### United States
Yesterday saw some dollar buying in the North American afternoon, driven by speculation that the US might deepen its involvement in hostilities with Iran and anticipation of the FOMC meeting’s outcome. Although there was some follow-through buying in G10 currencies like the Swedish krona and Swiss franc, the overall movement was limited. Emerging market currencies showed a mixed performance, with Asia Pacific currencies mostly down except for the Chinese yuan. The major stock exchanges in the Asia Pacific region displayed a varied performance, with Japan, South Korea, and Taiwan marking gains, while the Hang Seng and markets in Australia and India experienced declines. In Europe, the Stoxx 600 index hovered around the unchanged mark, and US index futures were up modestly. In the bond market, 10-year yields were slightly lower in Europe, with the US 10-year Treasury yield easing to around 4.38%.
The Dollar Index (DXY) reached a four-day high despite disappointing retail sales and industrial production figures for May, alongside a softer interest rate environment in the US. Trading in the DXY saw it edge higher to about 98.85, slightly below the 20-day moving average near 99.00, a threshold it hasn’t crossed in nearly a month. Prior to the FOMC meeting, minor data releases on housing starts and weekly jobless claims will serve as appetizers. Although no policy change is expected from the Federal Reserve, updates to the Summary of Economic Projections and guidance on quantitative tightening are anticipated. Despite speculation about a reduction in the number of rate cuts, it seems likely that the Fed’s median projection will still show two cuts this year given rising jobless claims and sluggish job growth.
### Eurozone
Despite a pause in upward momentum last Friday and Monday near a little above $1.16, the euro has fallen back, hitting near $1.1475 late yesterday. Today, it’s held yesterday’s low but faced resistance around $1.1525. A drop below $1.1470 might lead to further declines. The euro’s movement reflects diminishing upside momentum and some traders sidelining ahead of the FOMC meeting’s conclusion.
### United Kingdom
Sterling experienced a substantial drop of more than 1% yesterday, marking its largest decline since early April and making it the worst performer among G10 currencies. Falling to nearly $1.3425, sterling closed below the 20-day moving average for the first time in a month. Despite moderate inflation figures for May, the likelihood of a near-term rate cut by the Bank of England appears low. Expectations for a potential rate cut at the next meeting in August have risen significantly.
### China
The dollar edged higher against the offshore yuan yesterday, yet remained confined within its recent trading range. Holding below CNH7.1940, it has not exceeded CNH7.20 for a couple of weeks. The People’s Bank of China (PBOC) continued guiding the yuan higher, strengthening the reference rate on eight of the month’s first 12 sessions. Today’s reference rate was set at CNY7.1761. A breach above CNH7.20 could move the dollar towards the CNH7.2250 range.
### Japan
The US dollar rose to nearly JPY145.40 yesterday in the latter part of the session and managed to settle above JPY145 for the first time since mid-May. It has since hovered around the JPY145 area in late European trade. Japan’s trade balance deteriorated in May, with merchandise exports dropping year-over-year for the first time since last September. Core machine orders in Japan also experienced a significant decline in April, pointing to a weak start for Q2.
### Canada
The US dollar rebounded sharply yesterday from its eight-month low against the Canadian dollar set earlier this week. Holding above CAD1.3650 today, resistance is anticipated in the CAD1.3685 to CAD1.3730 range. Market expectations for the Bank of Canada’s policy adjustments have shifted, pointing to a slight rise in the target rate forecasts.
### Australia
The Australian dollar reversed Monday’s gains yesterday, falling close to $0.6465, although it later recovered to near $0.6515. With Australia’s job data due tomorrow, expectations are tempered following April’s robust growth. The labor market appears resilient, but the futures market is pricing in an 85% likelihood of a rate cut in July and anticipates further cuts by year-end.
### Mexico
Following a recovery from its lowest level since last August, the greenback reached just above MXN19.05 yesterday. The exchange rate is consolidating in a narrow band today. There is potential for further gains if last week’s high is surpassed, with an initial target around MXN19.20. Despite inflation being above target, both markets and economists anticipate a 50 basis point rate cut from Mexico’s central bank next week. Meanwhile, Brazil’s central bank is expected to keep its Selic rate unchanged at 14.75%.
