### United States
The Israel-Iran conflict persists, yet capital markets have shown minimal reaction outside of oil. West Texas Intermediate (WTI) crude oil increased by 2.7% over the past week, following a substantial 13% rally the previous week, reaching its highest levels since early January. The retail price for unleaded gasoline has also risen by nearly 2.5% this month. Gold prices experienced a decline of almost 2%, marking its first weekly downturn in three weeks. Meanwhile, the US dollar appreciated against all G10 currencies. The ongoing discussion of US tariffs lingers, particularly as the delay for so-called reciprocal tariffs is set to end on July 9, sparking a flurry of last-minute deal negotiations. The recent decision to double US steel and aluminum tariffs to 50% has further complicated the situation. On the economic front, US data continues to underdeliver, with sluggish reports on May retail sales, industrial production, and housing starts. Despite this, the Federal Open Market Committee (FOMC) shows no urgency in altering policies. Governor Waller, a potential successor to Chair Powell, hinted at the possibility of a July rate cut, though market consensus anticipates a change in September, with an 80% probability of a rate cut reflected in Fed funds futures. With ongoing conflicts in Ukraine and the Middle East, NATO faces crucial discussions as it convenes this week. President Trump is expected to decide on expanding the US role against Iran within two weeks, potentially around the conclusion of Israel’s operations. Reports suggest Trump is unconvinced that the “bunker buster” bomb would sufficiently damage Iran’s Fordow enrichment site, given its estimated depth of 300 feet below surface. The upcoming economic calendar is relatively light, with anticipation for the flash PMI. CPI and PPI data have overshadowed the PCE deflators. Meanwhile, Mexico’s central bank is predicted to enact a 50 basis point cut, but a quarter-point reduction might be more feasible given inflation concerns.
In terms of US drivers, it was initially believed that the dollar would strengthen with rising tariffs, but this has not proven true thus far. Instead, the greenback seems to weaken when tariff threats are heightened. With reciprocal tariffs looming in early July, and Trump’s intentions to announce bilateral tariffs via letters, the dollar’s trajectory remains uncertain. Additionally, higher rates haven’t notably bolstered the dollar, whereas lower rates exert downward pressure. The ongoing Israel-Iran war might impact the dollar if the US increases its involvement or the conflict expands. The Gulf of Hormuz encounters reduced activity, likely more due to expensive insurance than Iranian actions.
Market data suggests there’s little reason for notable reactions to upcoming surveys, such as the preliminary PMI, several regional Fed surveys, and consumer confidence measures from the Conference Board. The May goods trade balance will draw interest amid tariff discussions. Weekly jobless claims data garners attention due to a recent rise in the four-week average, now the highest since August 2023, along with elevated continuing claims. A surge in Boeing orders in May may bolster durable goods orders, rebounding from a 6.3% drop in April. April’s orders, excluding aircraft and defense, witnessed the largest dip since February 2023. Lastly, personal income and consumption figures will aid in refining Q2 GDP forecasts, with the Atlanta Fed’s current tracking at 3.4% versus Bloomberg’s survey median of 1.4%. CPI and PPI details suggest a slight increase in the PCE deflator, rising to 2.3% from 2.1% at the headline level and 2.6% from 2.5% at the core level.
### Eurozone
In the Eurozone, the euro benefits from being the primary alternative to the US dollar, particularly with encouragement from European Central Bank (ECB) officials, leading the market to believe the ECB’s easing cycle is nearing conclusion. Following a pause, the swaps market anticipates one more rate cut before year-end, bringing the deposit rate to 1.75%, identified as the neutral rate. Upcoming data, particularly concerning the eurozone’s PMI, garners attention since officials seem to emphasize it. The composite PMI had slipped in April and May, suggesting a peak in EMU growth. May auto registrations, a sales proxy, are due, with April marking the first year-over-year increase in 2025 at 1.3%. Germany’s June IFO report is also pending, reflecting an improved business climate assessment throughout this year, surpassing 2024 metrics which saw only four months of growth.
Regarding euro prices, the currency edged back from a high of $1.1630 on June 12, the peak since October 2021, to a weekly low near $1.1445. It found support above the 20-day moving average, maintaining levels above it since late May. Nearby resistance is around $1.1550-60, where the euro encountered a standoff before the weekend. A continuing consolidative or corrective phase may ensue if resistance persists. Conversely, breaking below $1.1440 might lead to $1.1380 initially.
