# United States
The US dollar showcases a general strengthening trend, even amidst the light trading turnover typical of May Day. Despite a seemingly dovish decision by the Bank of Japan to maintain rates, the yen has emerged as the weakest among the G10 currencies. This move by the Bank of Japan included a cut in growth forecasts, reduced inflation projections, and a delay in achieving its inflation target on a sustained basis. Consequently, market participants have scaled back expectations of another rate hike this year. Meanwhile, the euro’s recent dip below $1.1290 has been corrected with a rebound above $1.1330, while sterling found support near $1.3275 following its recent pullback.
In Canada, the US dollar regained ground past CAD1.3820 today after hitting its lowest level since last October at CAD1.3270. The negative Q1 US GDP print has been mainly dismissed by the market, acknowledging the distortions arising from positioning around US tariffs, which have bolstered imports and inventories. Equity markets in the Asia-Pacific region, including Japan, Australia, and New Zealand, saw gains. In Europe, the UK’s momentum is driving the Stoxx 600 Index’s eighth consecutive session of gains. Strong US earnings, such as those from Microsoft and Meta, are uplifting US index futures today. The 10-year JGB yield dropped by about six basis points, settling slightly below 1.25%, its lowest since April 9. The US 10-year Treasury yield is also marginally lower, below 4.15%.
In the commodities market, gold extends its pullback, having dropped from $3500 on April 22 to around $3220 presently, dipping through the 20-day moving average (~$3233) for the first time since April 9. June WTI suffered another 2.3% decline after falling nearly 8% over the preceding three sessions, trading below $57, compared to finishing slightly above $63 last week.
The Dollar Index showed resilience despite the disappointing ADP private sector jobs estimate and a contraction in Q1 GDP, marking its highest settlement in three days. Follow-through buying saw it rise to almost 100.10 today, a level not reached since April 15. It later pulled back to around 99.70 by early European trading. While the consolidation phase remains positive, a settlement above 100.00 and ideally 100.25 is necessary to confirm the constructive technical outlook. Most US high-frequency data today is unlikely to be market-moving unless significant surprises occur. The weekly jobless claims are overshadowed by tomorrow’s non-farm payroll report. March construction spending has become less significant following yesterday’s Q1 GDP estimate. ISM manufacturing for April has been trailing behind manufacturing PMI, and regional Fed manufacturing surveys for April have largely disappointed.
# Eurozone
The euro saw a dip below $1.1290 — marking its lowest since April 16 — as it approached the 20-day moving average (~$1.1280), a level it hasn’t dipped below since April 3. It later rebounded to almost $1.1335, stalling amidst the holiday-thinned turnover in Europe. A settlement below $1.1300 would carry technical significance, possibly indicating a head and shoulders pattern forming, which could project a 2.5-cent decline. Tomorrow’s aggregate preliminary April CPI is due, with a 0.5% month-over-month increase expected, which due to the base effect might slow the year-over-year rate slightly to 2.1% from 2.2%. However, the core rate may edge up to 2.5% from 2.4%. Still, the euro’s appreciation and declining oil prices allow the ECB staff to potentially revise their 2025 inflation forecast downward from the 2.3% projected in March. The swaps market has 2.5 quarter-point rate cuts anticipated before year-end.
# United Kingdom
Sterling experienced a dip for the second consecutive session but merely erased most of Monday’s gains. Sterling’s decline accelerated in North American trading to around $1.3310 and reached $1.3275 today. It recently climbed to new session highs near $1.3335 in London. The UK holds local elections today, garnering more attention than weaker mortgage approvals and consumer credit figures. The final read of the April manufacturing PMI was revised upwards to 45.4 from the initial 44.0, marking a rise from March’s 44.9 and the first increase since January. It stood at 49.1 in April 2024 and 47.0 at the end of last year. The market remains confident that the Bank of England will resume its easing course next week, with the swaps market discounting three cuts and a 90% chance of a fourth this year.
# China
Chinese markets are taking an extended break for the May Day holiday and will not reopen until next Tuesday. The onshore yuan finished April at the lower end of the month’s wide range (~CNY7.26-CNY7.35). Usually, the offshore yuan remains stable during mainland closures, but broader dollar movements are crucial. The onshore trading range respected by the offshore market is typically around CNY7.0575-CNY7.3455. Currently, the dollar is ranging between CNH7.2665-CNH7.2870. Contrary to many projections, Beijing has not opted for a yuan devaluation to counteract tariff impacts. Instead, the PBOC has allowed slight flexibility in setting the dollar’s reference rate. By maintaining broad yuan stability against the dollar, the greenback’s depreciation results in a weaker yuan against other currencies.
# Japan
A less hawkish stance and increased uncertainty from the Bank of Japan aided the dollar’s climb toward JPY144.75 today. Earlier, it found support on Monday and Tuesday slightly below JPY142.00, recovering from JPY143.15 yesterday. The JPY144.00 level could serve as the neckline of a bottoming pattern projecting toward JPY148. As broadly expected, the Bank of Japan left its overnight target rate at 0.50%. Remaining likely to stand pat, the next meeting concludes on June 17. Revisions include a halved growth forecast for this year, from 1.1% to 0.5%, and core CPI (excluding fresh food) trimmed to 2.2% from 2.4%. Core CPI forecasts for the next fiscal year have been adjusted down to 1.7% from 2.0%, with a further adjustment to 1.9% in the next fiscal year. Achieving a sustainable inflation target has been postponed to the second half of the forecasting period, extending through 2027, with the US tariffs and retaliatory measures causing ongoing uncertainty.
# Canada
The US dollar began April near CAD1.4400 and reached its lowest level since last October near CAD1.3770 yesterday. Currently, it’s better bid, trading near session highs at approximately CAD1.3820 before the North American session. A move above CAD1.3835 would suggest the downside break was misleading. On a decisive break, the next near-term technical target could be the CAD1.3730 area, representing the 38.2% retracement of the post-Covid US dollar rally that started near CAD1.20. The April manufacturing PMI is due today; unlike other regions, a preliminary estimate is not available for Canada, making it fresh information. In March, it stood at 46.3, declining for the third consecutive month. In contrast, it was 49.8 in March 2024 and 52.2 at the end of last year.
# Australia
The Australian dollar continues to hover around the $0.6400 level, as it has since last week. It reached its highest since early last December on Tuesday near $0.6450, before dropping nearly a cent, only to find new bidders lifting it above $0.6400 again. After exceeding $0.6425 today, it has dropped back to nearly $0.6380. The 200-day moving average sits around $0.6460, a level not breached in almost five months. Earlier today, Australia reported March goods trade data, with three crucial highlights. First, since the US-Australia free-trade agreement took effect in early 2005, the US held a bilateral trade surplus of roughly $18 billion in 2024, a 16% year-over-year increase, though Australia faced the 10% across-the-board US tariff. Second, greater Australia goods trade has been recorded with China than with its next three trading partners (US, Japan, and South Korea) combined this year. Third, Australia’s goods surplus peaked on a 12-month rolling basis two years ago, and on a three-month rolling basis nearly three years ago. March saw a surplus surge to A$6.9 billion, far exceeding the A$4.3 billion recorded in March 2024 and more than double Bloomberg’s survey median projection. Exports registered a 7.6% surge in March, countering a 0.3% monthly decline in 2024 and lifting the Q1 average to a 1.4% monthly gain. Meanwhile, imports rose by an average 0.8% per month in 2024; March’s 2.2% slump brought the Q1 average to a 0.3% monthly decline.
# Mexico
Despite a promising Q1 growth report of 0.2% quarter-over-quarter, the peso found little favor, having followed a 0.6% contraction in Q4 2024. Economic activity benefited from an 8.1% surge in agriculture output, a recovery from a poor Q4 2024. However, industrial output fell by 0.3% while services remained flat. A risk-off mood and the sharp drop in oil prices, especially with PEMEX reporting losses, underline market uncertainties. The dollar continues to build a base in the MXN19.47-MXN19.50 area. Momentum indicators show signs of stalling but have not turned upwards yet. Given interest rate differentials, holding long positions on the peso remains favorable in a sideways market. The greenback reached a four-day high near MXN19.6775 today. Breaking above MXN19.75 may prompt some late peso longs to reconsider their positions. Upcoming economic releases include April’s manufacturing PMI, IMEF surveys, and remittances.
