United States
US stocks and bonds have made a recovery from the previous day’s sell-off in Asia and Europe. Swiss National Bank President Schlegel voiced a common sentiment among Americans on Monday, stating that there’s “no alternative” to US Treasuries at present. The yields on 10- and 30-year Treasuries edged down by 3-4 basis points, while stocks ended the day on a high note. Nonetheless, the tug-of-war persists, as the dollar was offloaded again in the Asia Pacific and Europe this morning. The G10 currencies saw only the Antipodean ones slip, following a dovish rate cut in Australia. Emerging market currencies displayed mixed performance, with Romania’s leu taking a hit of around -0.75% after weekend elections, while Poland’s zloty was the strongest, gaining approximately 0.25%. Most major Asia Pacific markets rallied after the US equity rebound, with South Korea and India as exceptions. Europe’s Stoxx 600 added to gains from the previous session, potentially marking a fourth consecutive rise. Conversely, US index futures saw a dip of about 0.20%-0.45%. The 20-year bond auction in Japan was poorly received, causing a mild uptick in long-term yields, while Australia’s 10-year benchmark yield decreased by about a dozen basis points. European yields dipped 1-2 bp, with the US 10-year Treasury yield remaining near 4.45%. Gold prices held steady, trading between $3200 and $3250. As for the Dollar Index, it set a low above 100.00 in early North American turnover, then trended upward. During Asia Pacific trading, it rose slightly but fell again in early European activity, still staying above 100.00. Daily momentum indicators appear strained as the index recently bottomed a month ago. The release of US economic data this week seems to hold less sway, despite Moody’s downgrade, which was the last of the three major rating agencies to do so. Treasury Secretary Bessent raised the prospect of reciprocal tariffs similar to those in early April, though the strategic implications remain uncertain. With Beijing responding negatively to recent US measures against Huawei AI chips, potential retaliatory actions by China could loom. Fed officials continue to maintain a presence, with around half a dozen speeches expected today. Market expectations of the next Fed rate cut have shifted from Q3 to Q4, even casting doubt on the likelihood of two cuts this year. Fed futures suggest reduced confidence in multiple cuts, despite previous March projections. Fed official Bostic hinted at leaning towards a single rate cut this year.
Eurozone
The euro touched a high near $1.1290 in early North American turnover but later fell to around $1.1225. It holds just above a pre-weekend high of about $1.1220. The currency breached a four-week downtrend at $1.1260 but closed below it. As the euro consolidates within its upper range from yesterday, it remains below the 20-day moving average, which it hasn’t surpassed in two weeks. The eurozone saw a nearly 51 billion euro increase in its current account in March, bringing Q1’s total to around 131.76 billion euros, compared to almost 109 billion euros in Q1 of the previous year. Though this data is largely historical, it underscores the euro’s attractiveness compared to the dollar. The EC recently revised down its eurozone growth forecasts, anticipating 0.9% growth this year, down from November’s 1.3%. Next year’s forecast has also been trimmed to 1.4%. There is a risk these projections could be overly optimistic, as market consensus and IMF forecasts suggest lower growth rates. Inflation is projected to decline to 2.1% this year from last year’s 2.4%. ECB staff will update their forecasts next month, taking into account these economic conditions and figures.
United Kingdom
Sterling reached a new monthly peak yesterday, surpassing $1.3400 briefly before retreating to $1.3345. It recorded a marginal outside-up day by trading on both sides of last Friday’s range and closing above. Today, the pound trades in a narrower range below $1.3400. The Bank of England’s Chief Economist Pill has raised concerns about the pace of rate cuts, advocating for a more cautious approach. Pill dissented in the last meeting that decided on a rate cut. Households faced rising energy and water bills last month, contributing to an anticipated CPI increase of around 1% in April. Market expectations see an annual CPI rise to 3.3% from 2.6% in March, with the core rate potentially increasing to 3.6% from 3.4%. Futures markets discount a rate cut at next month’s central bank meeting but see a probable rate cut by August. By year-end, the interest rate may approach 3.75%, down from the current 4.25%, which has been the upper end of expectations since early April.
