Overview: The continued release of US tariff announcements shapes the near-term considerations. Of the surprises, the 50% tariff on Brazil (10% on April's "Liberation Day") is among the most egregious. The US has a trade surplus with it and the letter made clear a personal animosity over the treatment of former President Bolsonaro. After having achieved retracement targets of the slide since the June 23 tirade against the Fed Chair Powell, the dollar has softer against most currencies today. Among the G10, the Swiss franc is the only one to be struggling to achieve traction. The Polish zloty, Turkish lira, and Taiwanese dollar are showing small losses. The Mexican peso is slightly better than flat.
Equities in the Asia Pacific region mostly advanced. Japan and India are notable exceptions. South Korea's Kospi led the region with a nearly 1.6% gain. Europe's Stoxx 600 is advancing for the fourth consecutive session, the longest streak in a month. US index futures are nursing small losses. Asia Pacific bond yields played catch up after yesterday's decline in US yields. European 10-year rates have edged higher today, except for Gilts, where the yield is a basis point lower. The 10-year US Treasury yield is almost two basis points higher at 4.35%. The US sells $22 bln 30-year bonds today. There was little new in the FOMC minutes, and the Fed funds futures continue to gravitate around 50 bp of cuts this year. After falling by slightly more than 1% on Monday-Tuesday, gold recovered a little yesterday and a little more today. It is trading around $3325-$3330 in Europe. Resistance is seen near $3345. August WTI is trading quietly inside yesterday's range (~$67.70-$68.95). September copper is firm above $550. Yesterday's high was near $573 and Monday's record high was almost $590.
USD: After nearing the (50%) retracement target of the drop since June 23 on Tuesday (~97.90), the Dollar Index consolidated in a narrow range yesterday marked by the 5-day moving average (~97.40) on the low side and the 20-day moving average (~97.75) on the top side. DXY last closed above the 20-day moving average on May 19. It is still consolidating today. It slipped slightly through 97.30 early today but has recovered almost 97.50. Weekly jobless claims for last week are due today for the week through July 4. The holiday may have skewed them lower. And although initial claims slipped in the previous three weeks, the gradual slowing of the labor market continues. Weekly jobless claims averaged almost 234k in Q2 and 221k in Q1. The elevated continued claims (1.964 mln) compared with 1.844 mln at the end of Q1 and speaks to it, taking longer time for people to find new jobs, and that reflects a slowing in hiring, even if not large scale lay-offs. Moreover, aggregate hours worked in the private sector in June declined, in what is perceived to be a precursor to lay-offs.
EURO: The euro met the (38.2%) retracement of its rally from the June 23 low on Monday near $1.1685. It reached $1.1765 on Tuesday and almost $1.1730 yesterday. It has not traded above $1.1750 today and has held above $1.1710. The (50%) retracement is near $1.1640 and the 20-day moving average is near $1.1660. The euro has not settled below its 20-day moving average since May 19. The daily momentum indicators have turned lower. Options for 1.3 bln euros at $1.18 expire today. The US two-year premium over Germany bottomed at the end of June near 186 bp, the least since early April. It widened to about 207 bp at the end of last week. Although it was a holiday in the US, it was still near 207 bp on Monday. It straddled the 200 bp mark yesterday and today.
CNY: The dollar rose against the offshore yuan for the third consecutive session yesterday and the sixth session in the past seven. It settled above the 20-day moving average for the third consecutive session and reached its best level (~CNH7.1880) since June 23. The high on that day was about CNH7.1925. The greenback is softer today and traded below the previous session's low for the first time in five sessions. It is finding support near the 20-day moving average (~CNH7.1755). The rolling 30-day correlation between changes in the yen and yuan was above 0.60 from early May 2024 through September, and it reached above 0.80. However, this was the peak, the correlation turned inverse in January and again in April and May. However, it jumped recently and was above 0.50 last week, which is a new high for the year. It has since slipped to about 0.45. The PBOC set the dollar's reference rate at CNY7.1510 (CNY7.1541 yesterday).
JPY: From the low on July 1 near JPY142.70 through yesterday's high of almost JPY147.20, the dollar appreciated by slightly more than 3.1%. The US 10-year yield bottomed on Monday, below 4.19% for the first time in two months, and at Tuesday's high it was around 4.43%. The 10-year Treasury yield fell yesterday, and the pullback was extended after robust demand at the auction (sold for lower yield than in the when-issued market. The lower yield on the re-opening issue still generated a stronger bid-cover (2.6 vs 2.5) as direct bidders (including primary and non-primary dealers, hedge funds, pension funds, mutual funds, insurance companies, and foreign governments) stepped up. It is slightly firmer today. The dollar recovered from a three-day low near JPY145.75 to new session highs in early European turnover near JPY146.50. Japan reported its first back-to-back decline in producer prices since Sept-Oct 2023. The 0.2% decline in June followed the revised 0.1% (initially, 0.2% fall in May), which offset the 0.3% rise in April. That left Japan's PPI flat in Q2 after rising at a 3.2% annualized rate in Q1. The year-over-year rate slipped to 2.9% from 3.2%. This year's peak, 4.3% in February and March, was the highest since June 2023. The market has wavered but now the swaps are pricing in about a 50% chance of a quarter point hike toward the end of the year. The BOJ branch managers’ meeting report, with its unchanged assessment lends credence to ideas it will stand pat when it meets at the end of July.
GBP: Sterling was confined to a narrow range yesterday. It straddled $1.36 in a $1.3565-$1.3620 range. It frayed the five-day moving average as it has done in recent days, but it has not settled above it since July 1. And for the third consecutive session, it did not trade above the previous day's high. That streak ended today. According to Bloomberg, sterling has traded 1/100 of a cent above yesterday's high. It may take a move above $1.3630-50 to lift the technical tone. The UK reports May GDP tomorrow. The median forecast in Bloomberg's survey anticipates a 0.1% increase after output fell by 0.3% in April. Industrial output, including manufacturing production, is expected to extend April's slump, while services activity likely recovered after falling 0.4% in April. The trade deficit may have narrowed. Economists in Bloomberg's survey expect that growth slowed to 0.2% in Q2 after a 0.7% expansion in Q1. The swaps market goes into the report with almost a 90% chance of a cut at the August 7 BOE meeting discounted, and another one is fully discounted in Q4.
CAD: The US dollar met the (61.8%) retracement target of the sell-off from the June 23 high near CAD1.38. The objective was a little above CAD1.3700. It consolidated in the North American afternoon, but the upside momentum does not feel exhausted, though it is trading slightly heavier today. Still, it is holding above yesterday's low (~CAD1.3660), where the five and 20-day moving averages converge. A move above CAD1.3725 could signal a test on the more technically important CAD1.3800 area. There are options for $830 mln at CAD1.3700 that expire tomorrow when Canada reports June employment. The unemployment rate is expected to have risen to a new cyclical high of 7.1%. It was at 6.4% in June 2024 and 6.6% in January 2025. Job growth in the first five months of the year was almost 61k. It grew 165k jobs in the Jan-May 2024 period. The Bank of Canada front-loaded its rate cuts, and the swaps market has a cut discounted in Q4, which would bring the target rate to 2.50%. The market leans toward this being the bottom, but there is about a 1-in-3 chance of another cut next year.
AUD: For the second consecutive session, the Australian dollar recorded an inside day yesterday, but has come back better bid today, and some narratives link it to the jump in copper prices in reaction to the US 50% tariff (August 1). It recovered from yesterday's low near $0.6510 to reach almost $0.6565 today in Europe today, which matches the week's high was set Monday. The intraday momentum indicators are stretched. We note that the $0.6480 area approached on Monday and Tuesday also corresponds to the (50%) retracement of the Aussie's gains since June 23.
MXN: The greenback's losses were extended to almost MXN18.55 yesterday where buyers emerged and lifted it back to session highs near MXN18.6500 as the US announced a whopping 50% tariff on Brazil. The dollar rose to almost MXN18.6685 earlier today but is now slightly lower on the day. Since the June 23 high a little above MXN19.34 through yesterday's low, the US dollar has fallen by slightly more than 4%. A near-term consolidation could see the dollar near MXN18.70-75. Mexico's June CPI, reported yesterday, was slightly firmer than expected, and the fact remains that both the headline and core rates are above the 2-4% target range. Today, the central bank will release the minutes from the recent meeting that saw a dissent to the decision to deliver the fourth consecutive half-point cut. The majority of the central bank's board seem to be more concerned about the economic slowdown. Meanwhile, what has caught some attention, especially in the social media are the Mexican relief workers that went to Texas to help and the contrast with US crackdown on legal and illegal immigration, not to mention other hostile acts, like taxing worker remittances, for example. The 50% tariff on Brazil, one of the rare countries that the US experiences a bilateral surplus, contained in a ranting letter about the treatment of former President Bolsonaro, has shocked many, even after the 25% tariff on South Korea with which the US has a free-trade agreement. The tariff will likely push Brazil further away from the US and toward China.
Reviewed by Marc Chandler
on
July 10, 2025
Rating:
