### United States
The US dollar continues to experience a sharp decline, with the euro, sterling, Australian, and New Zealand dollars climbing to new highs. Against the Swiss franc, the greenback hit its lowest point since 2015. Recent actions by Japan to support its rice farmers have drawn criticism from President Trump. If no accord is reached, “reciprocal tariffs” of about 24% on Japan could be enforced in the next week. The Japanese yen is currently leading a rally against the dollar, with a 0.75% gain. Contributing to the dollar’s slip are declining US interest rates, with yields on two- and ten-year notes reaching two-month lows.
Currently, all but a few emerging market currencies are stronger, with the Taiwanese dollar seeing a significant 1.4% increase, driven by insurance firms upping their hedge ratios. Despite declines in Japan and Australia, most Asia Pacific equities have risen, with markets in New Zealand, Taiwan, and Thailand up over 1%. Europe’s Stoxx 600 saw a minor decrease of about 0.2% following a 0.4% fall the day before. US stock index futures are also slightly negative. There has been a surge in bond buying, with 10-year rates in Japan, Australia, and Europe dropping by 4-5 basis points. The 10-year US Treasury yield has decreased by just over three basis points, marginally below 4.20%. The declining dollar and interest rates have aided gold in continuing its recovery from its lowest point since May 20 (~$3249) to $3346.
The Dollar Index has been pressured by ongoing decreases in US rates, marking a new low since late Q1 2022 (~96.45). Since June 16, the two-year yield has dropped roughly 30 basis points, altering expectations for the Fed’s policy trajectory. Markets are pricing in 68 basis points of cuts within this year—two full cuts and a 70% chance of a third—with only four meetings remaining. This follows nine Fed officials suggesting only one or no cuts would be prudent this year. As a result, the Dollar Index has been trending downward, ranging from a high near 98.95 to a low near 96.50, potentially falling to around 94.65 by July 31.
Notably, the S&P 500 and NASDAQ set record highs yesterday, and the performance gap between European stocks and the S&P 500 has narrowed. June saw a roughly 5.0% gain for the S&P 500, while Europe’s Stoxx 600 dropped by 1.3%. Upcoming final July manufacturing PMI and ISM manufacturing indices are anticipated to have minimal impact, due to the Federal Reserve placing greater emphasis on real sector data. The manufacturing PMI has remained above the 50 boom/bust threshold this year, following a dip below it in H2 2024. It is projected to remain steady compared to May and June’s 52.0 figures. Conversely, the manufacturing ISM has hovered below 50 since October 2022, briefly surpassing it in January and February, and lingering below 49.0 in April-May. This trend is expected to persist, reflecting the US consumer’s pullback amidst declining job openings, projected to be shown in today’s JOLTS report, and an anticipated dip in auto sales for a third consecutive session after previously surging to circumvent tariffs.
### Eurozone
The euro has extended its rally, reaching $1.1830 today, a peak since September 2021. It last saw a decline on June 17, and has managed to close above the upper Bollinger Band for the fourth session in a row (around $1.1800 today). Options for 2 billion euros at $1.18 expire today, with an eye toward the $1.20 mark. As US stocks and bonds rise, the argument that the dollar’s decline is due to US asset sales is weak. The Bank for International Settlements suggested the Q1 drop may relate more to hedging against dollar exposure. The euro hasn’t closed below its five-day moving average (~$1.1735 today) since June 19.
June’s final manufacturing PMI was 49.5, unchanged from May, extending the recovery for a sixth month while staying below the 50 boom/bust demarcation. Preliminary June CPI data reported a 0.3% gain, taking the annual rate to 2.0% from 1.9%. The core rate stayed at 2.3%. ECB’s May survey indicated a decline in one- and three-year CPI expectations to 2.8% (from 3.15) and 2.4% (from 3.1%), respectively.
### United Kingdom
After a tough session yesterday, sterling managed a slight recovery near $1.3730. Nevertheless, the overall weaker dollar presents a challenge to the broader FX market. Sterling is testing the upper boundary of last Thursday’s range (~$1.3770), reaching close to $1.3785 during European trading today. The next key level emerges around $1.3830. The UK’s June manufacturing PMI was confirmed at 47.7, marking the third month of successive increases after last breaching 50 in September 2024. Meanwhile, Nationwide reported a 0.8% drop in house prices in June, the steepest drop since February 2023, likely influenced by the stamp duty hike.
Attention is riveted on today’s House of Commons vote regarding the Universal Credit and Personal Independence Payment Bill, a significant reform in disability legislation. Approximately 120 Labour MPs threatened to oppose the government, which holds a 165-seat majority, though compromise by PM Starmer might not entirely prevent a sizeable dissent. Concurrently, some polls show Nigel Farage’s Reform UK party in the lead.
### China
The dollar continues to find itself in a trough versus the offshore yuan, with a marginal dip near CNH7.15 today. Should this break, a CNH7.10 target could follow, although a move past CNH7.00 seems plausible amidst ongoing US dollar softness. Despite a slight settle below last week’s low (~CNH7.1620) yesterday, the PBOC progressively lowered the dollar fix in June; today’s was CNY7.1534—its minimum since November 2024. By the end of May, the reference rate stood at CNH7.1848, noting two consecutive monthly dips.
The PBOC’s recent quarterly policy statement omitted plans to “cut interest rates and reduce the reserve requirement ratio.” China presents conflicting manufacturing PMI reports; the Federation of Logistics and Purchasing’s rose to 49.7 in June, averaging 49.4 in Q2 from 49.9 in Q1. Conversely, Caixin’s manufacturing PMI spiked to 50.4 in June from May’s 48.3, averaging 49.7 in Q2 and 50.7 in Q1.
### Japan
Yesterday, the dollar climbed to near JPY144.75 but sold off slightly below JPY144.00 in later US trading, dropping further to nearly JPY142.80 today. This breach took out the trendline from April 22 and June 13 lows (~JPY143.60). Coincidentally, the 10-year US yield fell below 4.20% for the first time since early May.
Japan’s Q1 economy contracted 0.2% on an annualized basis, with projections of a 0.3% expansion for Q2 eluding growth. Disappointment plagued real sector data with May’s industrial output (0.5% vs. a 3.5% forecast) alongside a staggering 34.4% year-over-year decline in housing starts. Today’s Tankan survey results indicate a largely stagnant sentiment except for large manufacturers, which saw a minor uptick (13 vs. 12); however, capex plans improved (11.5% vs. 3.1% in Q1)—stronger compared to expectations.
Separately, 195 major food producers are expected to raise prices on over 2000 products in July, a five-fold increase year-over-year. Meanwhile, the June manufacturing PMI final at 50.1 was slightly below the flash of 50.4, yet marked the first rise above 50 since last June.
### Canada
The Canadian dollar has pushed through last week’s lows to CAD1.3600 and further today. Options for $330 million expiring today align with this level. Breaking CAD1.3600 directs attention to the yearly low (~CAD1.3540) set last month. Canadian markets remain closed today for Canada Day, with the June manufacturing PMI expected tomorrow. From a high of 51.6 in January to a multi-year low of 45.3 in April, May’s figure stood at 46.1, beneath 2024’s readings.
### Australia
The Australian dollar, having dipped below $0.6400 last Monday, reached just under $0.6585 in North America yesterday and $0.6590 today. The resistance at $0.6600-20 could hold traders at bay despite momentum eyeing $0.6680-$0.6700. The Australian dollar has closed above the upper Bollinger Band, which lies near $0.6580 today. Despite being above 50 in H1 2025, Australia’s manufacturing PMI has decreased over three consecutive months, ending June at 50.6, down from a preliminary 51.0 (May: 51.0).
### Mexico
The US dollar marks its sixth consecutive session of decline against the Mexican peso, hitting fresh lows since last August near MXN18.6875. The breach of MXN18.80 hints at a likely exploration of MXN18.60, with potential stretching to MXN18.35 in the medium term. Options for $700 million at MXN18.65 are expiring today. The greenback touched BRL5.42 yesterday, a low since October.
With a 21.3% H1 return, the Brazilian real outpaces, while the Mexican peso offers a 16.3% return to dollar-based investors. Today, Mexico unveils its June manufacturing PMI alongside IMEF surveys akin to the PMI, illustrating a persistently weak economy, prompting Banxico’s fourth successive half-point cut last week. With an average of 46.9 through May, May’s PMI was at 46.7 after rebounding from April’s multi-year low of 44.8. The IMEF manufacturing and non-manufacturing surveys linger below 50 since March and August, respectively.
May sees worker remittances, Mexico’s main hard currency source, appear to dip slightly. Yet, the current budget proposal anticipates a novel federal tax (3.5% down from 5%) on remittances, though President Sheinbaum specifies a 1% tax on cash solely, exempting electronic transfers accounting for about 99% of remittances. A reimbursement plan via Finabien Card, a Mexican government-issued pre-paid debit card, aims to offset the remittance tax on cash.