### United Kingdom
Turning to the United Kingdom, sterling has gained 7.6% against the dollar this year, mainly due to US currency weakness rather than inherent UK strengths. The swaps market reflects a less dovish stance, projecting the year-end base rate near 3.75%, a rise from about 3.50% at April’s close. Currently, sterling has ascended roughly 1.8% over the same time frame. The UK revisits Q1 GDP data, which initially showed a 0.7% quarterly expansion, positioning it atop the G7. However, Q2 started poorly with a 0.3% contraction in April’s GDP, marking the largest monthly production drop since October 2023. May’s retail sales fell by 2.7%, outpacing forecasts of a 0.5% decline, counteracting April’s 1.3% gain. April’s composite PMI was 48.5, matching lows not seen since November 2022, recovering to 50.3 in May, with June’s preliminary readings forthcoming.
Concerning prices, despite downside data surprises and a dovish hold by the Bank of England (6-3 vote), sterling held relatively steady. The June 17 loss of 1.1% after the GDP miss represented the largest drop in over two months. Following a marginal new low near $1.3380 before the BOE meeting on June 19, it rebounded past $1.3500 before retreating to around $1.3440 in late trading, registering new session lows. A breach below $1.3380 might swiftly precipitate another half-cent drop. The five-day moving average dipped below the 20-day moving average for the first time since May 19, with initial resistance around $1.3480.
### China
In China, the government maintains a firm grasp over the yuan, which shows limited sensitivity to high-frequency data or news developments. Beijing aims to ensure broad yuan stability against the dollar, though slight daily fix variances introduce minor flexibility. China’s economy struggles to maintain growth momentum, and deflation remains a concern. In this macroeconomic climate, a stronger yuan, solely due to dollar declines, may not benefit China. China is set to release industrial profits data soon. A recent article highlighted the high percentage of Chinese companies recording losses, though without international context, it becomes a “dog-bites-man” story. Contradicting conventional wisdom, companies in market economies don’t universally compete to maximize profit; some pursue market share. Comparative economic literature (Varieties of Capitalism) associates profit maximization with stock and bond market-driven economies, while bank-led capitalism, or the “Rhine model,” focuses on market share.
Economically, the People’s Bank of China (PBOC) has been methodically lowering the dollar’s fix. Given the dollar’s trading cap at 2% above the reference rate, the decreased fix reduces this cap. Before the weekend, the fix was set at a three-month low (CNY7.1695). This daily reference rate setting is among the strongest tools Chinese officials have to control the exchange rate. Since earlier this month, the dollar has been consolidating between roughly CNH7.1650 and CNH7.2000.
### Japan
In Japan, the yen has shown increased sensitivity to US interest rates over recent weeks. The 30-day correlation between exchange rate changes and the US 10-year yield rose to 0.48 from slightly below 0.10 a month ago. While the Israel-Iran conflict has not sparked a safe-haven yen rally, many view it primarily as an oil shock. Despite having the highest inflation rate in the G10, Japan’s central bank is averse to raising rates, and both its bond and equity markets are underperforming within the G7 this year.
In terms of data, Japan is scheduled to release its latest employment figures and retail sales data. Crucially, Tokyo’s June CPI report will also be available, serving as a precursor to the national figure due in several weeks and acting as a reliable predictor. While Bank of Japan Governor Ueda’s rhetoric has been subdued, he maintains that rate increases will continue if the economy unfolds as expected. However, he also acknowledges that the inflation target remains unachieved. The swaps market projects a year-end target rate near 0.60%, a decrease of about 25 basis points since late March.
In terms of prices, the dollar saw its most significant weekly advance of the year against the yen, increasing by nearly 1.40%. It set a new monthly high before the weekend, slightly exceeding JPY146.20. Moving past JPY146.30 could trigger a climb toward the JPY147.00-15 range. Momentum indicators remain constructive, with initial support likely around JPY144.35, although the dollar did not trade below JPY145 in the previous weekend session, a first since May 14.
### Canada
The Canadian dollar has shown varying sensitivity to risk climates and interest rates. Presently, it seems most attuned to the broader direction of the US dollar. The 30-day correlation between the exchange rate and the Dollar Index stands slightly above 0.70, a rarity in recent years. For context, this rolling 30-day correlation was below 0.20 in February, the lowest since late 2021.
In terms of data, Canada’s May CPI report is forthcoming. In April, the headline rate dropped to 1.7% from 2.3%, yet rising core rates influenced the Bank of Canada’s decision to hold its ground. Given this reaction, emphasis will be placed on core readings. Canada will also announce April GDP figures. The economy grew by 2.2% on an annualized basis in Q1, but economists caution against a potential Q2 contraction (-1%), so a lackluster April GDP result might not surprise. February GDP contracted by 0.2% before a 0.1% March expansion. Still, the Bank of Canada suggests its easing cycle is nearing completion, with another cut anticipated by year-end in the swaps market.
