### United States
The ongoing release of US tariff announcements continues to influence economic considerations in the near term. Notably, a 50% tariff has been imposed on Brazil, with a 10% increase on April’s “Liberation Day,” attributed to personal animosity towards the treatment of former President Bolsonaro. The US maintains a trade surplus with Brazil. Following a decline since the June 23 comments against Fed Chair Powell, the dollar is showing some softness against most currencies today, with the Swiss franc being a notable exception among the G10. Other currencies such as the Polish zloty, Turkish lira, and Taiwanese dollar are experiencing small losses, while the Mexican peso is slightly above flat.
Equities in the Asia Pacific region have mostly advanced, with exceptions seen in Japan and India, while South Korea’s Kospi led gains with a nearly 1.6% increase. In Europe, the Stoxx 600 is advancing for the fourth consecutive session, marking the longest streak in a month. US index futures are experiencing small losses.
In bond markets, Asia Pacific bond yields are catching up after a decline in US yields yesterday. In Europe, 10-year rates have edged higher today, except for Gilts which are down by a basis point. The 10-year US Treasury yield is up nearly two basis points at 4.35%, preceding the sale of $22 billion in 30-year bonds today. The FOMC minutes revealed no major surprises, as Fed funds futures continue to indicate around 50 basis points of cuts this year. Gold prices, after declining by slightly more than 1% earlier in the week, are showing some recovery today, trading around $3325-$3330 in Europe, with resistance seen near $3345. August WTI remains within yesterday’s trading range, with September copper maintaining firmness above $550.
Regarding the Dollar Index, it reached close to the (50%) retracement target of the drop since June 23, marked at around 97.90 on Tuesday. It is consolidating within a narrow range, marked by the 5-day moving average (~97.40) on the low end and the 20-day moving average (~97.75) on the high end, last closing above the 20-day moving average on May 19. Weekly jobless claims for the week through July 4 are due today and may be skewed lower due to the holiday. Despite a decline in initial claims over the previous three weeks, a gradual slowdown in the labor market persists, with weekly jobless claims averaging almost 234k in Q2 and 221k in Q1. Elevated continued claims (1.964 million) compared to 1.844 million at the end of Q1 indicate it is taking longer for people to find new jobs, reflecting a slowdown in hiring. Aggregate hours worked in the private sector in June also declined, potentially signaling future layoffs.
### Eurozone
The euro reached the (38.2%) retracement of its rally from the June 23 low on Monday near $1.1685, going up to $1.1765 on Tuesday and almost $1.1730 yesterday. It has yet to trade above $1.1750 today, but it remains above $1.1710. The (50%) retracement is near $1.1640, and the 20-day moving average is around $1.1660. The euro has not settled below its 20-day moving average since May 19, though daily momentum indicators are turning lower. Options for 1.3 billion euros at $1.18 are expiring today. The US two-year premium over Germany bottomed out at the end of June near 186 bps, the lowest since early April, and widened to approximately 207 bps at the end of last week. Despite the US holiday, it remained near 207 bps on Monday and hovers around the 200 bp mark yesterday and today.
### United Kingdom
Sterling has been trading within a narrow range, straddling $1.36 in a $1.3565-$1.3620 range. It has frayed the five-day moving average in recent days but hasn’t settled above this level since July 1. For three consecutive sessions, it didn’t exceed the previous day’s high, a streak that ended today when it traded 1/100 of a cent higher than yesterday’s high. A move above $1.3630-50 is needed to improve the technical outlook. The UK is set to report May GDP tomorrow, with the median forecast expecting a 0.1% increase after a 0.3% contraction in April. Industrial output, including manufacturing, is anticipated to remain weak, though services activity likely recovered after falling 0.4% in April. The trade deficit may have narrowed as well. Economists surveyed by Bloomberg predict growth slowed to 0.2% in Q2 after a 0.7% increase in Q1. The swaps market discounts an almost 90% chance of a rate cut at the August 7 BOE meeting, with another one fully expected in Q4.
### China
In the Chinese market, the dollar appreciated against the offshore yuan for the third consecutive session yesterday and the sixth in seven sessions, settling above the 20-day moving average for the third day and reaching its highest level (~CNH7.1880) since June 23. The dollar has softened today, trading below the previous session’s low for the first time in five sessions, with support found near the 20-day moving average (~CNH7.1755). The rolling 30-day correlation between the yen and yuan, which exceeded 0.60 from early May 2024 through September and peaked at over 0.80, has recently slipped to about 0.45, after reaching a high for the year above 0.50 last week. The People’s Bank of China set the dollar’s reference rate at CNY7.1510 today, following CNY7.1541 yesterday.
### Japan
From its low on July 1 near JPY142.70 to yesterday’s high of almost JPY147.20, the dollar has appreciated by more than 3.1%. The US 10-year yield, which bottomed on Monday below 4.19%—its lowest in two months—reached around 4.43% at Tuesday’s high. The 10-year Treasury yield declined yesterday following a successful auction and further dropped today. The dollar rebounded from a three-day low near JPY145.75 to early European session highs near JPY146.50. In Japan, producer prices saw their first back-to-back decline since September-October 2023, with a 0.2% drop in June following a revised 0.1% decrease in May. Japan’s PPI remained flat in Q2 after a 3.2% annualized increase in Q1, with the year-over-year rate slipping to 2.9% from 3.2%. The Bank of Japan’s unchanged assessment lends support to expectations that it will not alter policy at its late-July meeting, with a 50% chance of a quarter-point hike towards the end of the year.
### Canada
The US dollar reached the (61.8%) retracement target of its sell-off from the June 23 high near CAD1.38, marked slightly above CAD1.3700. Although it consolidated in the North American afternoon, the upward momentum seems far from exhausted, though it is trading heavier today. The exchange rate is maintaining support above yesterday’s low (~CAD1.3660), where the five and 20-day moving averages converge. A breach above CAD1.3725 could signal a test of the more significant CAD1.3800 area. Options for $830 million at CAD1.3700 will expire tomorrow when Canada releases June employment data. The unemployment rate is anticipated to reach a new cyclical high of 7.1%, previously at 6.4% in June 2024 and 6.6% in January 2025. In the first five months of the year, job growth was nearly 61k, compared to 165k in the January-May 2024 period. The Bank of Canada front-loaded its rate cuts, with another cut discounted for Q4, reducing the target rate to 2.50%. There’s about a 1-in-3 chance of another cut next year.
### Australia
For the second consecutive session, the Australian dollar recorded an inside day yesterday but has appeared more bid today, with some narratives linking it to a rise in copper prices in reaction to the US implementing a 50% tariff by August 1. It rebounded from yesterday’s low near $0.6510 to almost $0.6565 today in European trading, matching the week’s high set on Monday. Intraday momentum indicators are stretched. The $0.6480 level approached on Monday and Tuesday aligns with the (50%) retracement of the Aussie’s gains since June 23.
### Mexico
The US dollar’s losses continued to almost MXN18.55 yesterday, only for buyers to push it back to session highs near MXN18.6500 as the US announced a substantial 50% tariff on Brazil. The dollar increased to almost MXN18.6685 earlier today but has since fallen slightly. Since the June 23 high just above MXN19.34, the US dollar has dropped over 4% through yesterday’s low. A near-term consolidation could see the dollar nearing MXN18.70-75. Mexico’s June CPI, reported yesterday, was slightly above expectations, maintaining both the headline and core rates outside the 2-4% target range. Today, the central bank is set to release minutes from its recent meeting where there was a dissent against a decision to deliver the fourth consecutive half-point cut. Most of the central bank’s board is seemingly more concerned about the economic slowdown. Meanwhile, there’s attention on Mexican relief workers assisting in Texas, contrasting with US immigration policies and hostile actions such as taxing worker remittances. The US’s 50% tariff on Brazil, a country with which it maintains a trade surplus, as expressed in criticism of the treatment of former President Bolsonaro, has shocked many observers and is likely to push Brazil towards deeper relations with China.
