The US dollar was mixed last week. The combination of strong data and the central bank's hawkish hike lifted the New Zealand dollar to the top of the G10 currencies. The roughly 4.5% rally in Brent oil, the first weekly gain in five weeks, seemed to help the Norwegian krone came in a close second. The low yielding Swiss franc and Japanese yen fell last week. The dollar rose against the Swiss franc for the fifth week in the past six. The yen's loss was pared ahead of the weekend after Japan's finance minister urged the nation's pension funds to boost domestic allocation. The impact was short-lived and the dollar settled near the middle of session's range. The Ministry of Finance weekly report show Japanese investors have been net sellers of foreign stocks and bonds this year through early July.
President Trump has declared the ceasefire with Iran is over, but that talks continue. The situation is precarious to say the least. After the midweek spike, oil prices stabilized in the last two sessions. Given that neither the US nor Iran seem to want to return to the situation earlier in the conflict, investors recognize the heightened risks will not getting carried away. The conflict remains in the background. The week ahead could feature the first decline in US headline inflation in the war began. China is expected to report that growth slowed in Q2, and the June details look poor. The Bank of Canada meets but the market is confident it will not change the 2.25% rate target.
US
Drivers: Fed Chair Warsh may not be a big fan of forward guidance, yet the market understood last month's FOMC meeting to have delivered a hawkish hold. It also understood Warsh's comments in Sintra, where he noted that inflation expectations had eased and that he was optimistic that AI could help deliver non-inflationary growth. The new Fed chair testifies before Congress Tuesday and Wednesday.
Data: There is little chance of a Fed hike later this month, October seems a likely time frame. It is a way Chair Warsh can dilute the significance of the Summary of Economic Projections, which will be updated in September. There is also a sense that he may not want to raise rates in his first few meetings. That will show the White House that he made a considered decision and can be trusted to "tap on the brakes" as Treasury Secretary Bessent suggested was possible. The problem with the October meeting is that it is week before the midterm elections. Still, it means that this week's data, June CPI, PPI, retail sales, and industrial production will not be decisive. The Atlanta Fed GDP Now tracker for Q2 has fallen from a little above 3% at the end of May to 1.3% now. The data highlight in the week ahead is the June CPI, which is expected to have pulled back to 3.8% from 4.2% (and 2.8% from 2.9% core rate). Retail sales may be flattered by the rise in auto sales. Still the measure that excludes autos, gasoline, food services and building materials may have slowed to a still firm pace of 0.4% (from 0.7%). June Industrial output and manufacturing likely edged higher. A word about the TIC data (due July 14). Despite the buzz, there was never really a "sell America" moment last year. The TIC data showed that in H1 25 foreigner investors snapped up $102.5 bln of US financial assets a month. It was on the second six-month period of over $100 bln a month since H1 23. The US runs a large current account deficit, and foreign investors have little choice but to accumulate US assets. The only issue is which asset and at what price. Meanwhile, the US earnings season kicks off with reports by the six largest banks on Tuesday and Wednesday.
Prices: The Dollar Index tested a six-day low ahead of the weekend near 100.60 but recovered toward 101.00. A trendline off the late June and July 1 highs begins the new week near 101.25 and finishes the week near 101.10. A convincing move above it targets the high for the year recorded on June 24 (~101.80). Support has been forged near 100.50.
EMU
Drivers: Changes in the euro remain highly correlated with changes in the US two-year yield (~-0.70 for the past 30 and 60 days). Counter-intuitively, the euro is also inversely correlated with changes in Germany’s two-year yield, but less so (~-0.20 for the past 30 days and ~-0.40 for the past 60 days). The correlation of the changes in the euro and changes in the US-German two-year yield differential is about -0.50 and -0.23 for the 30- and 60-day correlations, respectively.
Data: The eurozone report May industrial output and external account in the coming days. Industrial output fell by a cumulative 0.3% in Q1 26, which offset the gain of a similar magnitude in Q4 25. The manufacturing PMI gives one little reason to be hopeful. It slowed in May to 51.6 from 52.2 in April. Industrial output rose by 0.1% in April. The aggregate economy contracted by 0.2% in Q2 and is expected to have grown by 0.2% in Q2 mostly on the back of increased investment and stronger exports. The eurozone recorded an average monthly trade surplus of 4.6 bln euros in Q1 26. It was the lowest quarterly average since Q2 23. In order to do better in Q2, after April's one-billion-euro deficit is to average about 7 bln euro surplus a month in May and June. Still, the ECB's staff projects that the aggregate current account surplus this year will fall to 1.3% of GDP from 1.7% in 2025.
Prices: The euro recorded last week's high before the weekend, near $1.1460. It was unable to sustain the push above the 20-day moving average (~$1.1440) and settled around $1.1415. Last week's low was around $1.1390. All last week, the euro traded within the range set on July 2, the US jobs day ($1.1375-$1.1475).
PRC
Drivers: While managing the exchange rate, Chinese officials seem to keep an eye on the dollar's broader movement. The correlation of the dollar's changes against the Chinese yuan (CNY) is correlated with changes in the Dollar Index (~0.60) in the past 30 and 60 days. The RMB does not appear sensitive to changes in China's short-term interest rates. The 30-day correlation of changes in the dollar against the yuan and China's two-year yield has not been above 0.10 since the end of January and has spent more time since with inverse correlations. The 30-day correlation of the changes in the dollar against the yuan and the US two-year yield peaked slightly above 0.50 in early June, which was the highest since Q3 24. It is now near 0.20.
Data: It is a big week for Chinese data, which will all come together for the first large country's estimate of Q2 GDP. The data that have been reported in recent months suggests the economy has slowed from the 5% year-over-year pace reported for Q1. The quarter seemed to have ended on a soft note, even though year-over-year retail sales are expected to have recovered after contracting by 0.6% in May. Beijing is fighting on two fronts. House prices are expected to have continued to decline and the campaign against "involution" appears to have spurred a contraction in investment. Lastly, China's CXMT, an important memory chip company is expected to launch its IPO in the coming days (estimated valuation at ~$4.3 bln). Reports indicate revenues surged seven-fold in the first half.
Prices: The dollar settled on a weekly basis below its 20-day moving average (~CNH6.79) for the first time in a month. Initial support is seen around CNH6.7730. The three-year low was record in mid-June near CNH6.7540. Ahead of the weekend, the PBOC set the dollar's reference rate below CNY6.80 for the first time in three-years, which seemingly signals official willingness to accept a continued gradual appreciation of the yuan.
Japan
Drivers: The US 10-year premium over Japan fell to about 165 basis points earlier this month, the lowest since Q1 22. The year's high was above 210 basis points in late March. Following the finance minister’s comment that Japanese pension funds should boost domestic allocation saw the 10-year JGB yield snap a nine-day advance and the 10-year differential jumped by 17 bp to 185 bp. The 30-day correlation of changes in the dollar-yen exchange rate and the 10-year differential peaked this year near 0.65 in May and fell below 0.20 by the end of June. It is now below 0.10. The 60-day correlation is around 0.35. The 30-day correlation between the exchange rate and US 10-year yields has weakened to around 0.22 from the year high on June 17 (FOMC meeting) near 0.65. The 60-day correlation peaked in mid-May near 0.60 and is now a little below 0.45.
Data: The Japanese economy may be doing better than economists suspect. The median forecast for Q2 GDP is 0.2% (annualized) after 1.8% in Q1 26. May's industrial output was initially estimated at 0.5%, the same as April. It is subject to revision this week. In Q1 it rose by a cumulative 1.6%. Services (tertiary industry activity) may be stronger. After rising by a cumulative 0.7% in Q1 26, it jumped 1.3% in April. The May reading is early Thursday.
Prices: In the middle of last week, the US dollar approached the 40-year high recorded on July 1 near JPY162.85. Last week's high was about JPY162.70. The comments by Finance Minister Katayama urging Japanese pension funds to purchase for domestic assets gave the yen a bigger boost that the threats of intervention. The dollar fell to about JPY161.30 before the weekend and recovered to around JPY161.85. The greenback settled slightly above the 20-day moving average (JPY161.65) but strung together the first back-to-back losing sessions since early April.
UK
Drivers: Although the changes in sterling are still highly correlated with changes in the euro (~0.85 for the past 30 and 60 sessions), sterling is faring better than the euro. Indeed, the euro has been sold to new one-year lows against sterling in recent days. The euro appears to have forged a large head and shoulders top pattern against the sterling. It has gone through the neckline and against the euro, and there is scope for another 1.25%, which suggests sterling can continue to outperform the euro. It is a source of sterling demand. Andrew Burnham received a formal nomination from 322 (of 403) Labour MPs, technically one vote shy of the number needed to avoid a formal contest. This will likely be confirmed at the start of the new week, and Burnham will most likely become prime minister on July 20.
