United States
The US dollar is consolidating within the ranges established at the close of the previous week, as geopolitical tensions continue to weigh on broader risk sentiment. The greenback remains firm amid mixed signals from the macroeconomic backdrop and ongoing uncertainty surrounding Middle East developments. Oil prices have surged 3-4% today, reflecting the escalation of military operations and the absence of meaningful diplomatic progress over the weekend, despite expectations for a US policy announcement following White House Situation Room discussions.
The manufacturing sector remains a focal point for traders today. The final US manufacturing Purchasing Managers’ Index is overshadowed by the more closely watched ISM manufacturing report, which carries greater weight in market reaction. The ISM has historically lagged behind the PMI gauge, but after stalling at 52.7 in April, another rise is expected to lift the index to its strongest level in nearly four years. This would represent a notable recovery in factory activity. The labor market context is important here: the US has generated approximately 16,000 manufacturing jobs year-to-date after experiencing losses of 108,000 in 2023 and 180,000 in 2024. The trajectory suggests stabilization in this economically sensitive sector, though the overall employment picture remains subject to broader cyclical pressures.
On the Treasury front, benchmark 10-year yields have softened over the past week, buoyed by declining oil prices, which have eased inflation expectations and raised hopes that a resolution to Middle East hostilities could reduce pressure on central banks to maintain restrictive stances. The streak of declining US 10-year yields extended for seven consecutive sessions ahead of the weekend, matching the longest decline since July-August 2024. However, yields are firmer in early trading today, with the 10-year Treasury yield up approximately three basis points to nearly 4.47%. This intraday reversal underscores the tension between risk-on sentiment driven by ceasefire hopes and the reality of elevated geopolitical risk premiums still embedded in fixed income markets.
Eurozone
The euro posted a notable advance to approximately $1.1685 ahead of the weekend, achieving its strongest level in just over two weeks as hopes for an extended Middle East ceasefire encouraged risk-taking. This level represents roughly the halfway mark of May’s trading range. The common currency is now trading within last Friday’s range, confined to approximately $1.1640 to $1.1670 in early European turnover. The technical setup suggests consolidation after the weekend rally, with traders reassessing the sustainability of the advance in light of mixed economic data from the eurozone.
The eurozone’s economic data flow confirms a modest expansion with some softening signals. The final manufacturing PMI for May stands at 51.6, down from the preliminary estimate of 51.4 and lower than April’s 52.2. This first pullback in the index after several months of improvement suggests that momentum in the manufacturing sector may be moderating. The unemployment rate remained steady at 6.3%, though it is worth noting that the March series was revised upward from the eurozone-era low of 6.2% to 6.3%, indicating a slightly softer labor market than initially reported. Money supply figures continue to attract less attention than in previous cycles, but the lending data released alongside monetary aggregates merit scrutiny. Loans to households rose by 3.0% year-over-year, matching the February pace, while lending to non-financial firms accelerated to 3.2% from 3.0%, suggesting that credit conditions remain accommodative despite the European Central Bank’s tightening cycle. The ECB’s survey of inflation expectations reveals one-year expectations holding steady at 4.0% (unchanged from March), while three-year inflation expectations slipped to 2.9% from 3.0%, indicating that longer-term price expectations are gradually anchoring closer to the ECB’s 2% target.
United Kingdom
Sterling has stalled near the 20-day moving average for the third time in approximately two-and-a-half weeks, currently trading slightly below $1.3480 in early European sessions. At last week’s high near $1.3510, cable approached the 61.8% retracement level of May’s decline, a technically significant level that would need to be overcome to improve the technical tone. For now, sterling is confined to roughly a quarter-of-a-cent range below $1.3475. Option expiries are noteworthy: approximately GBP650 million in options struck at $1.3420 and almost GBP620 million at $1.3450 expire today, representing potential technical anchors for intraday price action.
