# United States
Speculation abounds that Japan will step in to stabilize the volatile government bond market, leading to a short-covering rally for the dollar. The currency had started the week on a weaker note but rebounded in response to Japan’s market interventions. However, the yen remains the weakest among G10 currencies, depreciating around 0.75%. This trend might trigger North American stakeholders to offload the greenback. US Treasury yields have experienced a dip, with the 10-year yield down four basis points near 4.47%, while equities are generally climbing, except for some major Asian markets which remain subdued.
The Dollar Index, dipping to a new monthly low of 98.70 last week, began a recovery on speculation of Japanese measures to bolster bond markets, reaching 99.40 during early European turnover. A further rise above 99.50 could target the 100.00 mark. With the reopening of US and UK markets after a holiday break, the focus turns to high-frequency US data, including April durable goods orders, which are expected to show a decline due to reduced Boeing orders. Meanwhile, March house prices and May consumer confidence data from the Conference Board are anticipated to show improvements.
# Eurozone
The euro reached over $1.1400 for the first time since late April, only to be pushed back to $1.1335. Buying interest is likely on this pullback according to intraday momentum indicators. Moody’s recent upgrade of Italy’s debt outlook to positive helped compress the yield premium of Italian over German 10-year bonds to a four-year low. The eurozone saw slight gains in confidence measures, although they had little immediate market effect. Tomorrow, the ECB will release its April inflation survey, which is expected to remain near March’s expectations of 2.9% and 2.5% for one- and three-year forecasts, respectively.
# United Kingdom
Sterling experienced a bullish surge late last month, reaching nearly $1.3545 before the holiday weekend and further extending to almost $1.3600 in light trading yesterday. This bullish run saw the currency settle above its upper Bollinger Band for the second consecutive session, a first for this year. After unexpectedly high CPI and retail sales figures, the market postponed expectations for the Bank of England’s next rate cut to November, pushing the year-end base rate towards 3.80%. This divergence in rates between the eurozone and the US, along with the new tariff threats on the EU, have supported sterling. The next resistance area might be between $1.3630 and $1.3650.
# China
China’s April industrial profits showed a 1.4% year-over-year increase, reversing three years of declines. Despite limited immediate market impact, Chinese companies are intensifying their market share battles, evident in BYD’s price cuts for 22 electric and plug-in hybrid models. This move follows their record sales month and marks the first time they’ve outsold Tesla in Europe. The dollar’s decline against the offshore yuan hit a new low since last November, nearly reaching CNH7.1615 before recovering. The People’s Bank of China’s recent rate adjustments also impacted, setting the dollar’s reference rate at CNY7.1876, marking the largest adjustment since April 7.
# Japan
BOJ Governor Ueda’s hawkish remarks and subsequent actions to stabilize the bond market led the dollar to possibly reverse its downward trend against the yen. Despite a desire to slow bond purchases, long-term yields have surged, and with appropriate rate hikes in the offing amidst persistent price pressures, uncertainty remains. Economic contraction in Q1 further complicates Japan’s outlook. The farm ministry’s release of additional rice stocks aims to curb price hikes but remains ineffective. Tokyo’s impending May CPI, expected to show minor declines, especially in core metrics, remains crucial for the central bank’s strategies.
# Canada
The US dollar dipped to a new low for the year against the Canadian dollar, reaching CAD1.3685. This continues its downward trend since a February high of CAD1.48. Current odds suggest a reduced likelihood of US rate cuts following recent data. The dollar’s recent recovery positions it within a resistance range of CAD1.3780-CAD1.3800. With Q1 GDP figures due shortly, expectations are set for a 1.7% annualized growth, following Q4’s 2.6% growth. Weekend comments from Bank of Canada Governor Macklem highlight US tariffs as Canada’s main challenge.
# Australia
The Australian dollar marked a new high of the year at $0.6535, with eyes set on the $0.6550 target, reflecting a significant decline since September’s high. Softer April CPI data, anticipated to be around 2.2%, indicates a decline from previous months, although the Reserve Bank of Australia’s upcoming meeting will not base decisions on this figure alone. Meanwhile, the Reserve Bank of New Zealand is expected to lower its rate by 25 basis points to 3.25%, with markets predicting further cuts by year-end.
# Mexico
The US dollar fell to a seven-month low against the Mexican peso, albeit temporarily dipping below MXN19.1850, after last week’s high of MXN19.46. Despite recent firmness, the dollar may soon challenge resistance levels around MXN19.3960. Mexico’s upcoming central bank inflation report gains attention, with growth forecasts recently slashed to 0.6%. This figure remains challenged by the IMF’s forecast of a 0.3% decline, with Bloomberg’s consensus skewing to a 0.1% contraction. The central bank expects recent CPI hikes to be short-term, projecting headline and core rates to moderate to 3% by next year.
