Investors are still in the dark over the precise details of the memorandum of understanding between the US and Iran, but they apparently are sufficiently comfortable to take July WTI to a new two-month low, with August Brent at three-month lows. Softer oil prices are helping ease interest rates, and peripheral European benchmark 10-year yields are at three-month lows. The 10-year US Treasury yield has fallen a dozen basis points since Monday, June 8. Most G10 and emerging market currencies are firmer today.
As widely expected, the Bank of Japan hiked its overnight rate to 1% and would stop tapering its bond purchase next April, stabilizing them around JPY2 trillion (~$12.5 bln) month. The market leans toward another hike late this year. The dollar has held above JPY160 so far today. The Reserve Bank of Australia kept its policy rate steady at 4.35%. The market has around a 50% chance of another hike discounted in the fourth quarter. Chile’s central bank meets late today and is expected maintain its 4.5% overnight target rate.
Prices
G10
• After the euro was marked up to around $1.1620 yesterday, the upside momentum yielded to consolidation. The market appears to wait for more details of the US-Iran agreement and may have turned cautious ahead of tomorrow’s outcome of the FOMC meeting. The euro was sold to $1.1575 in the Asia Pacific session but recovered to almost $1.1615 in the European morning. The intraday momentum indicators are stretched and there are 1.25 bln euros of options at $1.16 that expire today.
• The Bank of Japan’s widely anticipated 25 bp rate hike left the dollar unimpressed. The dollar has held above JPY160 today and remains within last Thursday’s range (~JPY159.60-JPY160.60). Last Thursday, and again yesterday, the dollar approached and held above the 20-day moving average (~JPY159.75 today). It has not settled below it since May 14.
• Sterling recorded yesterday’s high near $1.3460 in Asia Pacific turnover. It was sold to a low near $1.3415 in the North American morning but mostly consolidated below $1.3445. After spending most of the session above the 20-day moving average (~$1.3420), it failed to settle above it. It has not closed above it in three weeks. Sterling was sold to $1.3390 before the European session today snapped back to around $1.3425 in the European morning. The intraday momentum indicators are stretched ahead of the North American opening. Almost GBP470 mln options at $1.34 expire today.
• The Canadian dollar rose a little through the pre-weekend high but remained on the defensive in North America. The US dollar fell to nearly CAD1.3950 in late Asia-Pacific trading yesterday and recovered to reach almost CAD1.3995 in North America. It reached nearly CAD1.4020 earlier today. Recall that last week, the greenback set a new high for the year near CAD1.4025. It is finding support in Europe near CAD1.40.
• The Australian dollar rose through last week’s high yesterday to reach almost $0.7090. After first approaching $0.7090 in early Asia Pacific turnover yesterday, it retested it in North America. The session low near $0.7040 was recorded after the RBA’s widely anticipated decision to hold policy steady. It recovered to around $0.7070 in Europe, which stretched the intraday momentum indicators.
Emerging Markets
• The risk-on mood helped the Mexican peso extend last week’s 1.4% rally. The greenback reached a one-month low before the weekend (~MXN17.1770) and recorded a marginal new low near MXN17.1575 yesterday, which was slightly below last month’s low. It is holding above MXN17.19 so far today. The US dollar ‘s decline is stretching into the seventh consecutive session today. fallen for the past six sessions. The April low was closer to MXN17.1275.
• The offshore yuan reached a new three-year high yesterday but is consolidating today. The US dollar was sold to nearly CNH6.7555. It is trading between CNH7.7565 and CNH6.7635 today. The PBOC set the dollar’s reference rate at CNY6.8108 (CNY6.8088 yesterday, a three-year low).
• The Indian rupee rose by a little more than 1% over the past two sessions, seemingly boosted more by the drop in oil prices than the official measures taken to encourage foreign investment and limit speculation of further rupee decline. The rupee is firm today but inside yesterday’s range. The dollar is trading between~ INR94.49 and INR94.7160, the lower end of where it has been over the past month.
