# United States
The US dollar has been under considerable pressure, retreating against most global currencies following its previous drop in North America. The anticipation of a potential Israeli strike on Iranian nuclear facilities is causing risk-off sentiments globally, propelling July WTI crude oil to its highest since early April. Despite the broader risk aversion, the US dollar is not reaping the benefits, as gold extends its gains to around $3,300.
Currently, the dollar remains above its recent lows, with North American markets waiting to take charge. While Asian equities mostly rose, Europe’s Stoxx 600 broke a four-day winning streak, dropping nearly 0.5%. The S&P 500 snapped a six-day rally yesterday, and US index futures are down approximately 0.75%. Bond yields are offering little refuge today, with European 10-year yields increasing by 6-8 basis points and the US 10-year Treasury yield rising by five basis points to 4.54%.
The US Treasury is slated to auction $16 billion in 20-year bonds today. Historically, this tenor attracts less demand compared to 10-year and 30-year bonds. Following the selling spree in Asia and Europe on a Moody’s downgrade, dollar bulls were seemingly exhausted, returning to session lows near 100.00 in late trading. The dollar reached a two-week low near 99.40 early in European trading before recovering to around 99.80. Support is noted in the 99.00-25 range, with stabilization requiring a close above 100.00.
# Eurozone
In the Eurozone, the euro found support near $1.1220 in the North American session yesterday and managed to recover later in the day, hitting a marginal new session high near $1.1285, aligning with the 20-day moving average. The euro climbed to nearly $1.1355 before retreating during early European trading, finding fresh support around $1.1310. The next technical target could be the month’s high, near $1.1380, which aligns with the 61.8% retracement of the decline from the year’s high in April (~$1.1575).
# United Kingdom
In the UK, the Bank of England’s chief economist yesterday advised against hastening policy eases. Today, a spike in the Consumer Price Index (CPI) lifted sterling to a new three-year high near $1.3470 before pulling back slightly below $1.3400. A sharp increase in household utility costs stirred the largest rise in UK CPI in two years, with a 1.2% rise in April exceeding all of Q1 25 (~0.6%). Although the Bank of England might overlook this, core prices rose by 3.8% year-over-year, up from 3.4% in March and 3.2% at 2023’s end. Service prices increased 5.4% year-over-year, up from 4.4% at the previous year’s end. The swaps market had fully priced in a rate cut for November, and anticipated cuts for this year have adjusted, now around 36 basis points compared to 41 basis points yesterday and 45 basis points last week. The May flash composite PMI, predicted to fall below the 50 boom-bust threshold for a second consecutive month, hadn’t seen such levels throughout 2024.
# China
The US dollar fell against the Chinese renminbi, retreating from the CNH7.2265 area, narrowly exceeding the 200-day moving average and the 61.8% retracement of losses since May 9’s peak (~CNH7.2528). It tested the CNH7.20 mark, which initially held. The People’s Bank of China set the dollar’s reference rate at CNY7.1937, compared to CNY7.1931 the previous day, foreshadowing a potentially consolidative tone.
# Japan
In Japan, the US dollar hit a new eight-day low yesterday around JPY144.10, settling beneath the 20-day moving average (~JPY144.60) and below Monday’s low (~JPY144.65). It broke through JPY144.00 before finding support just under JPY143.50. Nearby support is eyed near JPY143.25, but stronger supports are closer to JPY142.00. Reports suggest the US is advocating for a stronger yen in trade discussions. Japan reported a substantial cumulative trade deficit of JPY15 trillion in 2023 and 2024 but maintained a bilateral surplus with the US of about JPY17 trillion. April figures showed an overall deficit near JPY116 billion, contrasting with Bloomberg’s survey predicting a JPY215 billion surplus. Export growth slowed year-over-year (2% vs. 4%), while imports fell 2.2%. Trade negotiations between the US and Japan face challenges, particularly concerning reciprocal tariffs, as Japan’s demands, including auto tariffs, conflict with the US offer. Prime Minister Ishiba’s support is waning, ahead of an upper house election in late July.
# Canada
In Canada, the greenback operated within the lower bounds of a recent trading range set on May 12 (~CAD1.3895-CAD1.4015), dipping to CAD1.3880 today. The 20-day moving average sits near CAD1.3885, coinciding with the halfway point of the rally from the May 6 low (~CAD1.3750). The next retracement (61.8%) is close to CAD1.3850. The cessation of the carbon tax led headline CPI to drop 0.1%, and due to base effects, the year-over-year rate dropped to 1.7% from 2.3%, slightly firmer than anticipated by the Bank of Canada. Core measures exceeded expectations, averaging 3.15% compared to 2.85% in March. Market odds for a June rate cut have now halved to about a 1-in-4 chance. Meanwhile, a 10-day rally pushed the Toronto Stock Exchange Index to record highs, the longest streak since 2021, with the index rising a modest 5.3% year-to-date.
# Australia
The Australian dollar fell below $0.6400 yesterday following a perceived dovish cut by the central bank. Nonetheless, the broader retreat in the US dollar facilitated a recovery to nearly $0.6425 in the New York afternoon. Gains extended to near $0.6460 today, with initial resistance pegged at this week’s high, set on Monday, near $0.6465. The currency pulled back to around $0.6435 in early European trades, with a close below $0.6425 likely to disappoint recent buyers.
# Mexico
In Mexico, the peso extended gains to new seven-month highs yesterday, with the greenback nearing MXN19.25. Last Friday’s high was close to MXN19.5660. The peso remained resilient amid news of political violence involving the death of two aides of Mexico City Mayor Brugada. March retail sales are on today’s agenda, but with Q1 GDP already reported, significant impacts on the market are unlikely. Retail sales are anticipated to fall (-0.1%) for the first time since last October. Tomorrow’s reports, notably the CPI for May’s first half, hold more importance.