For price movements, the US dollar dipped to its lowest level since last October (~CAD1.3540) earlier last week before rebounding. It reached a new monthly high close to CAD1.3750 before the weekend. The greenback closed above its 20-day moving average (~CAD1.3700) for the first time since May 20. The five-day moving average is poised to cross above the 20-day moving average shortly. Near-term potential extends toward CAD1.3780-CAD1.3800. Breaching this would invite the CAD1.3835-60 area.
### Australia
The Australian dollar and Canadian dollar compete for the title of G10’s weakest performer this year. The Australian dollar has appreciated by approximately 4.35% against the dollar, compared to the Canadian dollar’s 4.80% rise. Both the Australian and New Zealand dollars saw significant depreciation when Israel struck Iran on June 13. The 30-day correlation between the Australian dollar and the Dollar Index stands near 0.75, a high not seen since mid-last year. The 30-day correlation with the Canadian dollar is near 0.60, while the correlation with gold has decreased below 0.40, its weakest point since early April.
Looking at data ahead, Australia is set to reveal the preliminary PMI, which doesn’t seem to be of critical importance to the market. The focus will be on the mid-week May CPI, which has held steady at 2.4% for the past three months. The central bank seems to prioritize quarterly readings over monthly ones. Barring considerable surprises, the Reserve Bank of Australia remains likely to reduce rates in early July, with futures indicating an 80% chance of a cut and almost two more anticipated by year-end. This positioning makes it one of the most aggressive G10 central banks to pursue cuts after a delayed start.
On the pricing front, disappointing May employment data—marked by the second monthly job loss this year and a surprising participation rate drop—drove the Australian dollar to a two-and-a-half-week low at $0.6445 on June 19. The currency stabilized but stalled around $0.6500 before the weekend and then revisited its lows. With momentum indicators softening, the five-day moving average is expected to drop below the 20-day moving average early in the new week. In summation, the corrective/consolidative phase appears incomplete, with the low likely not established yet. Support lies in the $0.6400-$0.6425 range.
### Mexico
The Mexican peso has achieved a remarkable 9.4% increase against the US dollar this year, surpassing the MSCI Emerging Market Currency Index (~6.0%) and the JP Morgan Emerging Market Currency Index (~7.2%). It has outpaced half of the G10 currencies. Mexico’s growth is noteworthy given US policy pressures hindering its development strategy, which depends on foreign investment (particularly US companies), remittances from Mexican workers in the US, and tariffs on steel and aluminum despite the USMCA, negotiated during President Trump’s initial term. Furthermore, current Mexican policies are not deemed particularly investor-friendly, and the popular election of all judges is perceived as judiciary politicization by many. Nonetheless, the peso is a long leg in carry trades against the dollar, owing to its low volatility and liquidity. However, during extreme risk-off scenarios, like the Israel-Iran conflict, the peso is sold, potentially as a liquid proxy for other emerging market currencies.
On the data front, anticipation is mounting for Thursday, June 26, when the central bank convenes. Leading up to this, Mexico will share April retail sales, the IGAE economic activity report, the first half of June’s CPI, and May trade figures. Despite a struggling economy, Mexican retail sales grew by an average of 0.5% monthly in Q1 2025 after a 0.6% average monthly decline in Q1 2024. The IGAE acts as a monthly GDP estimate and showed a 0.36% decline at Q1’s end. Price pressures are increasing, and both headline and core rates likely remain over 4%, the upper boundary of the target range. In trade, Mexico recorded a $1.26 billion surplus in the first four months of this year, contrasting with a $6.45 billion deficit during Jan-Apr 2024. Conflicted signals from Banxico leadership suggest potential outcomes for the meeting. A potential compromise could involve a quarter-point cut, reducing the target rate to 8.25%, though economists generally anticipate a 50-basis point move.
Regarding prices, the dollar made a marginal new low against the Mexican peso early last week at MXN18.8250 before trending upward to near MXN19.19 before the weekend, registering its highest settlement since late May. The 20-day moving average stands at MXN19.13, above which the dollar settled for the first time this month. Momentum indicators are trending upward, with the greenback potentially testing the 19.25 area. Breaking above this could indicate a re-test of the month’s high, around MXN19.45.
