The recent downturn in the dollar’s value can be traced back to intensified criticism from former President Donald Trump towards the Federal Reserve’s approach to managing the United States’ monetary policy, a notable event that commenced on June 23. However, this phase appears to be drawing to a close, potentially buoyed by recent data that surpassed expectations, alongside a notable increase in US interest rates.
Today, there’s been a slight uptick in US rates, contributing to a stronger performance of the dollar against the Group of Ten (G10) currencies. In such a scenario, the Canadian dollar often fares better compared to others, and today has seen only a marginal decrease in its value. Conversely, the Japanese yen has experienced a more pronounced decline, falling by approximately 0.50%.
The discourse surrounding trade between the United States and Japan has also become a point of contention, particularly Trump’s erroneous claim regarding Japan’s rice imports from the US. Moreover, the looming conclusion of a pause in the reciprocal tariffs scheme has market participants on high alert. In Taipei, a softer trend in emerging market currencies has been observed; however, a combination of foreign equity purchases and dollar sales by Taiwanese exporters led to a noticeable surge in the . The Central Bank possibly stepped in to mitigate any excessive gains. Contrarily, in Hong Kong, the HKMA took action to restrain the ascent of the US dollar.
In Europe, yields on benchmark government bonds have mostly increased by 2-5 basis points, with German Bunds being a notable deviation as their yield remains unchanged. The yield on 10-year UK Gilts has risen by five basis points, despite anticipations that the Bank of England might decrease its bond sales.
The yield on the 10-year Treasury note, after a drop to below 4.20%—a first in two months—yesterday, has rebounded to about 4.28%. This shift comes despite it not having escalated above 4.30% in the past week. Equity markets in the Asia Pacific displayed a mixed performance, whereas European stocks have seen their first weekly gain.
The Euro Stoxx 50 Index experienced an uplift of almost 0.50% in late morning trading in Europe, and US index futures also appeared resilient. Gold has been witnessing a period of consolidation following its recovery by approximately $110 from Monday’s lowest to Tuesday’s highest. The performance of August gold futures has been somewhat volatile, fluctuating roughly between $64.50 and $66.50 for six consecutive sessions.
The Dollar Index, initially impacted by the blend of unexpectedly strong US data, Federal Reserve Chair Jerome Powell’s warnings of impending price pressures, and a rise in yields, has managed to claw back from its lowest point since February 2022 (around 96.35). While it currently exhibits firmness, it remains below the 97.00 mark. For a significant change in trajectory to be acknowledged, the index must breach the 97.55 threshold, and even then, resistance is anticipated around the 98.25 mark.
Attention now gravitates towards the US labor market. Despite the employment component of the June ISM Manufacturing Index showing a decline, the May JOLTS report highlighted a notable uptick in job openings, a modest increase in the quit rate, and a slight drop in the layoff rate, with the accommodation and food services sector accounting for the majority of job openings. This increase could stem from the deterrence of both legal and illegal immigration.
Heading into further discussions, today’s spotlight shifts to the Challenger Jobs Cuts and the more market-sensitive ADP private jobs estimate. The ADP’s figures for private-sector job growth have closely mirrored, if not outpaced, economists’ predictions when compared to government estimates. With the June report pending due to an upcoming holiday, preliminary forecasts hint at a slowdown in job growth and hourly earnings, whereas the unemployment rate is expected to inch up to 4.3% from 4.2%.
In focusing on individual currencies, we encounter a compelling narrative. The Euro recently achieved its highest value since September 2021 in late morning trading in Europe, only to retract slightly thereafter. Despite this fluctuation, it stabilised above $1.18, extending its advancement. Yet, it now teeters on the brink of interrupting its winning streak established since June 17.
Numerous global currencies and their intricate dynamics with broader economic themes provide a fertile ground for analysis. For instance, despite the eurozone’s modest growth post-Russia’s invasion of Ukraine, unemployment rates remain remarkably low. The scenario with the Australian dollar, reflected through its dance with US dollar strength, and Mexico’s burgeoning role in the auto sector as a nexus for Chinese-made vehicles, particularly electric vehicles (EVs), underscore the complex interplay of international trade relations, monetary policy, and geopolitical influences.
The narrative extends, highlighting the swift undercurrents in international finance and trade, shaped not just by overarching policies but intricate stakeholder reactions, anticipatory moves by central banks, and the ever-volatile sentiment of market participants across the globe.
