### United States
The US dollar exhibits a slight weakness against most G10 currencies today, with the exception of the Scandinavian currencies. This comes ahead of the highly anticipated US CPI report. Despite recent softer CPI readings, economists anticipate increased price pressures in the near term. Notably, the US has imposed a 17% tariff on Mexican tomato imports but appears to have approved Nvidia’s plan to sell H20 chips to China, boosting Chinese tech stocks. The CSI 300, however, saw only modest gains.
In other market movements, the Stoxx 600 in Europe posts slight gains after a two-session retreat, while US index futures signal a stronger start. European benchmark 10-year yields are down by 2-5 basis points, with US Treasury yields decreasing slightly to below 4.42%. In Japan, the 30-year yield dipped slightly while the 40-year bond yield increased by 11 basis points before settling at around 3.49%.
Gold remains firm around $3355, though below yesterday’s high of $3361. Meanwhile, August WTI extended losses to nearly $66.25, but rebounded to above $66.80.
The Dollar Index extended its gains, reflecting the highest year-end implied Fed funds futures yield since mid-June. The 98.25 level in the Dollar Index remains a critical resistance point, while initial support emerges in the 97.50-70 range. With important economic data like June CPI, PPI, retail sales, and industrial output set to release soon, the market continues recalibrating September rate cut probabilities, now standing at around 65%.
### Eurozone
The euro neared the $1.17 mark across all three geographic sessions yesterday, though disappointment led to some liquidation, pushing it back to $1.1660. The $1.1640 level marks the 50% retracement of the rally since June 23. Yesterday saw the euro settle below the 20-day moving average for the first time since mid-May, although it rebounded slightly today without crossing the $1.17 threshold.
Eurozone industrial output climbed 1.7% in May, outperforming expectations and recovering from April’s revised 2.2% drop. This marks a 3.7% year-over-year increase, breaking the negative trend since mid-2023. Germany’s ZEW survey indicates improved investor confidence, with current conditions assessed at -59.5, the best since June 2023, and expectations rising for the fourth consecutive month to 52.7, a level not seen since early 2022.
### United Kingdom
Sterling fell for a seventh straight session, the longest losing streak since March 2020, hitting a low of $1.3425 today. Minor bids have emerged, potentially ending the streak. The UK’s June CPI report is due tomorrow, anticipated to show a 0.1% rise, maintaining the year-over-year rate at 3.4%. The core rate is expected at 3.5%, with services inflation forecasted to slightly decrease to 4.5% from 4.7%. The prevailing weak economic backdrop fuels market confidence in a September rate cut, with odds surpassing 90%.
### China
The US dollar traded quietly against the yuan yesterday within the range seen at last week’s close. Support lies near CNH7.1630, while resistance may arise around CNH7.1835, with the exchange rate comfortably within a CNH7.15-CNH7.20 range. China’s economy grew by 1.1% quarter-over-quarter in Q2, translating to a 5.2% year-over-year increase, down from Q1’s 5.4%. Retail sales slowed in June, while industrial output improved. However, the property market faced intensified decline, evidenced by faster drops in home prices and contracted property investment and sales. These figures may alleviate the pressure on this month’s Politburo meeting for additional support.
### Japan
The stable US 10-year yield contributed to the dollar nearing JPY147.80, its highest since late June. Despite inching higher today, upward momentum remains unstained. The dollar-yen exchange rate’s correlation with the 10-year Treasury yield approached 0.70, a high since February. However, Japanese bond yields rose more rapidly, with the US 10-year premium over Japan trending lower, from April’s peak of 316 bp to 280 bp and now near 284 bp. Japan’s 30- and 40-year bond yields show significant increases over the past months, outpacing rises in corresponding Dutch, German, Canadian, French, and US Treasury yields.
### Canada
The US dollar remains confined within a CAD1.3640-CAD1.3730 range for the past five sessions, with the five-day moving average crossing above the 20-day one. The greenback surpassed CAD1.3700 for the first time since June 25, setting the next targets near CAD1.3740 and more significant resistance between CAD1.3780-CAD1.3800. Canada’s headline inflation is expected to rise from 1.7% to 1.9%, although underlying core rates are predicted to remain at 3.0%. While the market considers less than a 20% possibility for a September rate cut, there’s a 90% likelihood for a cut by year-end.
### Australia
The Australian dollar peaked near $0.6595 over the weekend but faced profit-taking, dropping half a cent. Options for $0.6560 expire today, with follow-through selling limited to around $0.6540. Last week’s low touched $0.6485, with potential for another cent decline. Following the prior week’s central bank meeting, the year-end futures rate climbed to 3.29% before retracting to 3.23% and is now around 3.26%.
### Mexico
The US dollar reached a week-high against the peso, nearly touching MXN18.78, following a 30% tariff threat over the weekend. Despite easier market conditions today, trading below MXN18.68 in Europe could mark the end of the short-lived upside correction. The Brazilian real and Chilean peso showed worse performance regionally. Last week, the dollar rose over 2.5% against the Brazilian real, halting a five-week decline. Trading remains within last Thursday’s range, with upside next targeting BRL5.66.