The UK manufacturing sector continues to expand at a moderate pace. The final May manufacturing PMI stands at 53.9, revised upward from the preliminary estimate of 53.7, matching April’s level. This represents a significant recovery from May of the prior year, when the index stood at 46.4, and shows clear improvement from the 50.6 reading at the end of 2024. The persistent expansion above the 50 neutral threshold suggests that UK manufacturers are navigating current conditions with reasonable resilience, though the pace of growth remains moderate rather than robust. The technical picture in cable suggests consolidation, with the currency awaiting either a clear break above the 61.8% retracement to confirm a more sustained recovery or a failure to overcome this level, which could trigger a retest of recent support.
China
The yuan’s appreciation trend continues to gain momentum, reaching a new three-year high ahead of the weekend. The greenback fell to nearly CNH6.76 and CNY6.7660, marking a substantial advance for the Chinese currency. Year-to-date through May, the yuan has appreciated 3.15% to 3.30%, establishing itself as the strongest currency in the Asian region by a considerable margin. The PBOC set the dollar’s reference rate at a marginal new low of CNY6.8167, compared to CNY6.8176 before the weekend, continuing the gradual downward pressure on the dollar’s fixing rate. The dollar is consolidating today between CNH6.7620 and CNH6.7685 as traders digest the implications of sustained yuan strength.
The narrative surrounding yuan appreciation warrants careful examination. Claims that the yuan’s strength would provide cover for other regional currencies to appreciate have proven wide of the market reality. Among other Asian currencies, only the Malaysian ringgit has appreciated meaningfully at approximately 2.4%, while the Singapore dollar has risen roughly 0.75% and the Taiwanese dollar has gained approximately 0.20%. Even the Hong Kong dollar has declined about 0.70% year-to-date. This divergence suggests that China’s underlying price competitiveness improvement substantially exceeds what the modest yuan appreciation alone would suggest, indicating that domestic cost pressures or productivity gains are the primary drivers of competitiveness shifts rather than currency movements alone.
China’s May PMI data, reported over the weekend, showed little directional change from April. The manufacturing PMI stands at 50.0, down marginally from 50.3 in April, hovering at the neutral threshold. The non-manufacturing PMI rose to 50.1 from 49.4, indicating a slight improvement in service sector activity. The composite PMI stands at 50.5, up from 50.1 and matching the highest level of the year. The Caixin manufacturing PMI, which typically runs hotter than the official gauge, fell to 51.8 from 52.2, suggesting that private sector activity is softening slightly. Beijing has also published new rules effective July 1 that require closer scrutiny of overseas real estate investment, a regulatory tightening that could affect capital flows and currency dynamics in coming months.
Japan
The greenback continues to hold above JPY159, maintaining a level that has not been breached on a settlement basis since last Monday. The market continues to test the resolve of Japanese officials, with the Bank of Japan’s recent intervention efforts having generated limited lasting impact on the yen’s trajectory. The BOJ confirmed that it purchased JPY11.7 trillion between late April and late May, a substantial intervention effort that nonetheless failed to arrest the yen’s depreciation trend ahead of the weekend. The dollar settled above JPY159 for the fourth consecutive session and appears positioned to do so again today, pinned in a quarter-of-a-yen range above JPY159.25. Options activity is concentrated around this level: approximately $1.3 billion in options struck between JPY159.25 and JPY159.27 expire today, suggesting that this technical zone represents an important pivot point for intraday trading.
The yen was the weakest of the G10 currencies in May, declining nearly 1.7% after appreciating approximately 1.35% in April. This reversal reflects the broader shift in risk sentiment and yield differentials favoring dollar strength. Japan’s first-quarter GDP data, released today, showed quarter-over-quarter growth of 0.6%, exceeding expectations. The figures suggest that capital expenditure may have slowed more than initially anticipated, even as the headline growth number surprised to the upside. Looking forward, market participants are discounting a more modest pace of expansion in the second quarter, with consensus estimates pointing to approximately 0.3% quarter-over-quarter growth. This deceleration would reflect both cyclical normalization and the lagged effects of the BOJ’s monetary tightening cycle.
Japan’s final May manufacturing PMI confirmed the preliminary reading of 54.5, a small pullback from April’s 55.1 but still well above the neutral threshold. The index stood at 49.4 a year ago and 50.0 at the end of 2024, indicating sustained expansion in factory activity. The persistent expansion suggests that Japanese manufacturers are benefiting from export demand and supply chain normalization, though the modest sequential decline raises questions about the sustainability of momentum heading into the summer months.
Canada
The Canadian dollar posted a six-session high ahead of the weekend as geopolitical hopes offset disappointing first-quarter GDP data. Canada’s Q1 2024 GDP showed the second consecutive quarterly contraction, a concerning development that typically would weigh more heavily on the loonie. However, the risk-on sentiment surrounding Middle East ceasefire prospects proved more influential. The greenback fell to CAD1.3770 after posting a bearish key reversal in the previous session, but it has mostly held above CAD1.3790 today and recorded session highs in European turnover near CAD1.3825. Option expiries are notable: approximately $785 million in options struck at CAD1.3790 expire today, providing technical support around this level. Last Friday’s high was approximately CAD1.3830, and last week’s high—which also represents the month’s high—was near CAD1.3870, establishing a clear resistance zone for any further dollar strength.
Canada reports its May manufacturing PMI for the first time today, providing an important gauge of industrial activity following the disappointing GDP print. The manufacturing sector bottomed in April of last year at 45.3 amid trade shock effects from the US, but it has recovered substantially since then, reaching a multiyear high of 53.3 in April. Today’s May reading will be closely watched to determine whether the sector can sustain its recovery momentum or whether it faces renewed headwinds from weak overall economic growth.
Australia
The Australian dollar has extended its recovery off the $0.7100 area, briefly trading above $0.7200 for the first time since mid-May. The currency settled at the 20-day moving average, found near $0.7185 today, and is trading between approximately $0.7170 and $0.7190 in early European turnover. Option expiries are concentrated around resistance: A$725 million in options struck at $0.7200 expire today, suggesting this level represents a technical flashpoint for traders. The recovery reflects the broader risk-on sentiment surrounding ceasefire hopes, though the sustainability of the advance remains subject to confirmation.
Australian economic data shows mixed signals regarding inflation and growth momentum. The Melbourne Institute’s inflation gauge rose to 4.4% from 4.3% in April, marking the highest level since the end of 2023. This represents a notable increase from the 3.5% reading at the end of last year, prior to the Reserve Bank of Australia’s three consecutive rate hikes. Despite this inflation persistence, the softer April CPI figures released last week have softened expectations for another rate hike this year. The futures market is currently discounting approximately an 80% probability of another hike in 2024, up from about 71% before the weekend—the least since early December—suggesting that market participants are gradually shifting toward a more dovish RBA view.
Australia’s final May manufacturing PMI is 50.7, revised upward from the initial estimate of 50.2 and down from 51.3 in April. The index peaked at 53.0 last August and stood at 51.6 at the end of 2024, indicating that manufacturing activity is moderating from its highs but remaining in expansion territory. The technical picture in the aussie suggests consolidation around the 20-day moving average, with the $0.7200 level representing a key resistance zone that would need to be overcome to confirm a more sustained recovery.
Emerging Markets
The Mexican peso has been largely confined to the range established on May 20, when the dollar traded between approximately MXN17.26 and MXN17.43. Currently, it remains within last Friday’s range, which itself was encompassed within last Thursday’s range of approximately MXN17.3040 to MXN17.4400. The peso has proven resilient despite broader emerging market weakness, representing a notable exception to the softer tone in most EM currencies at the start of the week. Mexico reports its manufacturing PMI and IMEF indices today, expected to show an economy that continues to struggle to sustain forward momentum. Additionally, Mexico releases April worker remittances, which remain a crucial source of capital inflows. Remittances averaged $4.82 billion in the first quarter of 2024, slightly better than the $4.75 billion average in the first quarter of 2023. There is a strong seasonal pattern for remittances to rise in March and May but typically fall in April and June.
Colombia’s political landscape shifted notably over the weekend with the first round of presidential elections. The outsider De La Espriella finished ahead in the initial round, a result that is likely to be viewed as market-friendly despite the political shift toward the right. A runoff election will be held later this month. Ahead of the results, the dollar set a new weekly high against the Colombian peso near COP3710. The Colombian central bank meets at the end of June, and the swaps market is discounting a 25 basis point rate hike. This would represent a more measured approach compared to the two consecutive 100 basis point hikes delivered in January and March of this year. May inflation data for Colombia is due at the end of the week and is expected to edge a bit closer to 6%. Traders anticipate that the Colombian peso will outperform the Mexican peso in the coming weeks, reflecting the different monetary policy trajectories and political developments.
The Indian rupee has experienced a short squeeze driven by the combination of apparently aggressive central bank intervention, pullback in oil prices, and softer US dollar. The rupee posted its third weekly rise in the past four weeks for the first time in three months, suggesting momentum is building. A roughly two-month uptrend has been violated and momentum indicators are falling, however, introducing some caution about the durability of the advance. The dollar was initially sold to INR94.73 today, a three-week low, before recovering to settle a little above INR95.01. The Reserve Bank of India meets at the end of the week, and officials do not appear prepared to hike rates to defend the currency, suggesting a more dovish stance than some market participants had anticipated. A surprise rate hike would likely extend the rupee’s recovery, but current signals suggest this outcome is unlikely.
Global Markets
Risk sentiment remains fragile as geopolitical tensions continue to dominate market psychology. Asia Pacific equities were mixed today after the regional MSCI index rose 8.3% during May. Chinese equities were lower, with the exception of an index of shares that trade in Hong Kong, which managed gains. South Korea and Taiwan extended their recent surge, suggesting that technology-oriented markets continue to attract capital. Europe’s Stoxx 600 rose 2.4% last month but is slipping a little in early European turnover today, suggesting some profit-taking after the strong May performance. US index futures are firm, with the S&P 500 having risen 5.1% in May and the Nasdaq gaining nearly 8.4%, establishing a strong technical backdrop for equity markets despite ongoing macroeconomic and geopolitical uncertainties.
The precious metals complex reflects the tension between ceasefire optimism and ongoing military risk. Gold reached a two-week high ahead of the weekend just below $4,600, buoyed by the prospect that an extended ceasefire would reduce pressure on oil importers and exporters to liquidate gold holdings and would soften interest rate expectations. However, the spot market settled closer to $4,555, and there has been no follow-through buying. Instead, gold is fraying support at $4,500 in European turnover, suggesting that the initial ceasefire enthusiasm is waning. Silver traded quietly between approximately $74.60 and $76.65, well within its recent range, and is trading firmer today but has held below $76.30. The lack of volatility in silver suggests that industrial demand concerns and monetary policy expectations are not generating strong directional conviction.
Crude oil prices have surged 3-4% today as military strikes continue and the lack of diplomatic resolution keeps geopolitical risk premiums elevated. July WTI fell approximately 10.4% last week, easily the most since the war began, and settled below $87 for the first time since April 21. The $84.70 area represents the 38.2% retracement of the war-inspired rally, establishing a technical support zone. However, the continued military strikes and absence of resolution have lifted oil prices sharply today, with July WTI reaching approximately $91.25 and August WTI recovering to $94.65. This intraday reversal underscores the fragility of the ceasefire narrative and the persistent risk of further escalation. Benchmark 10-year yields are mostly 3-5 basis points higher in European turnover, reflecting the renewed energy price strength and its implications for inflation expectations.