China
The US dollar reached a six-day high against the offshore yuan at CNH7.2265. Recent trends saw it bottom near CNH7.1790 last week, with the next significant range between CNH7.2350 and CNH7.2380. The PBOC adjusted the dollar’s reference rate to CNH7.1931, marking its first increase in three sessions and only the fourth this month. Demand for yuan from Chinese exporters and investors has reportedly increased, reflected in an April decline in foreign currency deposits after a three-year high in March. Chinese banks matched the PBOC’s 10 basis point cut in the key repo rate by lowering loan prime rates to 3.0% and 3.5% for the one-year and five-year terms, respectively. Following disappointing April data, pressures mount for stronger measures to bolster domestic demand.
Japan
The dollar was sold to an eight-day low just above JPY144.00 today, approaching resistance near JPY144.50 during European morning trading. A poor reception at the 20-year JGB auction triggered a sharp sell-off in long-term Japanese Government Bonds, with the 30- and 40-year yields spiking to new record highs. The Bank of Japan is currently assessing how quickly it should scale back its government bond purchases. April trade data is due tomorrow, with expectations for a seasonal narrowing of the surplus from March figures. Japan’s Q1 trade deficit averaged JPY532 billion monthly, compared to nearly JPY620 billion in Q1 of the previous year. Despite a Q1 GDP contraction, Prime Minister Ishiba dismissed calls for tax cuts and was cautious about additional government spending amidst rising borrowing costs, which already consume about a quarter of Japan’s annual budget (relative to 17% in the United States).
Canada
The greenback slipped to a three-day low, slightly under CAD1.3920, before rebounding to almost CAD1.3965. The currency pair has hovered within the CAD1.3895-CAD1.4015 range for five consecutive sessions, with today’s general movement between CAD1.3930 and CAD1.3970. Canada released its April Consumer Price Index today, with Bloomberg’s survey median predicting a 0.2% month-over-month decrease, marking the first decline of this year. Despite this anticipated decline, the annualized increase in the first four months of 2025 is expected to be 3.9%, following declines in the last four months of 2024. The end of a VAT holiday significantly influenced the rebound. Core inflation measures are expected to remain under 3%.
Australia
Ahead of the Reserve Bank of Australia’s anticipated quarter-point rate cut, the Australian dollar was bid up. The central bank’s cash target rate now rests at 3.85%. The RBA delivered a dovish cut, a decision between 25 bp or 50 bp reductions according to Governor Bullock. The bank revised growth and inflation forecasts downward, leaving room for a potential 65 bp cut in Q2 2026. Before today’s rate cut, the market anticipated a year-end target rate of 3.34%, which has now decreased to 3.16%. The central bank lowered its GDP growth forecast for the year to 2.1% from a previous 2.4%, and revised the CPI projection down to 3.0% from 3.7%. After the recent low, the Australian dollar remains below $0.6430, consolidating following trade below $0.6410.
Mexico
The US dollar stayed beneath MXN19.50, reaching new seven-month lows near MXN19.30 in late trading. Continued selling pressure today pushed the dollar below MXN19.26. The Mexican peso was the best performer in Latin America yesterday, being second only to the Argentine peso for the month (2.85% vs 1.80%). The US dollar closed below its lower Bollinger Band (around MXN19.3560) for the second time in four sessions. Current chart patterns offer little support before the MXN19.00-10 area. Mexico will release March retail sales data tomorrow, with an increase anticipated. However, May’s first-half CPI report on Wednesday could carry more weight. The year-over-year CPI is projected to reach 4% for the first time this year, with the core rate inching closer to 4%, aligning with the upper end of the target range (3% +/- 1%). Banxico’s next meeting is on June 26, where officials have kept open the possibility of a fourth consecutive 50 bp rate cut.
