United States
The US dollar has steadied after experiencing significant losses, reaching multi-year lows against the euro and sterling, and decade-long lows against the Swiss franc. Recent developments, including impending trade deals and the confirmation of an agreement with China, have been somewhat supportive. The US also received an exemption from the OECD’s Pillar 2 corporate tax reform and has decided to drop the onerous “revenge tax” of Section 899 from the budget proposal. There is speculation that the postponement of the reciprocal tariff will be extended past its July 9 deadline. Despite these supportive moves, the US dollar remains largely pinned near its recent lows. Equity markets have responded more favorably; most Asia-Pacific markets advanced, except for China, Hong Kong, South Korea, and Australia. In Europe, the Stoxx 600 has risen nearly 1%, potentially marking the first back-to-back advance in three weeks. US index futures are up by 0.2%-0.3%. Benchmark 10-year yields have firmed, with a two-basis point rise in Japanese Government Bonds and a slight rise in European yields. The 10-year US Treasury yield is about three basis points higher at 4.27%. Meanwhile, gold prices have dipped to a new low for the week, near $3282, also marking a new low for the month.
Eurozone
The euro saw a surge as a result of option-related demand, briefly breaking through $1.17. This may have been influenced by nearly six billion euros in options set to expire. Following this peak, the euro traded within a tight range around $1.17. If it breaks below $1.1680, short-term momentum traders might retreat, potentially pushing the euro back to the $1.1650 area, which is significant due to upcoming expirations. The euro has not experienced a decline since last Tuesday, marking its longest stretch of advances in nearly a year. Recent economic data shows that both France and Spain reported higher than expected June CPI figures, with France’s CPI rising to 0.8% and Spain’s at 2.2%. The overall eurozone CPI is expected to rise by 0.2%, maintaining a year-over-year rate of 1.9%.
United Kingdom
Sterling is at a critical juncture after a four-day upward trend that saw it recover significantly from Monday’s low. It managed to settle above its upper Bollinger Band and reached a high of $1.3770. Should it break past this high, it could head towards the $1.3840 mark. Today, it is trading mostly between $1.3720 and $1.3750. A potential decline below $1.3700 could lead to adjustments, pushing the pound down to $1.3650, where stronger support exists.
China
The US dollar fell to a new low for the year against the yuan and made a slight recovery thereafter. It has stabilized today, trading within yesterday’s range. The People’s Bank of China set the dollar’s reference rate at CNY7.1627 today. The Hong Kong Monetary Authority’s interventions to defend the Hong Kong dollar peg may have alleviated some upward pressure on the yuan. Recently reported data shows that industrial profits in China fell by 1.1% for the first five months of the year compared to the same period last year. The confirmation of the trade agreement with the US is expected to lead to the lifting of some US sanctions and renewed ethane supply, following shipments of rare earths and magnets from China.
Japan
The US dollar experienced a decline against the yen, moving from almost JPY146 to JPY143.75, driven largely by the US dollar’s overall weakness and a drop in US rates. It traded quietly today in a narrow range and settled below its 20-day moving average for the first time in two weeks. Tokyo’s recent CPI data indicates prices eased slightly more than expected. The headline CPI rose 3.1% year-over-year, with core measures also showing a decline. Japan’s May retail sales data showed an unexpected drop of 0.2%. The country’s economy contracted by 0.2% at an annualized pace in Q1 and seems to have slightly improved in Q2. The unemployment rate remains steady at 2.5%, though the job-to-applicant ratio fell to 1.24, matching its lowest since early 2022.
Canada
The Canadian dollar experienced its largest gain of the month, with a 0.7% increase. The US dollar, having peaked earlier this week, slipped to nearly CAD1.3620 yesterday and has maintained its position above this level today. The Canadian dollar, although seeing gains, remains one of the lesser-performing G10 currencies for the year. Options worth $875 million are set to expire, with this year’s low recorded near CAD1.3540.
Australia
The Australian dollar reached a seven-month high following a four-day rally. It experienced a 3% surge from Monday’s low, achieving a high point yesterday. Despite fluctuations today, this movement does not reflect a change in monetary policy expectations. The futures market is strongly indicating a rate cut at the upcoming July meeting, anticipating a significant cut for the year.
Mexico
In line with expectations, Mexico’s central bank enacted a rate cut, their fourth consecutive reduction. While the bank signaled continued rate cuts, it also tempered expectations for drastic moves. Despite ongoing inflation, the peso has continued to perform positively. The US dollar traded within a tight range against the peso, with a possibility of slightly extending this range today. However, the buying momentum for the peso doesn’t appear depleted.
