There is one overreaching development that is driving the capital markets today. War. Hostilities between the US and Iran have intensified. At the NATO summit in Türkiye, President Trump has said the ceasefire is over. Oil prices have jumped. Benchmark bond yields have risen and stocks sold. The dollar itself is mixed in the G10 but is mostly stronger against emerging market currencies.
As widely anticipated, the Reserve Bank of New Zealand hiked its overnight cash rate target 25 bp to 2.50%. The New Zealand dollar is the strongest among the major currencies (~0.35%) followed closely by the oil-sensitive Norwegian krone. The Japanese yen is the weakest, off about 0.2% to approach last week’s 40-year high. President Trump told expressed frustration with NATO members over not supporting his desire for Greenland and renewed his call to end trade with Spain for its lack of sufficient military spending and its lack of support for the war on Iran. The US runs a trade surplus with Spain.
Prices
G10
• The euro ground lower in yesterday’s North American session and slipped below to Monday’s low near $1.1410. It slipped slightly below $1.14 in the European turnover after recovering to a little more than $1.1430. The single currency remains within the range recorded on July 3 when the US June employment data were released (~$1.1375-$1.1475) but still looks vulnerable. There are ~2.2 bln euros in options struck at $1.14 that expire today.
• After jumping almost 0.5% against the yen on Monday, the most since the end of April, the dollar recorded an inside day yesterday, confined to about a JPY161.65-JPY162.20 range. The greenback only briefly traded above JPY162 in North America. The upside has been extended to about JPY162.55 today. The 40-year high set earlier this month was near JPY162.85.
• Sterling poked above $1.34 yesterday in the Asia-Pacific session for the first time since June 17, when the FOMC meeting concluded. However, it trended lower and reached $1.3350, where options for GBP1.37 bln expire today. It has been sold to a four-day low today, just ahead of $1.3320 in early European turnover and bounced to around $1.3350. A break of the $1.3270-$1.3300 area weakens the technical tone.
• Despite the risk-off moment, which tends to weigh on the Canadian dollar, it has come back bid today. It is the third session that the greenback is recording lower highs and lower lows. Monday’s high was about CAD1.4240, and today, the US dollar returned to CAD1.4155, last week’s low. Many will cite the jump in oil prices, but the rolling 60-day correlation is practically flat. Market positioning may help explain the Canadian dollar’s outperformance today.
• The Australian dollar reached a two-week high yesterday near $0.6960 but could not sustain the momentum. It was sold back to about $0.6920 yesterday, where it bottomed on Monday. It slipped below $0.6910 today but reached almost $0.6925 as the European morning progressed. A break of the $0.6900 area, where A$480 mln options expire today and another stack of almost A$575 mln expire Friday, weakens the technical tone.
EM
• The Mexican peso sold off yesterday and its nearly 0.85% loss was the largest in almost two weeks. The peso was the weakest of the emerging market currencies yesterday. The Colombian peso’s nearly 0.80% gain made it the best performing currency in the region. The dollar settled slightly above MXN17.50 and the gains have been extended to MXN17.6250 today. Options for $605 mln, struck at MXN17.60 expire today. The high from late June was near MXN17.6765, its best level since early April.
• The offshore yuan softened a little yesterday. The dollar settled above CNH6.80 for the first time since June 26. It crept up to almost CNH6.8075 today. Initial resistance is around CNH6.81, while last month’s high was almost CNH6.82. The PBOC set the dollar’s reference rate CNY6.8077 today (CNY6.8054 yesterday).
• The Indian rupee saw yesterday’s gains, the most in two weeks, reversed today. Foreign investors are taking a more positive perspective on Indian stocks and bond in recent weeks but the impact om the currency seems marginal. And foreign investors turned sellers today. The rupee rose by about 0.35% last month, the first monthly gain since February. With today’s losses, it is off around 0.95% this month, making it the weakest in the region. The greenback reached almost INR95.6090 today, its highest level in nearly a month.
Other Markets
• Equities are off sharply today. The MSCI Asia Pacific Index fell 1.6% yesterday and all the large equity markets in the region but Hong Kong, Taiwan, and Singapore fell today. South Korea’s Kospi led the sell-off with a 5.35% slide, the Nikkei 225 was off 2.1% and India’s indices fell about 2%. Europe’s Stoxx 600 was off about 1% over the past two sessions and is tumbling around 1.8% through the morning. If sustained, it will be the largest loss since mid-March. US index futures are 1.0%-1.5% lower.
• Benchmark 10-year yields jumped mostly 4-5 bp in Europe yesterday and are 8-11 bp higher today. The US 10-year yield rose in each of last week’s four sessions for a 12 bp gain. It slipped by a little more than one basis point on Monday and jumped by about 8 bp yesterday and settled slightly above 4.55%, its highest close since June 10. It is approached 4.58% today. Some pressure may have come from investors hedging the corporate bond issuance, which featured Amazon’s at least $25 bln offering ($62 bln in bids, according to reports), but today’s story is oil and the renewed hostilities in the Middle East.
• Despite news yesterday that the PBOC bought the most gold last month since October 2023 (~15 tons), it failed to inspire buying. The price of gold fell by around 1.4% yesterday and is off 1.7% this week coming into today. Support around $4100 yielded to the pressure, but gold recovered and settled a little below $4115. Follow-through selling today has tarnished the yellow metal further, driving it to about $4040, a four-day low. The low for the year was recorded in late June, near $3944. Silver was turned back Monday from almost $63.30 and was pushed slightly through $59.50 yesterday. It settled slightly below $60 and traded below $58.20 today. Its low for the year was recorded on June 24 around $55.60.
• The attack on the four ships yesterday in the Strait of Hormuz risked retaliation from the US and this helped lift oil prices. Late in the North American session, the US Treasury revoked the June 21 waiver on Iranian oil products and indicated it was engaged in strikes 4-5x greater in scope and power than the last strike ten days ago. August WTI, which bottomed last Friday, nearly $67 a barrel and reached about $72.50 yesterday and $75.30 today. The 20-day moving average is slightly above $75. It traded above it for the first time since June 11.
Data
• The FOMC minutes from Chair Warsh’s first meeting will draw attention later this afternoon. Just as the statement was terse, the risk is the new chair put its mark on the minutes as well. The market impact may be negligible as participants continue to get the measure of the Warsh as chair. Despite seemingly trying to avoid forward guidance, the Warsh is not opaque. The market took a hawkish tilt away from last month’s FOMC meeting and took a less hawkish signal from Warsh last week when he told the Sintra audience inflation expectations had eased and AI may indeed boost productivity and non-inflationary growth. With US consumption rising faster than income, how are American households doing it? In addition to drawing down savings, American are borrowing more. May consumer credit will be reported later today. It rose by $53.7 bln in the first four months of the year compared with about $32.3 in Jan-April 2025.
• As widely expected, the Reserve Bank of New Zealand raised official cash rate target by 25 bp to 2.50% earlier today. It is the first increase since May 2023. In 2024 and 2025, the RBNZ halved its target rate to 2.25%. The swaps market is pricing in another hike fully for the late October meeting and leans toward a third hike before the end of the year.
• Japan’s current account surplus widened a little in May (JPY3.97 trillion vs JPY3.91 trillion in April), even though the trade balance surplus narrowed (JPY6.9 bln vs JPY396 bln). Japan’s current account surplus reached a record 4.9% of GDP last year, while on balance-of-payments terms, it recorded a trade deficit of almost JPY570 bln.
Reviewed by Marc Chandler
on
July 08, 2026
Rating:
