### United States
The capital markets are currently digesting the implications of the US-China 90-day cooling-off period. After dramatic movements yesterday, today has taken on a more consolidative tone. Domestically, the US political focus is shifting to the budget, and the forthcoming CPI release is expected to show little change. The dollar is softer against G10 currencies, excluding the Canadian dollar, and has shown a mix of strength and weakness against emerging market currencies. The Asian currencies mostly weakened, except for the Chinese yuan, alongside central European currencies and the Mexican peso. US index futures are pulling back by 0.3%-0.5%.
In the bond markets, the 10-year US Treasury yield has dipped slightly to around 4.45%. Meanwhile, gold has stabilized after recovering from its lows and is now hovering above $3,250. The June West Texas Intermediate crude oil futures reached $63.60 yesterday but hit a low near $61.65 today, recovering to approximately $62.40.
The Dollar Index is consolidating in the upper range of yesterday’s movements, nearing 102.00. There is notable resistance in the 102.10 area, representing the 61.8% retracement from late March when it began near 104.70. Importantly, the US reports the April CPI today, with a median forecast predicting a 0.3% rise in both headline and core rates. This would put the annual rate through April at approximately 2.7%, down from 3.9% at the start of 2024. Additionally, the US Court on International Trade is hearing a case challenging the presidential authority to impose tariffs under the International Emergency Economic Powers Act (1970), as it does not explicitly grant the president tariff authority.
### Eurozone
The euro has undergone a reversal, retracing almost 61.8% of its advance since late March to around $1.1055. Currently, it is consolidating with quiet market turnover, having reached $1.1125 before losing upward momentum. Market expectations for a June ECB rate cut have diminished to about 85%, down from nearly 93% before the weekend. The swaps market has adjusted to discount approximately 45 basis points of easing through the end of the year, decreasing from almost 62 basis points before the weekend. A potential head and shoulders topping pattern suggests an initial target for the euro around $1.0950.
Germany’s ZEW survey reports show an improvement. The expectations component, which collapsed in April, has now rebounded in May, though the assessment of current conditions has weakened for the first time this year.
### United Kingdom
Sterling encountered a sell-off to $1.3140 yesterday, slightly overshooting the 38.2% retracement of its rally from the April 7 low to the April 28 high. It is now bid near $1.3220 in European trading. The UK reported a slight slowdown in average weekly earnings in March, while the unemployment rate ticked up to 4.5%. Additionally, the number of payrolls decreased for the third time in four months.
### China
The US dollar peaked against the Chinese yuan before the weekend, and after a slight retreat, it has since taken out its lowest level since last November. The People’s Bank of China has continued to make adjustments to the dollar’s reference rate, signaling slightly more flexibility. Following weekend talks, China has promised to address the flow of fentanyl and lifted its ban on Boeing planes.
### Japan
The dollar reached nearly JPY148.65 yesterday and has eased slightly in today’s trading. The next significant chart area is in the JPY149.40-70 range, which includes the 50% retracement of this year’s decline and the 200-day moving average. Japan’s PPI release is not expected to be a market mover; however, the first estimate of Q1 GDP remains a highlight of the week, with expectations of a small contraction.
### Canada
The US dollar posted a mostly bullish move against the Canadian dollar yesterday, approaching CAD1.4020. The greenback recovered after a pullback to CAD1.3960, showing resilience. The odds of another rate cut in Canada next month have decreased slightly following a recent employment report, which showed a rise in the unemployment rate.
### Australia
The Australian dollar experienced a pullback yesterday after testing the $0.6460 level. Although it showed no follow-through selling today, the currency is influenced by market expectations of a quarter-point rate cut by the Reserve Bank of Australia in the near term. The extent of expected rate cuts this year has been reduced to about 83 basis points from 106 basis points a week ago.
### Mexico
In Mexico, the US dollar experienced a potentially bullish key reversal, trading on both sides of its pre-weekend range. Mexico reported a 0.9% decline in March industrial output, marking the third decline in four months. The current economic weakness seems more significant to policymakers than inflation, and the Bank of Mexico is expected to deliver another half-point rate cut soon.
