### United States
The global economic landscape remains tense with renewed concerns arising from President Trump’s threats to issue letters announcing new bilateral tariffs, coupled with escalating tensions with Iran. In spite of these geopolitical pressures, the usual economic responses, such as a stronger dollar and a surge in gold prices, have not materialized. Yesterday, the dollar showed softness against the majority of G10 currencies and most emerging market currencies, with the notable exception of the Mexican peso, which ascended to its highest level since last August. Despite softer-than-expected CPI data weighing on the dollar, the Fed funds futures market is yet to fully price in two rate cuts for the year, underscoring caution amid current economic uncertainty. The upcoming release of May’s producer prices, expected to show a rebound, will be closely monitored, as economists firm up projections for May’s PCE deflators. In the labor market, weekly jobless claims are anticipated to continue their upward trend, potentially reaching the highest level since late 2024. The Dollar Index showed a dip, breaking below last week’s low, with support expected around 97.45.
### Eurozone
The Euro benefitted significantly from the softer-than-anticipated US CPI data, extending its gains to approximately $1.1565, close to the year’s high reached in April. With minimal resistance ahead, a break past the $1.1575 mark could see the Euro climb towards $1.1685-$1.1700. While today’s economic schedule in the Eurozone is sparse, upcoming aggregate industrial production and trade figures will provide further economic insight. Recent national reports from Germany, France, and Spain have warned of substantial declines in April’s industrial output, potentially resulting in the largest aggregate decline since July 2023. Despite this, the Eurozone’s trade balance is expected to record an 18.3 billion euro surplus for April, although it’s a significant reduction from March.
### United Kingdom
Despite concerning economic indicators from the UK, including poor jobs data and a notable GDP contraction in April, the sterling found strength against the dollar, thanks to the weak US CPI. After briefly surpassing Monday’s settlement, sterling approached $1.3570. However, weak economic data presents challenges: April GDP fell by 0.3%, with decreases in the industrial and services sectors, though construction saw modest growth. Concerns about the Bank of England’s ability to maintain previous levels of patience amidst economic instability are growing, with market expectations shifting towards potential rate cuts.
### China
In contrast to the broader weakening of the US dollar, the dollar rose to a six-day high against the offshore yuan, momentarily surpassing CNH7.20, before retreating. The People’s Bank of China set a lower dollar reference rate, reflecting an ongoing shift in currency dynamics. Despite rare earth and magnet export licenses to US companies, uncertainties remain about concessions made by the US. The strategic hold on key supply chains by the US and China continues to be an area of tension, especially in sectors requiring state assistance.
### Japan
The dollar’s trajectory saw it climb to JPY145.45 before dropping sharply after the US CPI release. Subsequently, the dollar rebounded slightly before encountering sell-offs bringing it down to around JPY143.65. A breach of the JPY143.45 level might propel further challenges towards the JPY142.00-50 area. Amidst this, data shows Japanese investors divesting from foreign equities and bonds, while foreign investors are increasingly buying Japanese stocks and bonds, indicating a shift in investment sentiment.
### Canada
The downward trend of the US dollar pushed it to a four-day low against the Canadian dollar, nearing CAD1.3650. The Canadian dollar, staying close to its eight-month low, exhibited resilience amidst market fluctuations. Psychologically significant support is anticipated around CAD1.3600, with more critical support positioned in the CAD1.3400-25 zone.
### Australia
While the Canadian dollar managed slight gains, the Australian dollar experienced marginal declines in recent trading sessions, dipping back towards $0.6500. Despite initial setbacks, it managed to recover to the $0.6500 vicinity, though it continues to underperform amidst ongoing financial market volatility.
### Mexico
The Mexican peso excelled to its best level since last August, primarily driven by sustained momentum against the US dollar, even before the US CPI release. The dollar-peso trade hovered within a range defined by support and resistance intervals, as the peso’s strength extended beyond a mere carry trade, demonstrating notable appreciation against the dollar in the first half of the year.
