## United States
The recent decline of the US dollar started when President Trump intensified his criticism of the Federal Reserve’s management of US monetary policy back on June 23. This downward movement seems to have halted, supported by surprisingly strong data and a rise in US interest rates. Currently, the greenback is showing strength against G10 currencies. Typically, in a robust US dollar setting, the Canadian dollar performs well, though today it’s slightly lower. In contrast, the Japanese yen is the weakest, down by approximately 0.50%. Trump’s assertion that Japan does not purchase rice from the US seems factually incorrect, although with the impending end of the break from reciprocal tariffs in a week, investors remain cautious. Most emerging market currencies are also weaker today. However, Taiwan’s dollar surged due to foreign equity purchases and dollar sales by exporters. The central bank might have acted to limit these gains. Conversely, in Hong Kong, the HKMA intervened to contain the US dollar. In Europe, benchmark 10-year yields mostly firmed by 2-5 basis points, with German Bunds as a notable exception, remaining flat. The UK saw its 10-year Gilt yield rise by five basis points, notwithstanding speculation about the BOE potentially reducing bond sales from its balance sheet. The 10-year US Treasury yield, which dipped below 4.20% for the first time in two months yesterday, is now around 4.28%, though it hasn’t exceeded 4.30% in a week. Equity markets in Asia Pacific were mixed, but Europe saw its first gain this week, with the Stoxx 600 rising nearly 0.50% during the late European morning trade. US index futures are also firm. Gold is seen consolidating with quiet activity after rebounding approximately $110 from Monday’s low to Tuesday’s high. Meanwhile, for the sixth day in a row, August WTI is fluctuating between roughly $64.50 and $66.50.
In the US, the combination of better-than-expected data, comments from Fed Chair Powell on forthcoming price pressures, and the backing up of US rates have caused the Dollar Index to recover from earlier losses, which brought it to its lowest level since February 2022, around 96.35. The dollar is stable but below 97.00, and it seems it might ascend to the 97.55 level for noticeable progress, noting the 98.25 area could present more formidable resistance. The data is primarily focused on the US labor market. Although the employment component of June’s manufacturing ISM weakened (falling to 45.0 from 46.8), the May JOLTS report indicated a larger-than-expected increase in job openings, a slight increase in the quit rate, and a minor decline in the layoff rate. The surge in job openings was primarily in accommodation and food services, possibly reflecting the discouragement of legal and illegal immigration. Today, attention is on the Challenger Jobs Cuts and the more market-sensitive ADP private jobs estimate. In the first five months of the year, the ADP reported that private sector job growth averaged near 103,000, whereas the BLS reported a 117,000 average monthly addition over this period. Bloomberg surveys’ median forecast for private employment was close to 137,000 for the first half of 2024. ADP has generally been closer than economists to the government’s estimates. The June report’s release is adjusted to tomorrow due to Friday’s holiday, expecting a decline in sequential job growth and hourly earnings, while unemployment could nominally increase to 4.3% from 4.2%.
## Eurozone
The euro recently achieved its highest level since September 2021, reaching around $1.0830, before being sold down to nearly $1.1760. Buying interest emerged on this retreat, allowing the euro to settle back above $1.18 and extend its rise. Since June 17, the euro has not posted declines, though this streak was at risk today as it barely traded above yesterday’s settlement. It appears poised to test initial support around $1.1755-60. A break below this could drive testing toward $1.165-$1.1700. It’s worth noting that despite Europe’s slow economic recovery post-Ukraine invasion, unemployment remains at near-record lows. The latest unemployment report indicated a 6.3% rate for May, consistent since last August.
## United Kingdom
Sterling touched nearly $1.3790 yesterday, a high not seen since October 2021, before being driven down to just above $1.3700. It bounced back to about $1.3740 prior to a government vote on disability reform, ultimately peaking near $1.3750 during late trading. However, it’s come under pressure today, falling below yesterday’s low around $1.3700, with support expected between $1.3655 and $1.3675. Prime Minister Starmer successfully contained a rebellion within his party for now, although the political repercussions remain to be seen. As a result, the government is caught between raising taxes or revisiting fiscal rules. Chancellor Reeves is in a tough position, especially after the Office for Budget Responsibility disclosed that medium-term growth projections were overestimated (by 0.3 percentage points at the two-year view and 0.7 points after five years, with a 2.2-point cumulative overestimation over five years). Slower growth amplifies fiscal challenges.
## China
The dollar witnessed a recovery from CNH7.15, hitting a new low for the year, and reached session highs by midday in New York near CNH7.1650. It has gained slightly today, currently near CNH7.1680. Technically, it needs to reclaim a foothold above CNH7.1750 to be significant. After setting the dollar’s fix lower by 0.13% over the past two sessions, the PBOC increased it by 0.02% today to CNY7.1546. Separately, the Hong Kong Monetary Authority intervened for the second time in two weeks as the greenback reached the upper limit of the band, purchasing around HKD20 billion, double last week’s intervention. Yet, the one-month HIBOR scarcely changed at 0.73% despite the liquidity withdrawal, signaling pressure could persist. The Caixin PMI releases for services and composite sectors tomorrow may find the composite rebounding after sinking below 50 in May, marking the first sub-50 reading since the end of 2022.
## Japan
Despite a seven-basis point increase in the US 10-year yield from high to low yesterday, the yen wasn’t lifted but saw a near-full recovery from its ~142.70 low. It slightly exceeded yesterday’s high in Europe, reaching approximately JPY144.25, spurred by firmer US rates. An advance above JPY144.75 might suggest that the dollar’s dip from the June 23 high (~JPY148) is over. A segment of the new US tariff threat (30-35%) against Japan relies on misinformation. In reality, Japan imported $300 million of US rice in 2024 and is projected to buy more. Under WTO arrangements, Japan can import 770,000 tons of rice tariff-free annually. Reports indicate the US supplied around 3/4 of this imported rice in May. Tomorrow, Japan releases the weekly MOF portfolio report alongside final services and composite PMI data, which seldom impact markets. Bloomberg economists continue stressing the possibility of a July BOJ rate hike, a notion the swap market doubts, pricing it for less than a single basis point for the year, and since mid-May, less than 14 basis points at most.
## Canada
The US dollar briefly dipped below CAD1.36 before the North American markets opened yesterday. Rather than continue downwards, buyers emerged, pushing the greenback to a session peak near CAD1.3665. It’s firm today, slightly below the prior session’s high—Monday’s high was roughly CAD1.3700, a level now being tested. Today’s June manufacturing PMI release is unlikely to significantly move markets. It increased over the last five months of 2024 and declined in the year’s initial four, with May’s figure rising to 46.1 but still short of the 50-mark. Bloomberg’s June 20-25 survey had a median forecast showing a 0.5% annualized Q2 contraction, improved from the 1% previously expected.
## Australia
Yesterday, the Australian dollar reached a new high since last November, slightly below $0.6600. Yet, the greenback’s resurgence pushed it back to around $0.6560. Late North American trading saw it return almost to its highs, though it’s now moved back to $0.6560. A dip below $0.6540-$0.6550 might imply a corrective phase is beginning. Australia recently noted a recovery in building approvals in May (rising 3.2% compared to April’s -4.1%) and modest retail sales growth (0.2% against April’s flat outcome). The broader consumption measure, household spending, due next week, may echo the decline in consumer activity. Futures markets suggest a slight over 85% probability of a rate cut at the July 8 central bank meeting and over three cuts anticipated by year-end. Meanwhile, the Reserve Bank of New Zealand meets next week, with swap markets allocating a less than 15% probability to a rate cut.
## Mexico
The dollar’s streak of recording lower highs and lower lows against the peso extended into a sixth session, plummeting to nearly MXN18.66—a new low since last August. Despite recovery efforts, the dollar recorded losses for the seventh consecutive session, trading in a limited range, from MXN18.73 to MXN18.7650. However, breaking MXN18.60 could signal movement toward MXN18.20. Mexico’s auto sector may face additional scrutiny amid reports suggesting it now surpasses Russia as the top destination for Chinese vehicles. Concerns linger about claims from China-based EV makers stating some vehicles are minimally used before being exported to Mexico and then re-exported to the US. In Mexico, imported used cars generally face higher tariffs, VAT, duties, and fees than new vehicles. Re-exporting these to the US presents numerous challenges, like needing to meet US safety and emissions standards, resulting in costly modifications. Typically, imported Chinese EVs are 20-40% more affordable than US, Japanese, or South Korean counterparts and equipped with popular features such as panoramic sunroofs, large touchscreen computers, and driver assistance abilities.
