Overview: The US dollar is enjoying a firmer tone against the G10 currencies with the disappointing UK jobs data weighing on sterling the most. It is off about 0.5% in late morning European activity. The greenback is more mixed against emerging market currencies. The Mexican peso, which reached new highs for the year yesterday is consolidating. The Brazilian real also rose to its best level of the year yesterday. The US economic calendar is light today and the focus is on tomorrow's CPI report and the ongoing US-China talks in London. The US tariffs have been the key issue, the talks in London appear to be more about export controls. There are the makings for a deal: chips for magnets and rare earths. It is not clear the extent to which the US will unwind some of its chip export controls and maybe only to the measures that have been announced since the Geneva agreement.
Most for the large Asia Pacific bourses gain, with China and Hong Kong notable exceptions. Strong orders for TSMC helped lift the Taiwan equity market by 2%. Europe's Stoxx 600 is nursing a small loss and US index futures are little changed. European benchmark 10-year yields are mostly 2-3 bp lower. The poor jobs report has sent the 10-year Gilt yield down seven basis points. The 10-year US Treasury yield is off a couple of basis points to 4.45%. Gold is consolidating between $3302 and $3335 today. July WTI is trading near $65.60, a two-month high. It is the fourth advancing session and the sixth of the past seven.
USD: The Dollar Index remains pinned in its recent range near this year's low, recorded in April, slightly below 98.00. It has moved to test the upper end of this month's range near 99.40 today. Follow-through buying through the 20-day moving average (~99.60) would lift the technical tone. DXY has not closed above this moving average since May 19. The economic calendar is light ahead of tomorrow's May CPI and the Fed is in a media blackout period ahead of next week's FOMC meeting. This week's coupon sales kick-off today with $58 bln three-year notes, followed by $39 bn 10-year notes tomorrow, and Thursday's $22 bln 30-year bonds. There is much handwringing and finger pointing about the worrisome backing up of US interest rates, and it is often framed as reflecting the budget deficit and growing worries about the debt. Yet, consider that since the end of April, expectations for the year-end Fed funds rate has risen by about 55 bp. The 10-year yield has risen slightly more than 30 bp. It is not that the deficit and debt do not matter, but the backing up of US rates is arguably a result of shift in expectations for Fed policy.
EURO: The euro recorded the session low yesterday, a little below $1.1390 in early North American turnover. It recovered to trade hover around $1.1425 in the North American afternoon, without the muster to challenge the session high seen in Europe near $1.1440. Like, yesterday, the euro remains within the range set last Friday (~$1.1370-$1.1455). Still, we had expected the combination of the steady US unemployment rate, expectations for a firm US CPI tomorrow, and the trade talks with China (began yesterday and continue today) to support the dollar.
CNY: The dollar traded inside last Friday's range (~CNH7.1715-CNH7.1940) yesterday and frayed the upper end of its today as the broad consolidation continues. The PBOC set the dollar's reference rate at CNY7.1840 (CNY7.1855 yesterday). US-China trade talks in London continue today. What the US has done to China through exports controls and third-party restrictions on semiconductors and related technology and software, China has shown its capability of doing with rare earths and magnets. As we have argued, it seems China can replace chips easier or sooner than the US can replace the processed rare earths and magnets. That US Commerce Secretary Lutnick is participating in the talks in London has given rise to speculation that US export controls are part of the negotiations. It looks as if the US is willing the extra technology controls announced since the Geneva agreement nearly a month ago.
JPY: The dollar traded between roughly JPY144 and JPY145 yesterday. Buying today, lifted the greenback through a trendline drawn off the mid- and late May high, found near JPY145.10. It reached JPY145.30 before sellers pushed it back to around JPY144.45. Japan reported 3.4% year-over-year increase in the preliminary estimate of May machine tool orders after April's orders rose 7.7% year-over-year. Still, the month-over-month are more revealing. After a surge in March, orders surged by 27.8%, orders have slowed. In April, they fell 13.8% and in May, they fell another 1.2%. Foreign orders have held in better than domestic orders.
GBP: Sterling traded firmly yesterday but remained within the pre-weekend range (~$1.3510-$1.3585). Disappointing labor market data knocked it to $1.3455, below the 1-2-week trendline near $1.3525 today. Average weekly earnings were slowed to 5.3% in the three-months year-over-year in April, though excluding bonuses, slowed to 5.2% from 5.5%. Job growth is slowing, and the unemployment rate (three-months) rose to a new cyclical high of 4.6%, the highest since July 2021. The number of payrolled employees fell by 109k after last month's loss of 33k was revised a loss of 55k. It has not risen since last October, and those making jobless claims rose by 33k, the most since last July. Still, there is little chance that the data will prompt the Bank of England to cut rates next week, though the odds of an August cut have risen to around 80% from 67% yesterday. Note that ahead of the next week's BOE meeting, May's CPI will be reported. Headline CPI jumped 1.2% (month-over-month) in April amid price hikes in utilities. Consumer service prices jumped 5.4% year-over-year from 4.7% in March and was largest rise since last August.
CAD: The US dollar briefly and marginally traded above the pre-weekend high near CAD1.3705. It has reached CAD1.3730 today. It is the third consecutive session of higher highs and higher lows. The CAD1.3745 area marks this month's high and a move above it could target the CAD1.3775-CAD1.3800 area. Yesterday, Prime Minister Carney announced a C$9 bln increase in defense spending and brought forward the 2% NATO target to FY25-26 from FY30 discussed in the recent campaign. Canada will have a permanent and expanded presence in the Arctic. The procurement process will become more efficient. Separately, Canada is reviewing its defense equipment needs and may opt for European producers instead of or in addition to US defense contractors.
AUD: Confidence surveys from two banks appeared to have little impact on the Australian dollar. The Australian dollar approached the upper end of its recent range that comes in slightly below $0.6540. The $0.6550 area that we have been looking for is the (61.8%) retracement of the fall from last September's high near $0.6940 to the low in April near $0.5915. Still, the Aussie posted its highest close since last November yesterday near $0.6515. While there has been no follow-through buying today, the Australian dollar is within its well-worn recent range (~$0.6480-$0.6540) and trading firmly in a $0.6490-$0.6530 range today.
MXN: The dollar ground to a new low against the Mexican peso, slightly below MXN19.03 yesterday, after a brief wobble early in the North American session as the greenback caught a bid around the time of Mexico's CPI report. It was a little firmer than expected, with the headline rising to 4.42% (from 3.93%) and the core to 4.06% (from 3.93%). This is the first time since last July that both measures are above the upper end of the 2%-4% target range. The central bank meets on June 26. The swaps market appears to be having second thoughts about the likelihood of another 50 bp cut, which would the fourth in a row. Ahead of the meeting, officials will get the inflation reading for the first half of June. The nearly 11% jump in vehicle production in May is a constructive development, but it is still about 2% lower than a year ago. Vehicle exports surged about 17.2% last month after a nearly 13.5% decline in April, leaving them almost 3% lower than a year ago. Mexico exports around 84% of its vehicle production in May compared with slightly less than 80% in May 2024. The peso recovered yesterday and settled well but is consolidating today between about MXN19.0345 and MXN19.10. We have been warning of a move toward MXN19.00, as it approaches, we must consider the next target on a break of it. The next important chart area is closer to MXN18.80.
Reviewed by Marc Chandler
on
June 10, 2025
Rating:
