Hopes that the war on Iran is nearly over and that the Strait of Hormuz will open soon and ease the supply shock that has rippled across the global markets continues to underpin risk appetites today. The AI boom and the infrastructure and defense spending in Europe are also contributing. The dollar is mostly softer, oil prices lower and yields extending their pullback.
Preliminary data lends credence to claims that Japanese officials intervened again yesterday to strengthen the yen. The initial estimate suggests it slightly few dollars than it did on April 30. Norway’s central bank surprised the market with a rate hike earlier today, and the swaps market is pricing in another. Sweden’s Riksbank stood pat after the softer than expected CPI reported yesterday.
Prices
G10
• While equities and bonds rallied strongly yesterday, the dollar bottomed in early North American trading and gradually pared some of its decline yesterday amid heightened optimism that the war on Iran is drawing to a close. The euro peaked before 7:00 am ET yesterday, slightly shy of $1.18 and pulled back to around $1.1740 in the NY afternoon. That area held today, and after a subdued Asia Pacific session, the euro has returned to the $1.1780 area in the European morning.
• The dollar plummeted quickly yesterday amid speculation that the BOJ stepped back in as the market approached JPY158. Within minutes, the greenback had been sold to almost JPY155.00. The preliminary estimate is that the BOJ sold around $30 bln. The initial rebound carried it back slightly through JPY156.55. European and North American participants pushed it down to around JPY155.60 before bids returned but the market seemed reluctant to push it above the JPY156.60 area ahead of the return of Japanese markets today. It has been confined to about today between JPY156 and JPY156.55. Options for $1.5 bln at JPY156 expire today.
• Sterling peaked around the same time the euro did yesterday. It straddled the $1.3640 area before it finally gave up and retreated to around $1.3580 in the NY afternoon. It has held above $1.3590 today but below $1.3625. The UK holds local elections today A large loss for Labour is seen renewing pressure on Prime Minister Starmer. Concerns about the implications for fiscal policy were not evident yesterday when the 10-year Gilt yield dropped 12 bp on the hopes of peace, or at least an open Strait of Hormuz. Starmer is in a bind. He is the to the right of his party but to the left of the Tories, and more importantly now, the Reform UK populists. Polls suggest the Greens are poised to do better, too. There is little fiscal space, and year-over-year growth may struggle to sustain 1%.
• Despite the strong IVEY PMI (57.7 vs. 49.7), the Canadian dollar was one of two G10 currencies unable to gain traction against the greenback yesterday. The other being the Norwegian krone. Hence, the idea that nearly 7% sell-off in June WTI was the culprit. The greenback posted a bullish outside up day by trading on both sides of Tuesday’s trading range and settling above its high. The US dollar reached about CAD1.3640 in the North American afternoon. A marginal new high was recorded today but the greenback has been sold to about CAD1.3620 in Europe today. Initial support is seen near CAD1.3600 and then yesterday’s low (~CAD1.3580).
• The Australian dollar reached almost $0.7280 in early North American turnover yesterday, its best level since June 2022. Its gains were pared. The low recorded in the NY afternoon was around $0.7225. It settled slightly below the upper Bollinger Band (~$0.7255 today). The Aussie is trading with a firmly today and approached $0.7265 in the European morning. Options for A$2.23 bln at $0.7250 expire today.
EM
• We had feared that the Mexican peso was falling out of favor, but it has rallied nearly 1.5% in the past two sessions. The dollar traded below MXN17.20 for the first time since April 17. It is holding above it today. The low in mid-April was MXN17.1275. Yesterday, the greenback recovered to MXN17.30. Today is a big day for Mexico, with the April CPI in the morning and a likely rate cut by Banxico this afternoon.
• The Chinese yuan has extended its gains today. Against the offshore yuan, the dollar was sold below CNH6.80 for the first time since February 2023. The PBOC set the dollar’s reference rate at CNY6.8487 (CNY6.8562 yesterday), its lowest level since the end of March 2023.