Data: On Thursday, the UK reports the May monthly GDP and the details. Recall that the economy contracted by 0.1% in April, the first monthly contraction since last August. The strength of May retail sales (1.2% vs. 0.5% median forecast in Bloomberg's survey) may have tilted the balance toward expecting a return to growth in May. Still after outsized growth of 0.6% quarter-over-quarter in Q1 26, GDP is seen returning to the H2 25 quarterly pace of 0.1%.
Prices: Sterling rose to $1.3450 before the weekend, its best level since June 15. However, it slipped back to settle slightly above $1.34, where the 200-day moving average is also found. Sterling has rallied in 11 of the past 12 sessions and may be getting stretched. A move above $1.3460, the (61.8%) retracement of sterling's losses from the May 1 high ($1.3660), improves the technical tone. The next target is the $1.3485-$1.3500 area. A break of $1.3360-80 area would boost the odds that a high is in place.
Canada
Drivers: While US two-year yields are firm, the US premium over Canada has narrowed and the sustained rise in May and June has begun stabilizing. This appears to have helped lift the Canadian dollar. Canada's May trade surplus, the largest in four years, bolstered by energy, metals, and minerals, suggests a positive terms of trade shock. Exports rose to a record in May and the surplus with the US reached its highest since January 2025. The June employment data before the weekend was a little better than expected with the unemployment rate slipping to 6.5% (from 6.6%), while the participation rate remained constant (65.0%). Still when everything was said and done, the swap market was little changed over the course of the week, with about 15 bp of tightening discounted this year.
Data: StatCan will report June existing home sales and May manufacturing and wholesale sales on Wednesday ahead of the week's highlight, the outcome of the Bank of Canada meeting. The policy dilemma sketched by Governor Macklem at the last meeting has not significantly changed, and this will keep the central bank on the sidelines.
Prices: The Canadian dollar snapped five-week slide with its first higher weekly close since the end of May. The greenback was sold to almost CAD1.4135 on Friday but recovered back toward the session high (~CAD1.4175) despite the better-than-expected jobs data. However, reflecting what we suspect may be a change in psychology, the US dollar fell to a new session low, slightly above CAD1.4115 in the NY afternoon. The greenback recovered in late turnover and settled above CAD1.4150 but below the 20-day moving average (~CAD1.4165) for the first time in nearly two months. The next support area is near CAD1.41 and a convincing break of CAD1.4080 could target CAD1.3980.
Australia
Drivers: The Australian dollar is sensitive to the US dollar's overall direction. The inverse correlation with the Dollar Index is near -0.65 (30 days) and -0.73 (60 days). The Aussie remains the closest thing to a proxy for gold among the G10 currencies (30-day correlation ~0.70 and the 60-day correlation ~0.73). It is sensitive to changes in the US two-year yield (-0.50 and -0.66 for 30- and 60-day correlation, respectively).
Data: Australia's economic calendar features a couple of bank surveys and the Melbourne Institute's July consumer inflation expectations (symmetrical trimmed mean). It peaked at 5.9% in April. The central bank hiked the cash target rate in each of the first three meetings of the year (now 4.35%). The Melbourne Institute's measure fell in May and June, but at 5.5% the central bank is looking for more progress. The central bank meets on August 11, and barring a significant surprise, it is likely to monitor developments until Q4.
Prices: The Australian dollar reached two-and-a-half week highs before the weekend (~$0.6970). It traded above the 20-day moving average (~$0.6955) for the first time in a little more than a month. Yet, the momentum was not sustained and the Aussie pulled back to around $0.6940 and spent most of the North American session chopping within less than 10 ticks of $0.6950. The momentum indicators are more encouraging than the price action.
Mexico
Drivers: The dollar's movement against the Mexican peso is correlated with the changes in the Dollar Index (~0.74 and 0.67 for 30 and 60 days, respectively). However, the peso is an even stronger proxy for the JP Morgan Emerging Market Currency Index (-0.78 and -0.82 correlation for 30 and 60 days, respectively).
Data: Mexico's economic diary does not have market moving data in the coming days.
Prices: The dollar bottomed early last week near MXN17.3750 and jumped about 1.5% Tuesday-Wednesday before consolidating Thursday and Friday. The greenback posted its third weekly gain in the past four weeks, albeit only by a couple of ticks. It appears to have moved to the upper end of a three-month trading range. Recall that the dollar reached MXN17.6765 on June 24, its highest level since early April. The five- and 20-day moving averages are rising, though the momentum indicators are not generating robust signals. One-month implied volatility peaked in late March, near 14.8%. It is now in the lower end of its two-month range, a little below 8%.
Reviewed by Marc Chandler
on
July 11, 2026
Rating:
