# United States
The US dollar continues to show weakness, being pummeled today across G10 currencies and all but two emerging market currencies, the Russian ruble and Turkish lira. This downturn follows reports suggesting a potential successor for Fed Chair Powell might be announced soon, unsettling investors who perceive this as an attempt to influence the Federal Reserve too directly. Expectations for a Fed rate cut in July have slightly increased in the Fed funds futures market, now pegged at a 1-in-4 chance, with 63 basis points of easing anticipated before the year’s end – the highest since early May. Along with the conclusion of the current month and quarter and the looming end of the respite from reciprocal tariffs on July 9, these factors are dragging down the dollar.
In equity markets, prices are predominantly on the rise. However, exceptions in the Asia-Pacific region include markets in China, Hong Kong, Australia, and South Korea. In Europe, the Stoxx 600 is up around 0.25% at midday after a near 0.75% decline yesterday. US index futures suggest a slight positive opening, gaining between 0.2% to 0.4%.
On the bond front, the yield on the benchmark 10-year US Treasury has softened. Currently, the two-year yield is experiencing a slight rise, while other European government bonds are mostly easing by 1-2 basis points. The 10-year yield has dipped by one basis point to 4.28%. Fed funds futures indicate an expected rate of 3.70% by year-end, marking an 11 basis point decline from last week’s close.
Commodity prices show gold firming up, but still trading within Tuesday’s range of $3,295-$3,370. Similarly, August WTI crude remains within Tuesday’s range, modestly recovering along similar lines.
The Dollar Index has seen a second drop this week, setting a new three-year low as it frays the 97.00 mark in Europe. Technically, the outlook doesn’t suggest significant support levels until around 95.00, and the market is reaching oversold levels with the lower Bollinger Band near 97.40. Today’s economic report calendar is extensive, with key attention on the goods trade report, potentially showing a surge in imports following postponed tariffs. May durable goods orders may receive a boost from Boeing orders, but excluding aircraft and defense, they are likely to have declined for the second consecutive month. Market participants also await revisions to Q1 GDP data, while assessments project a September rate cut as more plausible than July.
# Eurozone
In the Eurozone, the euro advanced to a new three-year high, surpassing $1.17 and peaking near $1.1745. The upper Bollinger Band is slightly above $1.1690, with the next significant chart areas seen at $1.19-$1.20. The U.S. premium over Germany on two-year yields narrowed from 213 basis points last week to 193 basis points – the tightest since April. A similar pattern is observed in the 10-year yield premiums, which have contracted to around 173 basis points from 195 basis points, showing some stability after recent contractions.
# United Kingdom
In the UK, sterling has reached a new three-year high, climbing above $1.3670 and pushing further to $1.3765. It briefly traded below $1.3600 yesterday but rebounded and aims for resistance near $1.3830. From a technical viewpoint, sterling breaking last week’s lows while exceeding the highs points to bullish momentum if this week closes above $1.3620. Earlier reports of Shell being in active talks to acquire BP have been dismissed, yet sterling continues to rise. The euro-sterling cross remains steady with minor changes.
# China
The US dollar hit a low against the Chinese yuan, reaching CNH7.1525, before recovering to CNH7.1660 in Europe after reports of state bank interventions surfaced. Meanwhile, the PBOC adjusted the dollar’s reference rate lower today. At the same time, Hong Kong’s Monetary Authority intervened to support its currency by selling dollars to buy Hong Kong dollars, aiming to influence liquidity positively. The currency has been a funding currency and the intervention will affect liquidity and firm HIBOR.
# Japan
Japan saw the yen slightly weaken against the dollar while European and sterling counterparts rose to new highs. Recently, the greenback rebounded from JPY144.55 and approached JPY146. Yet today’s weaker dollar reversed this trajectory, reaching an eight-day low of JPY143.75. Market participants observe trendline support near JPY143.35 with a mid-June low around JPY142.80. Japanese investors, after consistent purchases of foreign bonds, continue to buy, as evident in the recently released MOF report. Meanwhile, Japan prepares to disclose Tokyo CPI and retail sales figures tomorrow.
# Canada
The Canadian dollar showed a stronger stance against the US dollar, following its fluctuation post-European market session close. The USD/CAD pair peaked near CAD1.3755 but later retreated to test lows around CAD1.3680. The Canadian economy prepares to release April GDP data. Expectations suggest no change in monthly GDP, comparing this to a prior 2.2% annualized quarterly growth. In monetary policy, the Bank of Canada hinted that its easing cycle is nearing its end, with the swaps market pricing another potential cut later this year.
# Australia
The Australian dollar is experiencing a three-day rally, equaling its longest in two months. Recently, it faced resistance at $0.6515, hinting at challenges ahead at $0.6550 and potentially $0.6700. Australia’s two-year yield differential with the US is recovering following a dip earlier this month, indicating a 60 basis points difference. However, current trends emphasize the Australian dollar’s correlation with the US Dollar Index, maintaining a stable correlation coefficient.
# Mexico
In Mexico, peso demand persists as evidenced by the currency’s rebound from the USD/MXN spike earlier in the week. Unfolding economic events include the soon-to-be-released May trade balance and the central bank’s monetary policy decision. Despite occasional trade deficits in the early months of the year, exports showed a year-over-year increase, alongside rising vehicle exports to Mexico. The country’s CPI remains above target, yet the central bank is widely expected to enact another rate cut. Market sentiments indicate anticipation for a 7.5% terminal rate in Mexico’s monetary policy adjustments.
