# United States
The lead-up to the impending US-China talks is marked by a dispute over who initiated the discussions. The talks are at risk of being downgraded or canceled, given the heightened egos on both sides. However, expectations for the talks remain low overall. Meanwhile, the US is set to announce its first trade agreement with the UK today, though this has not prevented the British pound from falling in anticipation of a probable dovish quarter-point rate cut by the Bank of England. The US dollar, buoyed by the Federal Reserve’s hawkish hold, continues to rise against both G10 and most emerging market currencies. Equities are mostly firm, with futures for the S&P 500 and Nasdaq up by over 1%. Bonds are selling off, and the 10-year US Treasury yield is up by over four basis points to 4.31%. Gold is experiencing a recession for the second consecutive session. Nonfarm productivity and unit labor costs in the US, which are derived from the GDP figures, show expectations of a fall due to the GDP contraction in Q1. Initial jobless claims are anticipated to have softened. No rate cut hints came from the Federal Reserve, despite White House pressure, signifying a hawkish stance due in part to the perceived non-transitory nature of tariff-induced price increases.
# Eurozone
The euro remains at the upper end of its recent range. Following the Federal Reserve’s press conference, it dipped to almost $1.1290. Germany’s industrial production has surprised positively with its first consecutive monthly gain since January-February 2024, jumping 3% in March. This growth hints at possible preemptive activity ahead of US tariff implementations. The German economy reported a Q1 growth of 0.2%, up from a Q4 contraction of equivalent magnitude. The overall range for the euro is between $1.1265 and $1.1425, with current consolidation mostly below $1.1300. A convincing break below $1.1260 might prompt a two-cent downside correction.
# United Kingdom
Sterling faced pressure, dropping to $1.3280, and showed resistance around the $1.3400 mark. Despite the US trade agreement expected to be announced, sterling struggles near key support at $1.3260. The market is convinced that the Bank of England will announce a 25 basis point rate cut, which could be followed by further cuts given the UK’s weaker economic performance. This economic backdrop will challenge Chancellor Reeves’ fiscal strategies. Labour’s dismal performance in recent local elections highlights public impatience. The UK’s economic forecast is dim, with market expectations pointing to multiple further rate cuts following today’s anticipated announcement.
# China
The US dollar sustained its second consecutive session gains against the offshore yuan, settling above CNH7.24, and further buying could push it to the CNH7.25-CNH7.26 range. Since mid-March, the People’s Bank of China has made slight adjustments to the daily reference rate, with the latest being set at CNY7.2073, the first higher dollar fix in eight sessions. Most Asian currencies declined today, notably the Malaysian ringgit, which saw a near 0.9% pullback. China has positioned the upcoming discussions with the US as mere “engagements,” downplaying the notion of substantial negotiations.
# Japan
Despite a decoupling of the exchange rate from the US 10-year yield, the US dollar rose by nearly 1% against the yen. After hitting session highs at JPY144.00, it continued to climb in the European session just below JPY145. While last week’s high of JPY146 remains the target, momentum could push towards JPY148. This movement is indicative of a broader upward trend, despite minor pullbacks.
# Canada
The US dollar rebounded against the Canadian dollar, reaching near CAD1.3885 and ascending above the 20-day moving average for the first time since early April. The corrective potential could extend toward CAD1.40. While the session for Canadian data remains quiet, anticipation builds around tomorrow’s job report. Following a 32.6k job loss in March, forecasts suggest an addition of about 5k jobs, though estimates vary widely. The Bank of Canada will meet in early June, with markets split on the outlook. A further rate cut is anticipated by the end of July.
# Australia
The Australian dollar experienced a bearish reversal, failing to sustain previous highs and falling below recent lows. Given the Fed’s hawkish stance and Trump’s tariff announcements, initial support near $0.6400 is tenuously holding. A deeper correction could point towards $0.6285, with the currency having not traded below its 20-day moving average since mid-April.
# Mexico
The Mexican peso showed unexpected resilience, with the dollar falling below MXN19.56 after reaching a three-week high above MXN19.78. Trading within a narrow range today reflects the peso’s stable performance relative to other currencies like the Brazilian real, which declined by about 0.50% ahead of a rate hike by Brazil’s central bank. Mexico’s central bank, Banxico, is anticipated to follow with another 50 basis point rate cut next week. President Sheinbaum’s optimistic outlook on US relations appears unaffected, though Trump’s tariff comments could contravene the USMCA treaty agreements. The US might lean towards bilateral deals, marking a shift from the previous North American Free Trade Agreement framework.