Other Markets
• Falling oil and interest rates helped lift equities yesterday but consolidation is the flavor today. The MSC Asia Pacific Index rose 3% yesterday after a 2.75% gain before the weekend. It rose by about 0.5%, with the Nikkei 225 reaching a new record high. Australia stocks recovered from earlier losses after the RBA stood pat. Europe’s Stoxx 600 surged almost 1.9% before the weekend and edged up another 0.20% yesterday. It is up another 0.5% today. US S&P 500 and Nasdaq gapped sharply higher yesterday and settled firmly. The Dow Industrials did not gap higher but rose to a new record high. US index futures are narrowly mixed.
• Benchmark 10-year yields fell mostly 2-6 bp yesterday among the G10 yesterday. Australia and Canada were the exceptions, as their yields fell around half of a basis point. The US 10-year yield briefly slipped to a new low for the month, slightly below 4.42% but recovered to new session highs near 4.47% in the NY afternoon. While the 10-year JGB yield jumped nearly six basis points earlier today, Europe yields and the 10-year US Treasury yields are off mostly 2-4 bp. Peripheral European benchmark yields are at three-month lows, including Greece, Italy, Spain, and Portugal
• Gold rallied strongly yesterday and reached nearly $4370 after testing $4000 last week. The three-day rally of about 6.5% was the biggest three-day advance since early February. It gapped higher yesterday and the gap was unfilled. In the cash market it is found between the pre-weekend high (~$4246.50) and yesterday’s low (~$4265.35). It is consolidating today between about $4306 and $4348.50. Silver also gapped higher yesterday. The gap is between about $68.35 and $68.75. The 20-day moving average near $72.25 may offer initial resistance. Silver is trading between about $69 and $70.65 today. The consolidation in gold and silver looks constructive.
• July WTI gapped lower yesterday, but given the uncertainty, the market seemed reluctant to push it much below $80 yesterday. Today, the market seems more confident and pushed the July contract to almost $78.40, a new two-month low. Previous support (~$80) may not offer resistance.
Data
• The US reports May import/export prices (export prices rising faster than import prices) and housing starts and permits (which are expected to have slipped). The NY Fed’s service business survey is due on the heals of the softer manufacturing survey (13.5 vs. 19.6) reported yesterday. Still, tomorrow’s FOMC outcome is center stage as the Warsh era begins.
• Canada reports May existing home sales today. They rose (0.7%) in April, the first increase since last October. Canada also reports April portfolio capital flows. There has been a positive turnaround this year. In the first three months of the 2026, Canada reported net inflows of C$57.75 bln. In Q1 25, Canada experienced nearly C$6 bln net outflows.
• Germany’s June ZEW survey was mixed. The assessment of the current situation deteriorated (-81.0 vs. -77.8), while the current assessment improved (10.5 vs. -10.2). It is the third consecutive deterioration which now has returned to the level since at the end of last year. The expectations component, which had been improving, was dealt setback apparently by the Middle East war but recovered in May and June. The 10.5 reading in June is the best since February.
• As widely anticipated, the Bank of Japan hiked its target rate to 1.0% from 0.75% earlier today. It was a 7-1 vote with Asada, a Takaichi appointment, dissented. The swaps market has another 21 bp increase by the end of the year. The BOJ indicated that the normalization of monetary policy is not complete and indicated that from April 2027 it would stabilize its bond buying at around JPY2 trillion (~$12.5 bln) a month.
• There was not surprise from the Reserve Bank of Australia. After delivering three hikes already this year, it stood pat today. The futures market suspects the RBA is on the sidelines until at least last Q4, where around a 50% chance of another hike is discounted. The RBA seemed non-committal and kept the door open to further tightening if necessary.
• The weakness in China’s retail sales (-0.6% year-over-year) is grabbing attention today along side the continued contraction in property and fixed asset investment. Industrial output accelerated (4.5% year-over-year vs. 4.1% in April). House prices continue to decline. The yuan is unlikely to feature prominently in G7 discussions because 1) the currency is appreciating, even if the pace could be faster, and 2) there are other, arguably more important issues (e.g., AI, rare earths, Middle East War).
Reviewed by Marc Chandler
on
June 16, 2026
Rating:
