Overview: The US has struck a trade deal with Japan, Indonesia, and the Philippines and Treasury Secretary Bessent has suggested the August 12 end of the US-China tariff truce will likely be extended next week. The dollar bloc leads the G10 currencies higher amid some creeping optimism, while the euro is the laggard, off about 0.20%. The yen is hovering around little changed levels in what has been a choppy session. Most emerging market currencies are firmer against the dollar. The exception is a handful of central European currencies, which appear to have been dragged lower by the heavier euro.
Equities like the developments. The Nikkei rallied 3.5% and Chinese mainland companies that trade in Hong Kong jumped 1.8%. Indonesian and Philippine equities rose more than 1%. Europe's Stoxx 600 is up about 1.2% to an eight-day high. US S&P 500 futures are almost 0.5% better, while NASDAQ futures are up marginally. Bond markets are heavy. The 10-year JGB yield rose 7 bp to almost 1.58%. Benchmark 10-year yields in Europe are up most 2-3 bp but the 10-year Gilt yield is up five. The 10-year US Treasury yield is poised to snap a five-day decline. The yield is up three basis points to 4.37% ahead of the $13 bln sale of 20-year bonds today, a tenor with which the market is not enamored. Gold is virtually flat, holding near the highs, with a three-day rally in tow. September WTI is inside yesterday's range and is straddling the $65-a-barrel level. It has not settled below there since July 1.
USD: The Dollar Index fell for the third consecutive session yesterday and for a cumulative loss of about 1.4%. The pullback met the (61.8%) retracement of the gains from the July 1 low near 97.35. It is in a narrow range today in yesterday's trough and has held below 97.60. There may be some support near 97.00 but the price action gives credence to ideas that the upside correction in the first half of month is exhausted. The more-than-three-year low set July 1 was around 96.35. We do not think it is coincidental that the US rates have pulled back. The US 10-year yield fell for the fifth consecutive session yesterday and is off 25 bp over the run. The two-year yield fell for the third day yesterday and down 7-8 bp over the drop. The light economic calendar continues today with June existing home sales. They are essentially flat this year at an average seasonally adjusted annual pace of 4.08 mln. In the first five months of 2024, the average was 4.11 mln. It seems almost surreal that with the various conflict of interests of the Trump administration that the President continues to make allusions to the possibility of fraud involved with the remodeling of the Federal Reserve buildings. In Trump's first term, reports indicated that his team encouraged the Fed to drop its less-expensive glass structure design and insisted on more expensive white marble. In the same way Trump did not remember that he had appointed Powell as chair (recall Yellen was "too short"), it has been conveniently left out of the administration and allies' narratives.
EURO: The euro settled higher yesterday, extending its recovery for the third consecutive session and surpassing the (61.8%) retracement objective of the dollar from the July 1 high near $1.1830. That retracement weas found near $1.1725 and the euro's high around $1.1760. It is in roughly $1.1725-$1.1755 range today in what appears to be bullish consolidation. While there are no economic reports today, the calendar turns busy tomorrow with the preliminary PMI, which is expected to have edged higher, and the ECB meeting that is expected to stand pat. After dipping below 50 last November and December, the composite PMI has held above it this year. Next week, the first estimate of Q2 GDP will be reported. After growing 0.6% in Q1 25, the eurozone economy may have contracted by 0.1% in Q2, according to the median forecast in Bloomberg's survey.
CNY: The dollar has been sold through support that had been built slightly below CNH7.17 in recent days. It has fallen to almost CNH7.1570 today, a nearly three-week low. The low for the year was set July 1 near CNH7.15. Today is the fifth consecutive session that the greenback recorded lower highs. The dollar's losses may have been fanned by the PBOC set the dollar's reference rate at another new low for the year. The PBOC set the dollar's reference rate at CNY.7.1414 (CNY7.1460 yesterday). Last Wednesday, the fix was at CNY7.1526. The US-China tariff truce runs until August 12, but US Treasury Secretary Bessent opined that the truce may be extended after next week's US-China meeting in Sweden. Some linked the comments to the rally in mainland shares that trade in Hong Kong (1.8% to a four-year high close).
