### United States
The recent recovery of the dollar can be seen as a technical correction, assisted by higher US rates following a decline since June 23, prompted by critiques of the Fed’s monetary policies. The Dollar Index climbed every day last week, with US 10-year yields falling only once and 2-year yields declining twice. The dollar has exceeded technical targets against sterling, yen, and the Canadian dollar. A deeper correction could occur, particularly as the US prepares to release key economic data including the Consumer Price Index (CPI) on Tuesday, producer prices and the Beige Book on Wednesday, and import prices on Thursday. Tariff announcements, primarily with the EU, further complicate the outlook. Despite expectations for improved industrial production in the Eurozone, the US figures suggest persistent inflation amidst slowing real economic growth. Retail sales, consumer prices, and import prices are expected to increase, even as sectors absorb tariffs through reduced profit margins.
### Eurozone
In recent weeks, the euro has corrected downward alongside a 20 basis point increase in the US two-year premium over Germany. The euro is likely to climb towards $1.20, although the probability of an ECB rate hike has diminished. The swaps market no longer predicts a hike this month, and chances for another rate cut this year have decreased. The Eurozone’s incoming industrial production, trade, and construction figures, along with the German ZEW investor survey, suggest near-stagnation following a 0.6% expansion in Q1. Despite this, the euro remains stable after surpassing previous rally retracement levels.
### United Kingdom
Sterling has struggled despite rising UK 10-year Gilt yields and sees strong inverse correlations with US yields. The UK’s upcoming reports on prices and labor are crucial, with stubborn inflation figures likely complicating fiscal challenges. The UK labor market appears to be slowing, and the Bank of England remains cautious, discounting an imminent rate cut. Meanwhile, currency movements suggest a potential decline beneath $1.3460, following its longest losing streak in two years.
### China
The yuan’s trajectory is largely influenced by the US dollar, impacting China’s trade partners. The yuan’s year-to-date depreciation against the euro and yen contrasts with its stability against the dollar. China, facing slower economic activity, prepares to release its Q2 GDP, with expected year-over-year growth moderating to 5.2% from 5.4%. The People’s Bank of China has restrained previous rate cut incentives in response to economic conditions.
### Japan
Correlation between the dollar-yen pair and US 10-year yields remains strong at 0.68. Upcoming June CPI figures are expected to show moderated price pressures. Japan will also revise its May industrial production and report on June trade figures amidst election outcomes, which may affect local sentiment without significantly altering market trajectories. With implied tightening marginally reduced, currency focus remains on technical resistance around JPY148.00.
### Canada
Canada’s upcoming CPI report is anticipated to show an acceleration in annual inflation to 1.9%-2.0% from 1.7%. The Bank of Canada is unlikely to alter rates at its end-of-month meeting despite previous foreign investment outflows and fluctuating exchange rate correlations with oil prices. Currency support sites just above CAD1.3740, with US tariffs potentially weakening the Canadian economic outlook despite high year-end rate projections.
### Australia
The Aussie dollar’s recent boost follows the Reserve Bank of Australia’s decision to hold rates, defying market expectations. Australia’s labor market report is next, maintaining stable unemployment with a participation rate increase. The correlation of exchange rate changes with Canada’s currency highlights their linked economic movements. With mixed momentum indicators, market participants remain attentive to the AUD’s potential upward shifts.
### Mexico
Despite market volatility, the peso benefits from favorable interest rate differentials and low volatility, offering attractive returns in carry trades. Nominal wage figures will soon be released, with public sector wage growth lagging behind private sector trends. The peso’s recent weakening calls for market adjustment opportunities, with the US tariff impacts prompting cautious re-evaluation as traders seek to capitalize on currency movements.
