## United States
As the week comes to a close, the US dollar (USD) is showing strength, propelled primarily by the recovery in US interest rates. This move has seen the dollar rise towards JPY148 from below JPY146, amid rising expectations that the Bank of Japan might increase rates later in the year. The week has been marked by a series of events that have bolstered the dollar, including a sixth consecutive decline in weekly jobless claims and a stronger-than-expected July composite PMI of 54.6, bolstered by growth in services despite manufacturing’s first sub-50 reading for the year. The Dollar Index rose for the first time since last Thursday, trading slightly above 97.70, with resistance extending towards 97.80. Economists anticipate a slowdown in private investment for Q2 and Q3, with preliminary estimates of June durable goods orders expected to show a deceleration compared to May. Next week looms large with several key releases, including the first estimate of Q2 GDP, the FOMC meeting, and data on the PCE deflator and July jobs.
## Eurozone
The euro has experienced upward momentum, rising above previous daily highs for five sessions. It reached close to $1.1790, the highest since July 7, but later slipped below $1.1735. The ECB’s latest meeting was perceived as hawkish, prompting a reduction in the market’s expected probability of a rate cut by the year’s end. German two-year bond premiums over their US counterparts have narrowed, with daily momentum indicators trending upward. The eurozone’s M3 money supply increased by 3.3% in June, with loans to businesses and households also showing modest gains. German IFO survey results indicated slight improvements in business expectations and overall climate, suggesting steady albeit cautious optimism.
## United Kingdom
The British economy continues to struggle, mirrored by a weaker sterling. June retail sales saw only a 0.6% recovery following May’s 2.8% drop, leading the currency to dip further, slipping towards $1.3450. The week also presented disappointing PMI figures, reinforcing concerns about economic performance. Q2 retail sales fell by 0.6% from Q1, with the UK economic growth slowing compared to its G10 counterparts. As retail sales languish, May GDP showed a 0.1% contraction, a worrying indicator for future performance.
## China
China’s yuan achieved a new high for the year, with gains noted in both onshore and offshore trades. However, the currency posted a recovery against the dollar from previous highs. The PBOC’s setting of a higher dollar value reflects some of the recent currency shifts. June’s industrial profits are anticipated to show further contraction. Discussions about China’s economic model, likened to the “Rhine Model,” suggest systemic issues with over-investment and capacity. Despite the narrative of under-consumption, China’s consumption is on the rise, albeit outpaced by investment.
## Japan
The dollar saw strong support against the yen, approaching JPY147.90 as the US ten-year yield remained firm. Tokyo’s CPI figures revealed a slight decrease, staying at 2.9% year-over-year, while core measures excluding fresh food also eased. Swaps markets have recalibrated expectations for rate tightening towards the year’s end, showcasing a growing belief in potential monetary adjustments.
## Canada
The Canadian dollar saw fluctuations, dipping to near three-week lows before staging a comeback. Retail sales painted a gloomy picture with a 1.1% decline in May, spurred by lower automotive sales. Despite the drop, June sales are anticipated to show a rebound. Trade tensions with the US have also emerged as a significant concern for Canadian businesses, impacting prices and demand.
## Australia
The Australian dollar’s recent rally lost momentum, with a new yearly high of $0.6625 set before retreating. Future market expectations for rate cuts have been tempered, largely in response to comments from the Reserve Bank of Australia’s Governor. Continued economic optimism relies on upcoming Q2 CPI figures not presenting any pronounced downside surprises.
## Mexico
The Mexican peso maintained its strength, reaching yearly lows earlier in the week. Though inflation figures for early July were softer than expected, overall progress in reducing inflation has been noted. The peso’s movement remains narrowly constrained as markets monitor developments closely. Despite economic challenges, the outlook for further strengthening remains plausible.