JPY: President Trump announced a deal with Japan that would lower the reciprocal tariff on to 15% from 25% and a 12.5% tariff on auto (down from 25%). Japan commits to investing $550 bln in the US and buy more US cars, trucks, rice, other agriculture products, and establish a joint venture to export LNG from Alaska. There were two other developments to note. First, with a deal in hand, there were reports that Prime Minister Ishiba was going to step down shortly, which his office later denied. Still, as we noted yesterday, the pattern is for a prime minister that lost the majority in the upper house to step down within two months, though the sample size is small. Second, the sale of the 40-year JGB was greeted with the weakest demand since 2011. The 40-year bond yield rose 8 bp to 3.46% today. The US trade deal raised the possibility of more spending. The dollar rose yesterday in the Asia Pacific session against the yen and reached almost JPY148. However, European and North American participants took advantage of the upticks to sell more dollars. A low of almost JPY146.30 was recorded in North American turnover. The dollar fell to JPY146.20 today, recovered to JPY147.20 before pulling back to the JPY146.60 area. The dollar overshot the (38.2%) retracement objective of the rally from the July 1 low (~JPY142.70) and the next retracement (50%) is slightly below JPY146, where options for about $735 mln expire today. The 20-day moving average is a bit above it (~JPY146.25) and rising. The daily momentum indicators are turning lower.
GBP: With a light economic calendar today, sterling seems at the mercy of the broader movement of the greenback. Yesterday, it rose above $1.3525, which corresponds to the (38.2%) retracement of sterling's decline from the July 1 high near $1.3790. It reached almost $1.3550 today. The next retracement (50%) is slightly above $1.3575, which is also around where the 20-day moving average is (~$1.3565). UK Gilts underperformed initially yesterday after the larger-than-expected deficit was reported, but by the end of the session, 10-year yields were off almost 3.5 bp, to lead the region. Among major bonds markets, only the US 10-year yield fell more. However, today, yields are rising, and the 10-year UK Gilt yield's five basis point rise is the most in Europe.
CAD: The US dollar fell by about 0.5% against the Canadian dollar yesterday. It was the largest decline this month. It fell to almost CAD1.3600, a two-week low. Recall that it put the month's high last Thursday near CAD1.3775 The greenback's losses have been extended to almost CAD1.3580 today. The next immediate target is the low from July 3 (~CAD1.3555) and the low for the year set mid-June around CAD1.3540. Canada reports May retail sales tomorrow. The advanced estimate by StatsCan warns of a1.1% decline, which, if confirmed, would be the largest of the year. Autos and parts sales account for around a quarter of Canada's retail sales and a pullback after April purchases, ostensibly to front-run tariffs, are likely to have weighed on May retail sales. Domestic demand is softening, and excluding autos, retail sales may have fallen for the third consecutive month.
AUD: The Australian dollar rose for the third consecutive session and settled above the $0.6540 level that seemed to have blocked the upside in recent days. It corresponds to the (61.8%) retracement of the pullback fro85 today. m the July 11 high for the year (~$0.6595). The Aussie reached almost $0.6560 yesterday and about $0.6585 today. Options for almost A$405 mln at $0.6580 expire today. The futures market has a quarter-point cut fully discounted for next month and has about 66 bp of cuts priced in between now and the end of the year. The flash July PMI is out tomorrow. In June, the composite was at 51.6, which matches the high for the year and the best since last August.
MXN: The dollar ground lower against the peso for the third straight session and approached the year's low recorded earlier this month near MXN18.5525. The greenback reached its low near midday in NY yesterday (~MXN18.5865). But as the dollar pared its earlier losses more broadly, it recovered to around MXN18.66 in late dealings. News that Mexico's retail sales surged 1.8% in May (median forecast in Bloomberg's survey was for a 0.4% increase) may have helped extend the early peso gains. The April series was revised to show a 1.4% decline instead of a 1% drop. Nevertheless, the IGAE activity report, like a monthly GDP report, was weaker than expected (at 0.01% instead of up 0.2%, and the April series was revised lower (0.43% vs. 0.54%). The dollar is in an exceptionally narrow range so far today (~MXN18.63-MXN18.67). The central bank meets on August 7, and the market is looking for it to stand pat. Mexico report H1 July CPI tomorrow. The year-over-year headline pace looks likely to have declined for the third consecutive bi-weekly period. The median forecast in Bloomberg's survey sees the first sub-4% reading since the end of April.
Reviewed by Marc Chandler
on
July 23, 2025
Rating:
