The uncertainty about the US-Iran fragile ceasefire, which President Trump has said is on “life support” is weighing on risk-taking appetites today. Brent and WTI are up over $3 and bonds and stocks have been sold. The US dollar is firmer against the G10 currencies but the Norwegian krone. Most emerging market currencies are lower. Ahead of the Xi-Trump meeting later this week, the PBOC continued to gradually lower the dollar’s reference rate. Treasury Secretary Bessent is in Tokyo, and the media reports he ‘understands” Japanese exchange rate policy. This is a far cry from having the Treasury Department use the Federal Reserve to check prices as it did in January. The dollar reached a new five-session high against the yen.
The US reports April CPI today. The headline rate is seen rising to around 3.7% from 3.3%. And as Warsh’s confirmation process continued to make progress, the swaps market has boosted the chances of a rate hike this year to around 31%, the highest since late March. Still, the other major central banks are expected to raise rates sooner and by more.
Prices
G10
• The euro was confined to about a fifth of a cent range in North America yesterday, mostly $1.1765 to $1.1785. It has been sold steadily today and slipped through yesterday’s lows (~$1.1745) in Europe. Options for about 1.9 bln euros at $1.1750 expire today. Last Wednesday, the euro traded in a roughly $1.1690-$1.1800 trading range has been confined to it since. Commitment of Traders data for the week ending May 5 showed bears added on to shorts more than the bulls added to longs. The net long speculative position of about 32.2k contracts. It reached almost 180k contracts in mid-February, a three-year high, and has fallen in all but two reporting weeks since the Middle East war began.
• Rising US rates helped the dollar firm to session highs in North America, slightly above JPY157.25 yesterday, a three-day high. Today, newswires report that US Treasury Secretary Bessent “understands” Japan’s fx actions (intervention) and agrees, as the G7 does, that excessive volatility is undesirable and still the dollar extended its gains to JPY157.75 today. The greenback also remains in last Wednesday’s trading range against the yen, when the BOJ is believed to have intervened. The range then was about JPY155-JPY158. The market may be wary of intervention if the upper end of that range is approached.
• Sterling was impressively resilient yesterday but was sold to a five-day low today near $1.3500. Options for about GBP375 mln at $1.3495 expire today. The pound rose to a six-day high yesterday around $1.3655. What made yesterday’s gains notable was that sterling outperformed the dollar and euro, but that it did so with rising yields. Counterintuitively, sterling’s inverse correlation with changes in the two- and 10-year Gilts yield is near -0.50, the most extreme since last October-November. Political anxiety added to the geopolitical pressures reflected in the rise in oil prices, and UK 2-10 yields rose a little more than eight basis points yesterday. Rates are up another 10 bp today. An increasing number of Labour MPs, almost 20%, appear to want Starmer to step down but he continues to resist.
• The Canadian dollar consolidated yesterday, and the greenback was confined to the pre-weekend range. The US dollar is in a roughly CAD1.3640-CAD1.3715 range and today it is testing the upper end of the range. A convincing break could see CAD1.3750 next.
• The Australian dollar traded firmly yesterday after it held the $0.7200 area initially. Still, like a couple of the other pairs, it remained within last Wednesday’s range (~$0.7180-$0.7280). It is trading heavier today but still rangebound. It was already coming off before the Australia’s Treasurer Chalmer’s first budget projected a somewhat larger than expected deficit and made good on the promise to reduce the tax concessions for property owners as a way to help address the intergenerational inequality and has made it difficult for younger Australians to be buyers.
EM
• The dollar consolidated in its recent trough against the Mexican peso. It briefly took out last week’s low (recorded before the weekend, near MXN17.1735) and slipped to almost MXN17.16 in early North American activity yesterday. In the consolidation, it held below MXN17.2250. The dollar is better bid today and reached MXN17.2580 in Europe today. The MXN17.30-31 area capped it at the end of last week.
• The dollar made a marginal new session low against the offshore yuan, slightly below CNH6.79 late in the European session. It is the first time the dollar has traded there since February 2023. The dollar has held above CNH6.79 today, albeit barely. The PBOC set the dollar’s reference rate at CNY6.8426 (CNY6.8467 yesterday), a new low.
• Firm oil prices weighed on the Indian rupee, which was sold to new record lows today near INR95.7440. Reports suggest the central bank intervened but not aggressively. Reports suggest new measures to support the currency are under review, including import controls.
Other Markets
• Equities are under pressure. Most of the large bourses in the Asia Pacific region fell, with the notable exception of Japan, Taiwan, and Singapore. South Korea’s high-flying benchmark fell (~2.2%) for the first time this month. Europe’s Stoxx 600 off by nearly 0.7%. If sustained, it would be the third loss in four sessions. US S&P futures are off about 0.3%, while the Nasdaq futures are off about twice as much.
• 10-year yields are broadly higher. The 3.5 bp rise in the Japan’s 10-year yield, even after firm demand materialized at today’s auction, was enough to lift the yield to a new 30-year+ high near 2.56%. European 10-year benchmark yields are mostly 4-6 bp higher but the Gilt yield is up another 10 bp to approach 5.10%, the highest since 2008. The 10-year US Treasury yield is about 1.5 bp firmer, near 4.43%.
• Gold bounced to almost $4750 in North America. It fell below $4650 in Asia-Pacific turnover on Monday and re-tested in Europe. Gold initially extended yesterday’s gains to about $4773.50 today before sellers drove it below $4700 to $4687.55. Yesterday’s low was close to $4648.20. Silver was a little faster. It took out April’s high yesterday to test the $86 level. And after reaching $87.20 today, it has been sold back below $84.
• After recording a high in the initial reaction to the US rejection of Iran’s offer yesterday near $100.35, June WTI was sold to almost $96 in early North American trading. It was snapped up and tested the $100 area. Follow-through buying today lifted the contract to $101.75, a four-session high. It remains within last Wednesday’s range, when it reached a high of $102.70.
Data
• The US is expected to report that consumer prices jumped 0.6% in April following the 0.9% surge in March. Given the base effect, it is projected to lift the year-over-year rate to 3.7% from 3.3%. The core is better behaved. It is seen rising by 0.3% after a 0.2% gain in March. The year-over-year rate is seen ticking up to 2.7% from 2.6%. Latte in the session, the April federal budget balance is due. The median projection in Bloomberg’s survey is for a $219 bln surplus. It was $258.4 bln in April 2025.
• Mexico reports March industrial production figures today. It is expected to have contracted by 0.5%, offsetting February’s 0.4% gain. Given that Q1 GDP has already been reported (-0.8%) and Banxico cut has been delivered, today’s report is old news.
• It is not surprising that sentiment in Germany’s financial sector is deteriorating. The ZEW survey found the assessment of the current situation deteriorated to -77.8 from -73.7. It is the lowest for this year. A year ago, it was -82. The surprise was that the expectations component rose -10.2 from -17.2 in April. Last May, it stood at 25.2. Separately, Italy rounded out the Big Four industrial production reports ahead of tomorrow’s aggregate estimate. The 0.7% gain (0.2% was median forecast in Bloomberg’s survey) follows a 1.0% rise in France and 2.3% jump in Spain. German industrial output unexpected fell by 0.7%.
• Despite the rise in in real wages, Japanese real household consumption continued to fall in March. The -2.9% year-over decline was the fourth consecutive decline and more than twice the decline the median forecast in Bloomberg’s survey anticipated. Japan reports Q1 26 GDP on May 19. Consumer spending appears to have slowed to less than a 1% increase in Q1, which would be the weakest since at the end of 2024.
• India’s CPI ticked up to 3.48% in April from 3.40% in March. It is the highest since March 2025 and is the sixth month the year-over-year pace increased. It is drawing close to the central bank’s 4% cap. The swaps market has a hike discounted late in the year, but it may be brought forward given the weakness of the rupee and limited room going forward to cushion higher oil prices.
Reviewed by Marc Chandler
on
May 12, 2026
Rating:
