United States
The US dollar is holding firm against most G10 currencies, although it remains within established ranges. Liquidity is expected to diminish rapidly following the anticipated quarter-point cut from the ECB, preceding a holiday for much of Europe and North America tomorrow. Many European countries, including the UK, will also be on holiday on Monday. The yen is notably weaker today after reaching a six-month high yesterday, as optimism surrounding trade talks expressed by President Trump led to a rollback of previous gains. The dollar is also gaining ground against most emerging market currencies, except for the yuan, ruble, and rupee. Despite sharp losses on Wall Street yesterday, equities in the Asia Pacific region showed a strong performance. US index futures are up roughly 1%, making up for the previous day’s decline. Benchmark 10-year yields are on the rise today. The 10-year US Treasury yield has increased by nearly four basis points, approaching 4.32%, after ending last week just below 4.50%. Gold, which had set a record high near $3358, faced profit-taking pressures, dropping to $3313 before buyers stepped in. June WTI Crude is extending gains, reaching almost $62.85 today, marking its highest level since April 6. The currency remains on the defensive, settling yesterday near session lows of approximately 99.25. It is currently trading quietly around the middle of today’s range, with last Friday’s low near 99.00 as the obvious target. If broken, it could target the 97.50-80 area. Ahead of the long holiday weekend, notable data, including housing starts, weekly jobless claims, and the Philly Fed survey, may not significantly impact the markets. The ongoing trade war continues to be the focal point, with speculation that the US wants to exhibit quick results. While the administration maintains confidence in winning the trade war, many believe it will be easier for China to offset lost US demand through domestic stimulus and alternative markets than for the US to replace critical earths and consumer electronics. Federal Reserve Chair Powell did not indicate a change in stance during his recent speech, suggesting the central bank will remain patient while waiting for further policy clarification.
Eurozone
The euro competed with the Swiss franc for the top performer against the dollar among the G10 currencies yesterday. It rose above Tuesday’s high, nearing $1.1415 in late North American trading. However, some late-long positions may have been closed as the euro slipped back to $1.1345 in late Asia Pacific trading. Traders anticipate a rate cut from the ECB at today’s meeting, likely bringing the deposit rate to 2.25%, the upper range of the eurozone’s neutral estimate, which has a lower end near 1.75%. It is believed that before the cycle concludes, the ECB may need to lower its deposit rate below the neutral range. Speculation also surrounds the Swiss National Bank, which, given the franc’s strength and low inflation, may not wait for its scheduled meeting in two months to cut its deposit rate from its current level of 0.25%. Additionally, the Swiss government has warned that US tariffs will likely dampen growth expectations this year.
United Kingdom
In recent days, the British pound has steadily climbed against the US dollar. However, this upward trend is pausing today after nearly reaching $1.33. The pound was sold to session lows near $1.3210 before rebounding above $1.3250, struggling to surpass this level as of now. This seven-day rally matches the longest since July 2020. Sterling settled within its upper Bollinger Band for the first time in three sessions, which is currently near $1.3280. Following this week’s employment and inflation data, market expectations for next month’s policy meeting remain unchanged since last Thursday, with confidence in a 25 basis point rate cut.
China
It remains early, but Beijing has shown no signs of counteracting US tariffs with currency devaluation. The US dollar experienced a bearish outside down day against the offshore yuan yesterday, moving on both sides of Tuesday’s range and settling below its low. However, follow-through selling has been limited today, with the yuan consolidating in its tightest range in a couple of weeks. Year-to-date, the yuan is essentially flat against the dollar, implying depreciation against currencies that have appreciated against the greenback. The People’s Bank of China has slightly increased the daily fix of the dollar, indicating a subtle but noticeable shift. The average daily change since early April is now 0.055%, compared to slightly more than 0.01% in early February.
Japan
The trade war and market volatility have disrupted the correlation between currency exchange rates and changes in the US 10-year yield, with the rolling 30-day correlation at its lowest since late 2023. Meanwhile, the correlation between exchange rates and the Dollar Index has risen above 0.75, its highest in five months, emphasizing the dollar’s movement. The broad selling pressure on the greenback saw it drop below JPY142 for the first time this year. Despite reports from Japan indicating that foreign exchange was not discussed during recent talks, the dollar’s gains persist, although currency issues are expected to be addressed when the US Treasury Secretary meets with Japan’s Finance Minister. The Japanese government’s latest trade report indicated a balance of about JPY544 billion.
Canada
Yesterday, the US dollar traded within the range established on Wednesday, predominantly remaining below CAD1.3900 today. The Bank of Canada left its policy unchanged, maintaining the target rate at 2.75%. Officials cited uncertainty surrounding US tariffs, which is weighing on business and consumer sentiment. The upcoming national elections are likely influencing the central bank’s cautious approach, and a rate cut is expected at the next meeting on June 4. Currently, the swaps market assigns a 37% probability to this outcome.
Australia
The Australian dollar reached a nearly two-month high yesterday, nearing $0.6400, a level it hasn’t closed above since December. Today, it remains below $0.6380, finding support just below the five-day moving average. Despite an 8% rally in recent sessions, momentum indicators for the Aussie remain positive. A move above $0.6400 could drive the currency toward the $0.6440 level. Australia’s employment report revealed a gain of 32,000 jobs last month, after a loss of 57,500 in February. The unemployment rate edged up to 4.1%, with a slight increase in the participation rate.
Mexico
The Mexican peso remained resilient despite the sharp decline in US equities and risk-off sentiment. The dollar traded within Tuesday’s range, settling around 0.55% lower. It briefly touched the 200-day moving average for the first time since last June. Support is identified near MXN19.90, with the lowest level since last November recorded earlier this month. In April, the peso has appreciated by approximately 2.4%, marking a fourth consecutive monthly advance. Note that domestic markets are closed today and will remain closed tomorrow for holidays.
