There is one overarching fundamental development today that is driving the risk-on in the capital markets and weighing on the dollar. President Trump announced the US was suspending its new escort service in the Strait of Hormuz. Ostensibly at the request of Pakistan and other countries, the decision was to give negotiators more time. Front-month oil futures contracts are off 8-10% today. It has arrested the rise in bond yields and is lifting equities.
The dollar is lower against the G10 currencies, but the Norwegian krone, which is particularly sensitive to large moves in crude oil prices. The yen jump dramatically in a few minutes in Asia Pacific turnover, and although Japanese markets were still closed for the extended holiday today, there is much speculation that Japan officials intervened again as the dollar had reached its best level (almost JPY158) since the apparent intervention on April 30.
Prices
G10
• The euro has been confined to about a $1.1675-$1.1720 range since the North American session on Monday but jumped to almost $1.1790 today as the market sees the suspension of the US naval escort as a sign of de-escalation, though to be sure the US blockade of Iranian ports remains, which is an act or war by nearly any definition but the one the administration is using to deter Congress from invoking the War Powers Act. Last Friday’s high was around $1.1785 and last month’s high was closer to $1.1850. The intraday momentum indicators are stretched. Options for 675 mln euros at $1.1775 expire today.
• After what appears to have been material intervention by the Bank of Japan on April 30, the market has lifted the dollar from the JPY155.50 low before the weekend to almost JPY157.90 yesterday. Although Tokyo markets re-open tomorrow from the extended holiday, it appears that officials may have intervened again; within minutes the dollar plummeted from about JPY157.80 to JPY155. Recall that last week’s low was about JPY155.50. Since the low was recorded today, the dollar has held below about JPY156.60.
• Sterling peaked before the weekend near $1.3660, its highest level since mid-February, before reversing low. It held Monday’s low yesterday (~$1.3510) and recovered to almost $1.3580. This nearly retraced half of what it had low in the previous two sessions. Today’s dollar losses lifted sterling to almost $1.3635. The upper Bollinger band is near $1.3620. Intraday momentum indicators are stretched and ahead of tomorrow’s local elections, sterling is one of the laggards today.
• Canada reported an unexpected March trade surplus yesterday and the services and composite April PMI suggest the economic headwinds eased a bit. And despite the news and the apparent risk-on mood, with strong gains in the US equity market, the Canadian dollar was uninspiring. The greenback held above CAD1.3600 and managed to marginally take out Monday’s high (~CAD1.3625) before chopping around in a 20-tick range of so for most of the North American session. The US dollar has been sold slightly through CAD1.3580 today and is hovering slightly below CAD1.36 ahead of the North American session. As is often the case, in the soft US dollar environment, the Canadian dollar tends to underperform among the G10 currencies. Only the oil-sensitive Norwegian krone has performed worse the Canadian dollar today.
• The Australian dollar set a multi-year high on May 1 a little shy of $0.7230 before profit-taking dragged it to almost $0.7135 after the central bank hiked yesterday. It recovered to knock on $0.7200 yesterday and jumped to almost $0.7270 today. That is its best level since June 2022 when it reached almost $0.7285. The intraday momentum indicators are stretched, and the upper Bollinger Band is around $0.7245. Options for nearly A$ 2bln at $0.7250 expire tomorrow.
EM
• The Mexican peso had its best day since April 8 yesterday. It appreciated by about 0.80% against the dollar. It is up nearly as much today. The greenback was sold to about MXN17.2135 today, its lowest level since April 17, when it reached MXN17.1275. The lower Bollinger Band is near MXN17.1885 today.
• When mainland markets closed last Thursday for the long holiday, the dollar settled near CNH6.8320 against the offshore yuan. It settled near CNH6.8280 yesterday ahead of the re-opening of the mainland markets. The dollar was sold to about CNH6.8065 today. The three-year low was recorded in mid-April near CNH6.8060. Today, the PBOC set the dollar’s reference rate at CNY6.8562 (vs. CNY6.8628 on April 30), a new multiyear low.
• The Indian rupee jumped by about 0.70% today on the back of the retreat in oil prices and the broad pullback in the US dollar. It snapped a five-day drop that took it to a record low with its biggest gain since April 2. The dollar settled near INR94.6150 vs. INR95.2913 on Tuesday.
Other Markets
• Equities are stronger today. South Korea’s Kospi’s 6.45% surge led the Asia Pacific region. China’s CSI 300 and India’s Sensex rose more than 1%. Europe’s Stoxx 600 is up over 2%, which if sustained would be the largest advance since April 1. US index futures are up around 0.75%-1.35%. The S&P 500 and Nasdaq set record highs yesterday, as did the Russell 2000.
• Stocks have rallied and so have bonds. Benchmark 10-year yields are 7-12 bp lower in Europe, with UK Gilts, Swedish and Greek bonds rallying the most. The 10-year US Treasury yield is off nearly eight basis points to a little above 4.34%. The 30-year bond yield, which has been flirting with the 5% threshold, is now slightly below 4.93%.
• Lower rates and lower dollar have helped lift gold and silver today. Gold held support near $4500 in recent days and surged to almost $4709 today. The next technical hurdle is around $4740. Silver found support in front of $72 over the last few sessions and is now moving above $77. Resistance is seen around $80.
• June WTI has plummeted from about $102.25 at yesterday’s settlement to $92.50 today, a nearly two-week low.
Data
• The ADP’s private sector jobs estimate is today’s US data highlight. The ADP’s average estimate was 33.2k last year and 46.3k in Q1 26. The BLS 2025 estimate of private sector jobs growth in 20025 was 25k and in 79k in Q1 26, pending revisions at the end of the week. The Treasury will announce the details of its quarterly refunding. It is expected to keep issuance steady at $125 bln. The tariffs refunds and Treasury buybacks will likely be financed through more T-bill issuance.
• Canada’s April IVEY survey is due today. It typically runs hotter than the PMI. The April PMI advanced in April. The manufacturing PMI rose to 53.3 from 50.0. The services PMI rose to 49.6 from 47.2 in March. The composite PMI to 50.1 from 47.6. The IVEY survey slipped below 50 in March (49.7), a four-month low. It likely rebounded last month.
• The April manufacturing PMI (47.7) and IMEF surveys (below 50) showed that the Mexican economy continues to struggle after the 0.8% contraction in the first quarter. April domestic vehicle sales and February private consumption are overshadowed by tomorrow’s April CPI (a little moderation is expected) and the central bank meeting. The disappointing real sector data is seen spurring Banxico to cut rates tomorrow to extend the easing cycle that began in March 2024. The swaps market anticipates it to be the last cut in the cycle.
• The final April eurozone services and composite PMI were confirmed below the 50 boom/bust level, and the year-over-year PPI flipped to 2.1% in March from -3.0% in February. The swaps market has nearly an 80% chance of a quarter point hike when the ECB meets on June 11. Current pricing is consistent with two hikes and about a 45% chance of a third move.
• The UK reported the final April services and composite PMI and revised both up from the preliminary 52.0 reading to 52.7 and 52.6, respectively. The construction PMI is due tomorrow and likely remained below 50. The swaps market is not persuaded that the Bank of England will hike rates next month (~36%). Two hikes are fully discounted for this year.
• China’s RatingDog PMI (formerly Caixin) received passing attention. It tends to run stronger than the version by China’s Federation of Logistics and Purchasing. The latter’s composite averaged 50.0 in the first four months of the year and 50.5 last year. The RatingDog composite averaged 52.9 in January-April this year and 51.3 in 2025.
Reviewed by Marc Chandler
on
May 06, 2026
Rating:
