### United States
The US dollar is maintaining its strength. Apart from sterling, all G10 currencies are weaker today, as the UK’s situation seemed to stabilize with Prime Minister Starmer backing Chancellor Reeves. Notably, the final June PMI readings for many countries were adjusted upwards from initial estimates. The US has secured a trade deal with Vietnam, the third such agreement, aiming to prevent the re-exportation of Chinese goods. In addition, the US relaxed export restrictions on chip design software to China, suggesting contentment with the resumed supply of rare earth and magnet shipments. Emerging market currencies mostly strengthened, led by the Taiwanese dollar, while the South Korean won lagged. Asia Pacific stocks performed well, with Korea’s Kospi leading and Hong Kong shares declining. The European stock market, represented by the Stoxx 600, is up slightly, continuing yesterday’s gains, though the week still shows a small loss. US index futures remain nearly unchanged. Among European bonds, UK Gilts are at the forefront of a recovery. The 10-year Gilt yield dropped by approximately 8 basis points to 4.52%, with other regional bond yields down by roughly three basis points. US Treasury yields saw a near two basis point decrease to 4.26% as the employment report looms. Gold rose to about $3366 before facing resistance, dropping to $3343, then stabilizing. August WTI is stabilizing after a 3% rally. It hit nearly $67.60 yesterday but is now almost $1 lower. Despite a lackluster ADP private sector job estimate, the Dollar Index touched a session high near 97.15 yesterday. It retreated slightly as European markets closed, stabilizing ahead of the US employment report within a narrow range. The Fed’s policy outlook suggests decision making on a meeting-by-meeting basis. While two governors seemed open to cuts, markets remain skeptical. The upward movement of DXY brought in new sellers. Despite ADP’s first private sector job loss since March 2023, a July rate cut remains unlikely. Market-anticipated odds for such a cut are approximately 1-in-4. A wave of data, with a focus on the employment report, will be released ahead of the US holiday. Weaker job growth is likely, and unemployment is expected to rise to 4.3%. President Trump’s social media post encouraging Fed Chair Powell’s resignation might indicate anticipation of soft employment figures. This is expected to overshadow other data releases, including May’s trade deficit and weekly initial jobless claims, along with PMI, ISM, and factory orders.
### Eurozone
The euro hit session lows just under $1.1750 before the ADP report, fluctuating thereafter. It settled slightly lower, marking its first decline since June 17. The euro hovered around $1.1800 today. The eurozone’s final June services and composite PMI readings were revised upwards. The services PMI climbed above the 50 threshold, indicating expansion. The composite PMI ended Q2 with an average of 50.4, down slightly from Q1’s 50.2. Anticipated May PPI figures are expected to show another monthly decline, the third in a row. Eurozone producer prices fell year-over-year since May 2023. The anticipated 0.3% reading would be the lowest for 2023. Despite mild inflation and potential slow growth, there’s a 5% chance of a hike this month in the swaps market, and a 50% chance by September 11. The final December meeting is expected to see the last rate cut of the cycle.
### United Kingdom
UK sterling was the only G10 currency stronger against the dollar today, rebounding after recent losses. Sterling’s earlier volatility correlated with Gilt yield movements, but today’s yield drop helped the pound recover. Prime Minister Starmer’s public support for Chancellor Reeves helped stabilize the political landscape. Sterling retraced more than half of its decline since late June and saw recovery today. The final June services and composite PMI reports showed upward revisions. Despite growth, the quarterly PMI average highlights the UK’s economic slowdown. The UK’s fiscal challenge intensifies as its Q2 economic performance is expected to weaken compared to its Q1 standing in the G7.
### China
The US dollar continues to rise against the offshore yuan for the second consecutive session, although the overall upward trend remains unremarkable. The yuan settled below its five-day average and remains stable within the recent trading range. The People’s Bank of China (PBOC) set the dollar’s reference rate at a new low, signaling ongoing pressure. The Caixin services PMI softened, indicating potential economic slowdowns. Despite this, the PBOC appears to have stepped back from prior rate cut and reserve requirement reduction commitments. A new strategy involves restraining aggressive price competition, particularly stemming from surplus capacity and market share battles, instead of focusing on short-term profitability.
### Japan
The dollar reached a peak near JPY144.25 but retreated alongside US rates following the ADP report. The US Treasury yield dipped initially, then rebounded, impacting the dollar minimally. Japan’s final composed PMI rose to 51.5 in June, the best since February and the second highest since the previous September, implying some economic recovery. However, Japanese economic growth remains modest, with Q1 showing a contraction and Q2 projections indicating stagnation. The threat of US tariffs, especially in the automotive sector, presents significant challenges. Japan’s largest union reported a notable wage increase, the largest in 34 years.
### Canada
The Canadian dollar was the strongest G10 currency the previous day, gaining about 0.40% against the dollar. This gain appears to be a reflection of adjusting within a firmer dollar environment. The Canadian dollar had not hit yearly highs like some other major currencies. Recent US tariffs have impacted Canada’s manufacturing sector, as seen in the declining PMI figures. Though the Bank of Canada has paced its rate cuts, caution remains as the neutral rate threshold nears. While there’s anticipation for a rate cut, it likely won’t occur until Q4. Canada’s trade balance for May is worth noting given the year’s significant deterioration, highlighting the risks to exports.
### Australia
Despite a dip in the Australian dollar nearly reaching $0.6540, it rebounded as the dollar softened. The upward movement brought the Aussie closer to session highs, though it faced resistance near its upper Bollinger Band. The currency maintained a softer bias as the day progressed. Australia’s final June PMIs for services and composite were revised upwards, indicating modest economic improvement. The trade surplus narrowed more than expected in May, raising concerns over export performance, particularly as imports increase. The potential for an interest rate cut seems to be gaining traction in market forecasts.
### Mexico
The dollar held relatively steady against the Mexican peso, though it managed to record a slight gain.
