### United States
At the start of the week, the US dollar showcased a softer trend, yet still navigates through North American markets where recently it has exhibited a stronger performance compared to other markets. Notably, the focus this week for the US will be relatively muted in terms of data releases and communication from Federal Reserve officials as they await the FOMC meeting at month’s end. However, Fed Chair Powell is set to deliver welcoming remarks at a regulatory conference, which stands as an exception. The index of leading economic indicators is scheduled for release today, although it traditionally elicits minimal market reaction.
The Dollar Index, having appreciated nearly 2.7% from its low on July 1 to last Thursday’s high, settled near session highs last week, supported by a constructive North American stance. The index is softer within Friday’s range, and a rise above 99.00 could lead to testing the June 23 high near 99.40, whereas a breach of the recent low near 97.70 may indicate the end of the dollar’s upside correction.
### Eurozone
The European Central Bank (ECB) meeting on Thursday is the focal point of the week for the eurozone, with the probability of a surprise rate cut being minimal. The euro has been undergoing a downside correction this month, marking the fifth such episode this year to last a week or more. The correction has spanned around two-and-a-half weeks, with a magnitude of approximately 2.3%, compared to the average pullback of about 3.2%. If the euro were to experience an average pullback, it could fall to about $1.1450, a level where a 50% retracement of the rally since mid-May is located.
Despite this, it’s anticipated that the euro’s correction could be nearing its end, with a move above $1.1720-25 boosting confidence. A push above last Friday’s high of around $1.1670 would be seen positively. During European morning trading, the euro recorded a session high slightly above $1.1650. Options for 1.8 billion euros at $1.1640 are set to expire today.
### United Kingdom
Despite a series of lackluster economic data, the British pound appeared to have established a base last week around $1.3365-75. The currency managed to recover a cent before the weekend but faced resistance in North America. Today, it largely traded above $1.3400, reaching $1.3465 in early European activity. A breakthrough above the $1.3475-85 zone would enhance the technical tone. Options for almost GBP700 million at $1.3475 are set to expire today.
### China
Regarding China’s currency, the crucial range for the dollar against the offshore yuan remained last Wednesday’s range of approximately CNH7.1685-CNH7.1920. Although Beijing aims for a stable dollar-yuan exchange rate, the yuan has tended to depreciate against most other currencies when the dollar trades higher. Conversely, it appreciates against other trading partners when the dollar declines.
In July, the yuan has risen against all G10 currencies and most emerging market currencies. The People’s Bank of China (PBOC) has been lowering the dollar’s fix, with last week’s lowest fix being the lowest since early November 2024. Today’s reference rate was set at CNY7.1522, marking the fifth increase in the past six sessions. Unsurprisingly, Chinese banks maintained their loan prime rates at 3.0% and 3.5% for one- and five-year tenors, respectively. Despite low inflation, high real interest rates persist, yet Chinese officials seem unhurried to cut rates. While low inflation is typically attributed to weak consumption, it may be more a result of over-investment, particularly in light of Beijing’s recent expression of concern about excess capacity—a topic likely to be discussed at the upcoming politburo meeting.
### Japan
Following a national holiday, Japanese domestic markets were closed, but the yen gained strength due to the political shift after the LDP and Komeito coalition lost its majority in the upper chamber over the weekend. This occurred before the US 10-year yield saw its fourth consecutive session pullback. The government’s intervention by releasing stockpiles of rice lowered prices, but wasn’t enough for the coalition to retain its majority. Historically, the last three LDP prime ministers who lost an upper house majority resigned within two months, raising speculation that Agriculture Minister Koizumi, who received favorable feedback for managing rice prices, might succeed the current Prime Minister Ishiba.
The dollar continues trading within last Wednesday’s range of approximately JPY146.90-JPY149.20, and is soft today within a range of around JPY147.70-JPY148.65. The steady correlation between exchange rate changes and US Treasury yield movements provides directional insight. The six-week 4.50% cap on the 10-year US yield held last week, currently down to around 4.37%. Strong private sector foreign demand for US Treasury bonds was noted in May.
### Canada
The US dollar reached a monthly high last Thursday near CAD1.3775, commencing that session around CAD1.3680—an important range since resistance near CAD1.3800 and support spanning to CAD1.3650 are crucial. Today, the dollar is trading in a notably narrow range of approximately CAD1.3710-CAD1.3735, with options for about $715 million at CAD1.3745 set to expire. The Bank of Canada’s business surveys will be revealed today, although they rarely impact the market. The swaps market anticipates the central bank to stay put in Q3 and prices in slightly less than a 50% chance of a rate cut in October.
### Australia
The Australian dollar rebounded from around $0.6455 on Thursday to above $0.6540 before the weekend. This recovery retraced 61.8% of the decline from the July 11 yearly high of approximately $0.6595. However, this momentum was not sustained, slipping back to nearly $0.6500 during the North American afternoon. Today, the AUD is trading quietly between $0.6500 and $0.6525, with A$820 million options at $0.6500 expiring today. A close below the $0.6480 area would likely weaken the near-term technical outlook. Minutes from the recent Reserve Bank of Australia meeting, expected to reaffirm Governor Bullock’s message that the decision to remain on hold concerned timing rather than direction, will be released tomorrow. After disappointing employment data and a rise in the unemployment rate last week, the futures market is increasingly confident about a rate cut at the next meeting. The current cash rate target stands at 3.85%, with year-end expectations of slightly below 3.20%, suggesting two fully discounted cuts and around a 60% chance for a third in the next four meetings. Meanwhile, speculation for a rate cut from the Reserve Bank of New Zealand next month has increased, with implied odds rising to about 85% from 68% before the weekend.
### Mexico
The US dollar spent recent sessions coiling within last Tuesday’s range of roughly MXN18.65 to MXN18.8850 and continues doing so within a MXN18.6940-MXN18.7475 range today. Daily momentum indicators remain constructive. The five- and 20-day moving averages can indicate the near-term trend, and the dollar’s five-day moving average has been below the 20-day moving average since mid-April, possibly poised to cross today or tomorrow. For those already holding long peso positions, carry continues to provide returns. However, those looking to buy pesos should be patient and strategic, considering upside risks extend toward MXN19.00. Thursday’s mid-July CPI data, potentially showing a third consecutive decline in the headline rate, constitutes the week’s data highlight.