• Helped by the drop in oil prices and reports that officials are looking at other ways to support the currency, the Indian rupee rose by about 0.4% today after yesterday’s 0.7% gain. It is the first back-to-back rise in nearly three weeks. The dollar reached a record high on Tuesday near INR95.4375, and today’s low was around INR94.0750, its lowest level since April 23. The dollar settled slightly above INR94.2510.
Other Markets
• Asia Pacific equities mostly rallied today. The return of Japan from its long holiday saw the Nikkei soar nearly 5.6%. Hong Kong, Taiwan, South Korea, and several small bourses gained more than 1%. India’s main indices were an exception and failed to sustain much traction. After rising 2.2% yesterday, Europe’s Stoxx 600 is off by about 0.2% in European morning. US index futures are hovering around little changed levels.
• Benchmark 10-year yields are softer. Antipodean and Japanese yields were 3-5 bp lower. European rates are fractionally softer, and the 10-year US Treasury yield is 1.5 bp lower near 4.33%.
• Gold is extending this week’s recovery off the $4500 area. It has risen a little through $4753 today, its best level since April 22. Last month’s high was near $4890. Silver forged a shelf around $72.50 earlier tis week and is pushing above $80 today for the first time April 21.
• June WTI is trading heavier but within yesterday’s range. The contract peaked at the end of April slightly shy of $111. It was sold to about $88.65 yesterday but settled a little above $95. Today, it has traded between about $91.90 and almost $96.50. It is hovering near $93 in late European morning turnover. July Brent peaked earlier this week ($115.30) and reached $96.75 yesterday. Today, it has traded between about $97.45 and $102.55. It settled slightly above $101.25 and is now around $99.
Data
• Today’s US data is of marginal significance for the markets ahead of tomorrow’s April employment report. Challenger’s April report and the weekly jobless claims pose headline risk. Recall that weekly jobless claims fell by 26k in the week through April 24 to 189k, since 1969. Continuing claims fell to 1.79 mln, a two-year low. Productivity and unit labor costs are not observed directly, but are interpolated from the GDP figures, and both are likely to have moderated from Q4 25. March construction spending likely stabilized after falling by 0.3% in February. Lastly, March consumer credit may have increased for the second consecutive month for the first time since last March-April.
• Mexico sees April CPI, which may have slipped a little lower, but both the headline and core likely remained above the top of the 2-4% target range. Still, driven by the weakness in the economy, the central bank will likely cut its overnight rate target by 25 bp today to 6.50%. The swaps market anticipates an extended pause.
• The eurozone reported a 0.1% decline in March retail sales. It follows a 0.3% decline in February and a flat showing in January. It is the first back-to-back decline since October-November 2024.
• German factory orders soared by 5.0% in March (five-times more than the median forecast in Bloomberg’s survey after the 0.9% gain in February was revised to 1.4%. The year-over-year pace jumped to 6.3% (from 3.5%). Separately, Germany’s construction PMI slumped to 42.1 in April from 48.0 in March.
• Sweden’s Riksbank decision to keep its policy rate steady at 1.75% was no surprise. The preliminary April CPI reported yesterday was considerable softer than expected. The headline and underlying rates fell. Norway’s Norges Bank surprised with a 25 bp hike to 4.25%. It is the first G10 central bank in Europe to hike. The swaps market has about a 45% chance of a follow-up move next month.
• Australia reported an unexpected A$1.84 bln goods deficit in March. The surplus in March 2025 was A$6.26 bln. Exports tumbled by 2.7% (+4.2% in February) and imports jumped 14.1% (after they fell 2.7% in February).
• China reported the dollar value of its reserves rose by 2% or $68.4 bln to $3.41 trillion. It is the largest increase since November 2023 and the highest level since November 2015.
Reviewed by Marc Chandler
on
May 07, 2026
Rating:
