United States
The dollar has shown slight firmness against major G10 currencies, apart from the euro and Swiss franc which have barely budged. There has been little market reaction following a tentative deal between the US and China regarding the Geneva Agreement, which might result in a lift on some US export restrictions. Particularly, China has granted a six-month export approval for magnets to US automakers. The Dollar Index is consolidating between the 98.35-99.40 range in early June, with the current range hovering around 98.95-99.20. Traders are contemplating if this consolidation signifies a bottoming pattern or a nesting pattern ahead of a potential downside. Critical markers to watch are the 20-day moving average at around 99.60 and the down trendline at 99.45. The US Consumer Price Index (CPI) report is a significant highlight, with expectations of minor increases in both the headline and core rates. Economists project a 0.2% month-over-month rise in May, equating to a 2.4% annualized pace this year. Given a steady unemployment rate, it is improbable that the Federal Reserve will yield to White House demands for a rate cut, as such an action could threaten the Fed’s independence. Furthermore, President Trump plans to name a successor for Fed Chair Jerome Powell, whose term ends next May, although this unprecedented move could potentially backfire and introduce additional risks of politicization in future Fed policies. Meanwhile, the fiscal balance for May is due shortly; the deficit for the calendar year’s first four months totaled approximately $345 billion.
Eurozone
The euro remains stable within the range it had set last Friday, between $1.1370 and $1.1455, as no significant changes were observed after Tuesday’s settlement. Despite a general consensus leaning towards a weaker dollar in the long term, there is a likelihood of a short-term bounce as the US economic indicators, such as a steady unemployment rate, and growth rates in the Eurozone signal a tapering. The Federal Reserve’s hawkish stance in conjunction with the non-commercial futures market holding sizeable gross and net long euro positions adds to these dynamics. As a result, the interest rate differential continues to favor the dollar.
United Kingdom
Sterling slipped to nearly $1.3455 following disappointing employment reports, with market anticipation of an upcoming rate cut. It managed a slight recovery to about $1.3535 during North American hours. At present, sterling is consolidating between $1.3465 and $1.3510, with a potential weakening if it closes below the 20-day moving average of $1.3475, a level it hasn’t reached for about a month. Additional weak economic figures are expected, with prospects of a 0.1% contraction in April GDP. The UK’s economy had shown strength earlier with a 0.7% expansion in Q1, yet the beginning of Q2 does not paint an optimistic picture, as GDP forecasts anticipate modest growth in Q2 and Q3.
China
The dollar maintains a consolidating momentum against the Chinese yuan, having peaked at nearly CNH7.43 a couple of months ago before softening to approximately CNH7.16 in late May, despite speculation of a yuan devaluation by China to counter US tariffs. Presently, the dollar is oscillating within a CNH7.11825-CNH7.1900 range. China’s strategic advantage through rare earths and magnets has shifted some dynamics, as shown by China’s recent six-month export approval for magnets to US automakers. A broader agreement is hinted at, which may see the US easing some of its export controls, possibly including a reduction of the “fentanyl” tariff. This ongoing exchange between the two countries underlines the complexity and interdependency present in reshaping consumer and industrial supply chains in the short- to medium-term.
Japan
Although the dollar didn’t settle above JPY145 on Tuesday, it marked its highest close since May 16. The consistent recording of higher lows over the recent sessions has seen it approaching resistance at JPY145.30. Closing above this resistance could bolster the technical outlook, possibly targeting the JPY146.00-146.30 area next. As export control topics dominate over tariffs, the yen is increasingly responding to movements in US 10-year Treasury yields, as evidenced by a strengthening 30-day rolling correlation.
Canada
The US dollar has been trading within a narrow band against the Canadian dollar, exploring both sides of Monday’s range with a closing slightly above Monday’s low. Currently, it is trading near session highs around CAD1.3685 in Europe. The narrow consolidation range from CAD1.3635 to CAD1.3745 defines this month’s trend, with a bias toward seeing CAD1.38 before dipping to CAD1.36. On the economic front, Canada’s building permits have displayed alternating patterns between increases and declines since November, with projections indicating a modest gain following a 4.1% drop in April.
Australia
The Australian dollar remains near its peak levels for the year, albeit slightly below the retracement aim near $0.6550. For three continuous sessions, it has shifted within a $0.6490-$0.6535 range. With light news influencing the market, momentum indicators appear supportive. Breaking past the $0.6550 zone could spark advancement towards $0.6625, and possibly $0.6700. Its New Zealand counterpart is trading around $0.6040, staying within a $0.6025-$0.6060 range today, with expectations of only one more rate cut by the Reserve Bank of New Zealand later this year. However, the Australian dollar seems ready to appreciate against the New Zealand dollar.
Mexico
The dollar exhibited low volatility against the Mexican peso yesterday, maintaining above the near 10-month low from Monday just below MXN19.03. As dollar sellers appear during the bounce to almost MXN19.10, it settled near the midpoint of the session’s range around MXN19.06. It continues to hold above MXN19.03 today amid reports indicating that the US and Mexico are closing in on a deal to revise the current 50% steel tariff, potentially mirroring arrangements from Trump’s first term. Meanwhile, Mexico releases its April industrial output figures today, with predictions of a minor 0.1% increase following a sharp 0.9% dip in March. Although CPI figures were firm earlier in the week with headlines above 4%, Mexico’s economy remains under pressure, having recorded minimal growth in Q1 following a previous contraction. Economists project a flat economic outlook in Q2 according to Bloomberg’s median survey forecasts.
