nearly 75 billion euros in Q1 2025 and approximately 117 billion euros in Q1 2024. The deteriorating PMI readings, however, suggest that external demand pressures and the impact of geopolitical tensions are weighing on economic activity across the currency bloc.
United Kingdom
Sterling has demonstrated pronounced directional volatility, posting outside up days on Monday and yesterday with consolidation on Tuesday. The currency traded on both sides of Tuesday’s range before settling above its high, establishing a new four-day high near $1.3465. The session low today, near $1.3415, was recovered before disappointing PMI data arrived, with sterling reaching its session high shortly thereafter around $1.3455 before stalling precisely where options for approximately GBP 935 million expire today. This technical resistance level represents a significant barrier that traders are monitoring closely.
From a technical perspective, the 50% retracement of losses since the month’s high on May 1 is situated around $1.3480. A decisive move above this level could target the $1.3510–$1.3520 area in subsequent trading sessions. However, cable’s upside momentum faces headwinds from deteriorating economic data.
The UK’s preliminary May PMI readings paint a picture of an economy losing forward momentum, compounding concerns raised by disappointing employment data earlier in the week. While Q1 growth of 0.6% matched the strongest performance since Q1 2024, the PMI components suggest weakness ahead. Manufacturing PMI held steady at 53.7, but services PMI experienced a sharp decline to 47.9 from 52.7, a significant deterioration. The composite PMI fell sharply to 48.5 from 52.6, a dramatic reversal from the 51.4 level recorded at the end of last year. This suggests that the services sector, which comprises the bulk of UK economic activity, is experiencing pronounced weakness that could translate into softer growth dynamics in the coming quarters.
China
The offshore and onshore yuan have traded mostly sideways against the US dollar throughout the week, establishing a defined trading range. The consolidation has been bounded by approximately CNH 6.7960 on the lower end and CNH 6.8215 on the upper end, with the dollar currently positioned in the lower portion of this range. The People’s Bank of China’s policy actions suggest a measured approach to currency management amid broader economic considerations.
The PBOC set the dollar’s reference rate today at a new multiyear low of CNY 6.8349, a significant development that reflects the central bank’s willingness to support the onshore currency. This decision came after the PBOC had raised the reference rate yesterday for the third time in four sessions, indicating a tactical shift in policy. The weakness of the dollar more broadly appears to have encouraged this more accommodative stance, as the central bank seeks to balance currency stability with broader economic objectives.
While specific May PMI data for China was not detailed in the latest reports, the broader context of softer preliminary PMI estimates across major economies suggests that Chinese economic activity may also be experiencing moderation. The policy environment remains supportive, with the PBOC demonstrating flexibility in its currency management approach.
Japan
The Japanese yen strengthened for the first time in eight sessions yesterday, coinciding with a significant decline in US Treasury yields. The 10-year Treasury yield dropped approximately 8.5 basis points yesterday, the largest single-day decline since February 5, which appears to have been a decisive factor in supporting yen appreciation. The greenback eased to a two-day low near JPY 158.60 before recovering to almost JPY 159 in afternoon turnover, demonstrating the currency pair’s sensitivity to interest rate differentials.
Currently, the dollar remains firm but subdued, trading within a narrow range of JPY 158.80–JPY 159.10. Japanese policymakers have not escalated their rhetorical warnings regarding currency movements, suggesting a measured approach to the yen’s recent strength. The absence of explicit intervention rhetoric or threats indicates that authorities may be comfortable with the current pace of yen appreciation, particularly given the deflationary pressures that have historically plagued the Japanese economy.
Japan’s economic data released today presents a mixed picture. The April trade balance narrowed by approximately half compared with March, though Japan’s trade balances often deteriorate in April (occurring in 16 of the past 20 years), so this development was not unexpected. Through April, Japan recorded a JPY 184 billion trade deficit compared with a JPY 1.8 trillion deficit in the first four months of 2025. The International Monetary Fund projects Japan’s current account surplus will decline to 3.8% of GDP this year from 4.9% last year, suggesting a structural shift in Japan’s external position.
The preliminary May PMI readings for Japan showed moderation from April levels. Manufacturing PMI eased but remained above the 50 boom/bust threshold, as did services PMI, indicating continued expansion despite slower growth. The composite PMI registered at 51.1 compared with 52.2 in April and an average of 53.3 in Q1 2026, suggesting that economic momentum is gradually decelerating. While PMI data does not typically draw significant attention in Japan, the softening trend warrants monitoring as it may signal broader economic deceleration.
Canada
The Canadian dollar was the sole G10 currency that failed to appreciate against the US dollar yesterday, even as most other developed market currencies posted gains. The loonie’s underperformance reflects specific domestic dynamics and relative interest rate expectations. The greenback reached almost CAD 1.3780, establishing a new high since April 15 and continuing its recovery from earlier weakness.
For the past four consecutive sessions, the US dollar has traded above CAD 1.3760, which represents approximately the 50% retracement of the sell-off that commenced from the year’s high posted at the end of March near CAD 1.3965. However, the currency pair has not settled once above this critical technical level, suggesting that consolidation remains in place. The US dollar is trading inside yesterday’s range but with a firm undertone, and the market may attempt another run at chart resistance in the CAD 1.3800–CAD 1.3815 area in coming sessions.
Australia
The Australian dollar rebounded smartly yesterday, posting a nearly 0.65% gain that placed it atop the G10 currency performers. However, today’s data has reversed this momentum, with weak employment figures and disappointing PMI readings weighing on the currency. The aussie posted its lowest settlement in a month on Tuesday slightly above $0.7105 and subsequently rallied to almost $0.7175, a few hundredths of a cent below Tuesday’s high. Currently, the currency is trading well within this week’s range, confined to the $0.7100–$0.7160 band.
A convincing move above $0.7200 would be required to suggest that the downside correction has concluded and that a more sustainable recovery is underway. The near-term technical picture remains uncertain given the conflicting signals from different sessions.
The disappointing employment data represents a significant headwind for the Australian dollar. Australia lost 18.6 thousand jobs in April, compared with a median forecast in Bloomberg’s survey for a gain of 15 thousand jobs. This represents a sharp reversal of employment momentum. The March series was revised to show 23.3 thousand jobs were created versus 17.9 thousand initially estimated, providing some consolation. However, the composition of job losses is concerning: full-time positions slipped by 10.7 thousand after rising a revised 63.4 thousand in March. The unemployment rate jumped to 4.5% from 4.3%, while the participation rate slipped to 66.7% from 66.8%, suggesting a deterioration in labor market conditions.
The preliminary May PMI data also disappointed, with manufacturing easing to 50.2 from 51.3 and services contracting to 47.7 from 50.7. The composite 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 anomaly. The combination of weaker employment and softer PMI readings suggests that the Australian economy is losing momentum, which will likely weigh on Reserve Bank of Australia policy considerations.
Emerging Markets
The Mexican peso benefited from three converging factors yesterday that supported broad emerging market currency strength. First, the US dollar weakened broadly, with the JP Morgan Emerging Market Currency Index rising. Second, US rates declined sharply. Third, risk-on sentiment dominated, with strong gains recorded in US equities. After setting a new two-week high slightly above MXN 17.43, the dollar reversed lower and fell to almost MXN 17.26, penetrating slightly through Tuesday’s low. The broad consolidation pattern continues, with the dollar trading between MXN 17.29 and MXN 17.3650 so far today.
The peso showed resilience despite Moody’s decision to cut Mexico’s sovereign rating to Baa3, which matches Fitch’s earlier downgrade. Standard & Poor’s remains one notch better at BBB, providing some offset to the negative rating action. The currency market appeared to take this development in stride, suggesting that the rating cut had been largely anticipated by market participants.
The Reserve Bank of India intervened more aggressively today to support the rupee, including reportedly in the offshore market. This action, combined with more threats of policy measures to stem depreciation pressures, including potential rate hikes, triggered a sharp short squeeze in the currency. The dollar gapped lower today after posting a record high yesterday near INR 96.9650. The currency fell to the low of the week near INR 96.04 today, reflecting the intensity of central bank support and the rapid unwinding of positioning that had built up against the rupee.
Global Markets
Equities across Asia Pacific recovered from a four-day slide, with the MSCI Asia Pacific Index benefiting from strong US equity performance and favorable earnings surprises. Nvidia’s earnings results helped arrest the recent decline, providing a boost to technology-heavy indices. Most large bourses outside China and India moved higher. South Korea’s Kospi rallied by nearly 8.5%, benefiting from a last-minute deal between Samsung and its employees that averted a threatened strike. Additionally, a South Korea-flagged oil tanker successfully transited the Strait of Hormuz yesterday, providing some relief on geopolitical concerns. Taiwan’s Taiex jumped almost 3.4%, while Japan’s Nikkei gained a little more than 3%. Europe’s Stoxx 600 is rising for the fourth consecutive session, which would match the longest advance of the year if sustained. US index futures are narrowly mixed, reflecting continued uncertainty about the economic outlook and corporate earnings trajectory.
Benchmark 10-year yields fell sharply yesterday in European 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 broad flight-to-quality flows triggered by geopolitical concerns. The 10-year US Treasury yield fell a little more than 9 basis points to 4.57%. Asia Pacific bonds played catch-up today, while European bond yields have edged lower, though the 10-year Gilt yield is off a little more than 4 basis points. The 10-year US Treasury yield is currently trading a little softer near 4.57%.
Gold made a marginal new low yesterday since the end of March near $4,475, but then set a new session high shortly before midday in New York a little below $4,553. The precious metal reached almost $4,571 today before being turned back. To boost confidence that a meaningful low is in place, gold needs to overcome the $4,590–$4,600 resistance area. Silver held above Tuesday’s low of approximately $73.10 yesterday and settled around 3.25% higher. It reached nearly $77 but is currently slightly lower on the day. A move above the $80–$81 area would lift the technical tone and suggest a sustainable recovery is underway.
Crude oil prices experienced significant volatility following President Trump’s comments regarding Iran negotiations. July WTI tumbled from almost $103 to $97 in the first hour after the news broke, before consolidating choppily for the remainder of the session and posting its lowest settlement in four sessions. The contract is consolidating in the lower end of yesterday’s range, capped a little above $100 and finding support near $97.25. The 20-day moving average is a little below $97, a level the contract has not settled below for a month, suggesting this represents significant technical support. Brent crude is also trading with a slightly heavier bias today, reflecting the broader weakness in oil prices triggered by geopolitical developments and reduced concern about Strait of Hormuz disruptions.
Polymarket assessments show little change in the probability that the Strait of Hormuz remains open, with around a 35% chance it is open by the end of next month and a 47% chance it opens by the end of July. These probabilities suggest that markets are pricing in meaningful geopolitical risk, though the recent comments from Trump about Iran negotiations have provided some temporary relief. The absence of further developments to fuel optimism about the Strait has kept oil markets somewhat elevated despite the recent selloff, as traders remain cautious about the sustainability of any geopolitical improvements.
