Overview: The greenback is under pressure. It is off against nearly all of the world's currencies after falling in North America yesterday. Reports that Israel may be planning a strike against Iranian nuclear facilities has contributed to the broad risk off moods and helped lift July WTI to new highs since early April. While the greenback is not benefiting from the risk-off, gold has extended its gains to about $3300. Still, the dollar is off its lows and North American leadership is await.
While equities were mostly higher in the Asia Pacific region, Europe's Stoxx 600 is snapping a four-day advance. It is off nearly 0.5%. The S&P 500 ended a six-day rally yesterday, and US index futures are off around 0.75%. Bond markets are not offering a haven today. European benchmark 10-year yields are up 6-8 bp and the 10-year US Treasury yield is up five basis points to 4.54%. Monday's high in response to the Moody's downgrade before the weekend was closer to 4.56%. The US Treasury auctions $16 bln 20-year bonds today, and the demand for this tenor is not typically as for the 10-year or 30-year.
USD: It is as if Monday's buying in the North American session, following the sell-off in Asia and Europe ostensibly on Moody's downgrade, exhausted the dollar bulls. They were unable to match the strength yesterday and returned toward the session lows near 100.00 in late dealings. It was sold to almost 99.40 today, a two-week low in early European trading. It recovered to around 99.80 where sellers pounced. Support is seen in the 99.00-25 area. It must close above 100.00 to stabilize.
EURO: The euro held support near $1.1220 in the North American session yesterday and by late trading it had recovered to set a marginal new session high near $1.1285, which is around the 20-day moving average, as well. It reached nearly $1.1355. It pulled back in early European turnover and found support near $1.1310. The next technical target may be the month's high near $1.1380, which is also the (61.8%) retracement of the decline from the April 21 high for the year (~$1.1575).
CNY: The dollar was turned down from the CNH7.2265 area, overshooting marginally the 200-day moving average and the (61.8%) retracement of the losses since the May 9 high (~CNH7.2528). It tested the CNH7.20 area, which held initially. A consolidative tone is threatened. The PBOC set the dollar's reference rate at CNY7.1937 (CNY7.1931 yesterday).
JPY: The dollar fell to a fresh eight-day low yesterday around JPY144.10 and settled below the 20-day moving average (~JPY144.60) and below Monday's low (~JPY144.65). It took out JPY144.00 before finding support slightly below JPY143.50. Nearby support is seen near JPY143.25, though more formidable support may not be found until closer to JPY142.00. There are reports suggesting that in the trade talks the US is seeking a stronger yen. Turning to Japanese trade balance, in 2023 and 2024, it reported a cumulative trade deficit of about JPY15 trillion. It recorded a bilateral surplus with the US of about JPY17 trillion. The April figures released earlier today showed an overall deficit of nearly JPY116 bln deficit. The median in Bloomberg's survey anticipated a JPY215 bln surplus. Export growth slowed on a year-over-year basis (2% vs. 4%), while imports fell 2.2%. Japan may be one of the countries that US Treasury Secretary Bessent warned would face April 2 "Liberation Day" tariffs if there are not negotiations in good faith. Japan was the first to begin negotiations with the US, but the talks seem to have stalled. Japan wants all the tariffs on the table, including the auto tariffs, but that is not what the US is offering. Moreover, Prime Minister Ishiba has seen his support dwindle and there is an upper house election in late July, after the 90-day postponement of the so-called reciprocal tariffs.
GBP: Yesterday, the Bank of England's chief economist warned against easing policy too quickly and today the UK reported a surge in CPI. It helped lift sterling to a new three-year high near $1.3470 before being taken a little below $1.3400 where new bids were waiting. The jump in household utility bills fueled the largest rise in the UK CPI in two years. The 1.2% increase in April was larger than all of Q1 25 (~0.6%). The Bank of England may have been able to look through it, but core prices rose 3.8% year-over-year, up from 3.4% in March and 3.2% at the end of last year. Service prices are 5.4% higher from a year ago. They finished last year up 4.4% year-over-year. The swaps market has the next cut fully discounted for November and has about 36 bp of cuts this year priced in compared with 41 bp yesterday and 45 bp at the end of last week. Meanwhile, tomorrow, the May flash composite PMI is seen below the 50 boom/bust level for the second consecutive month. It was above 50 all of 2024.
CAD: The greenback consolidated in the lower end of the recent trading range, which was established on May 12 (~CAD1.3895-CAD1.4015). It has been pushed to CAD1.3880 today. The 20-day moving average is near CAD1.3885, which is also the halfway point of the rally since the May 6 low (~~CAD1.3750). The next retracement (61.8%) is near CAD1.3850. The end of the carbon tax saw the headline CPI fall 0.1%, and given the base effect, the year-over-year rate fell to 1.7% (from 2.3%). This was a little firmer than the Bank of Canada projected. And perhaps more importantly, the underling core measures were more than expected (averaging 3.15% vs 2.85% in March). The market more than halved the odds of a June rate cut to about 1-in-4. Meanwhile, a 10-day rally has lifted the Toronto Stock Exchange Index to a record-high. It is the longest streak since 2021. The index is up a modest 5.3% year-to-date.
AUD: The Australian dollar traded below $0.6400 yesterday in response to what was perceived to be a dovish cut by the central bank. However, the broader pullback in the US dollar helped it recover to almost $0.6425 in the NY afternoon. The gains have been extended to almost $0.6460 today. The week's high, set Monday, near $0.6465, offers initial resistance. It pulled back to around $0.6435 in early European turnover. A close below $0.6425 would disappoint the late longs.
MXN: The peso extended its gains yesterday to new seven-month highs. The greenback reached almost MXN19.25. Recall, last Friday's high was near MXN19.5660. The peso finished higher yesterday, the 11th session in the 14 this month. Yesterday's resilience persisted even after news reports of more political violence (two aides of Mexico City Mayor Brugada were killed). Mexico reports March retail sales today. The dollar is consolidating in a narrow range (~MXN19.26-MXN19.3050), as it waits for North American leadership. With Q1 GDP already reported, today's report is unlikely to have much impact. That said, retail sales are expected to slip (-0.1%) for the first time since last October. Tomorrow's reports are more important, especially the CPI for the first half of May.
Reviewed by Marc Chandler
on
May 21, 2025
Rating:
