The jumped yesterday despite the two dovish dissents by governors, as if yesterday’s was a hawkish hold. It seemed to us that Chair Powell referred to downside risks more than upside risks. The dollar’s pullback today has been limited, and the consolidation looks more like the breath that refreshes rather than the end of the short-covering rally that began at the start of the month.

President Trump announced several new tariff schedules as the August 1 deadline looms. Note, too, that the arguments in the appeal case that challenge the legality of the reciprocal tariffs will be heard today. Despite stronger-than-expected economic data, the yen is the weakest in the G10. The BOJ stood pat as expected. The dollar is trading above the 200-day moving average for the first time since mid-February. 

Outside of Japan and Taiwan, the large bourses in the Asia Pacific region fell, led by more than 1% drops in Hong Kong and the Chinese mainland. Disappointing PMI data appeared to weigh on activity. Europe’s is nursing small losses, while strong earnings by Microsoft (NASDAQ:) and Meta (NASDAQ:) are helping lift US index futures.

are trading about 1.3% higher and the are up almost 1%. Benchmark 10-year yields are 1-3 bp lower in Europe, and the -year US Treasury yield is off nearly two basis points to around 4.35%. has snapped back. It lost 1.5% yesterday, the most in a month, and is around 1% higher now to resurface above $3300. September is consolidating after it reached a new high for the month yesterday near $70.50. It is near session lows (~$69.40) in late European morning turnover. 

USD: The rally was extended to almost 100.00 yesterday, its best level since the end of May. It settled above its upper Bollinger Band (~99.25) for only the second time this year (first was on May 12). It is consolidating after yesterday’s surge and is holding above 99.50. The next technical objective may be near 100.60. Despite two governors’ dissents from the Fed’s decision to stand pat, the market took away a hawkish message. US rates rose. The dollar rallied. Stocks were sold. At Tuesday’s settlement, the market had 17.5 bp of easing discounted, and at yesterday’s close, a little less than 12.

The June personal income and consumption data were embedded in yesterday’s report. The deflators may attract some attention, but the / steals the thunder, and Fed will see the July and August series before the next . In fact, the Jackson Hole conference at the end of August (21-23) is on labor markets in transition is the next Fed highlight.

The quarterly is expected to have risen by 0.8% after a 0.9% rise in Q1. Weekly have fallen for six consecutive weeks, but economists expect the streak to be snapped. Still, the national employment tomorrow has more heft to move the markets. Lastly, we note that the appellate arguments in the trade court case that found the tariffs imposed under “emergency” legislation are an executive branch overreach. Regardless of the eventual decision, it will likely be appealed again.

: With yesterday’s losses, the euro fell through the June 23 low near $1.1455. The session low was set toward the end of Fed Chair Powell’s press conference to almost $1.1400. It is holding today, but the euro recovery stalled near $11.460. The June low was set early in the month around $1.1340, and that may be the next technical target. Still, the euro settled below its lower Bollinger Band (~$1.1515) for the third time this year.

The previous two times saw the euro begin to recover the following day. The bounce at the very start of the Fed’s press conference met strong selling as it popped above $1.1500. After the eurozone reported a 0.1% growth in Q2 , attention turns to inflation. Spain reported yesterday. The EU harmonized measure fell by 0.4% but the base effect meant that the year-over-year pace rose to 2.7% from 2.3%.

France reported today that the harmonized measure rose by 0.3% for a 0.9% year-over-year pace. Italian inflation has a strong seasonal pattern toward moderating in July, and this year is no exception. The 1.0% decline month-over-month was the largest decline since the 0.9% drop last July. The year-over-year rate eased to 1.7% from 1.8%. German states have reported, and the national figure is due shortly. The harmonized measures may have risen by 0.4% for a 1.9% year-over-year pace (2.0% in June). The aggregate figure for the eurozone will be reported tomorrow. Today, it was reported that for the third consecutive month, the unemployment rate was at 6.2% in June, matching the record low under monetary union. 

: The dollar posted its biggest gain against the yuan since April yesterday, rising by about 0.45%. It rose and settled above CNH7.21 for the first time since June 2. It reached about CNH7.2145. It is consolidating between CNH7.1960 and CNH7.2115. The extent of further gains seems to depend on the greenback’s broad movement. The next important chart area may be around CNH7.2240-65.

The PBOC set the dollar’s reference rate at CNY7.1494 (CNY7.1441 yesterday). Last week’s absolute value of changes in the daily fix was 0.27% and with today’s fix, the absolute value of changes over the past four sessions is 0.30%. Early this year, the weekly changes were a quarter as much. While critics drew attention to it then, the widening has hardly been recognized. Nevertheless, it is likely to have been observed by Beijing that despite the greater flexibility of the dollar reference rate, the implied three-month volatility (a common benchmark) fell below 3.6% yesterday, the lowest since the end of July 2024.

China’s July PMI was a little softer than expected. The manufacturing PMI slipped to 49.3 from 49.7. It has not been above the 50 boom/bust level since March. It finished last year at 50.1. The non-manufacturing PMI stands at 50.1, down from 50.5. It was 52.2 in December 2024. The composite measure (output) eased to 50.2 from 50.7. It has risen in the previous two months.

: The dollar posted a bullish outside up day against the yen. Initially, Tuesday’s low (~JPY148.15) was taken out in local hours as the earthquake gave rise to ideas that insurers may need to repatriate funds. However, as US yields rose and the greenback extended its advance broadly. It took out Tuesday’s high (~JPY148.80) and reached slightly above JPY149.50, a new high for the month. At JPY149.40, the dollar retraced this year’s losses (from ~JPY158.85 on Jan 10).

The dollar is near session highs around JPY149.80 late in the European morning. It has risen through the 200-day moving average (~JPY149.60) for the first time since mid-February to approach the psychologically important JPY150. Japan’s June retail sales rose by 1.0%, well above expectations and recouping fully the 0.6% decline (revised from the initial -0.2%, in May). Industrial output jumped by 1.7%, while the median forecast in Bloomberg’s survey was for a 0.8% decline. by 0.8%, as expected. It was the third consecutive decline and the fourth in H1 25.

As widely anticipated, the Bank of Japan left its target rate at 0.50%. It updated its GDP and core CPI forecasts. Growth was seen at 0.6% this year (up from 0.5%0), 0.7% the next year and 1.0% the following year (both unchanged). The core CPI projection was raised to 2.7% (from 2.2) and 1.8% (from 1.7% the next year) and 2.0% (from 1.9%) the following year. The swaps market 17-18 bp of tightening this year discounted, the least since last Tuesday and down a couple of basis points today. 

: Sterling posted a bearish outside down day. It traded on both sides of Tuesday’s range and settled below its low (~$1.3310). It reached a low slightly below $1.3230, its lowest level since mid-May. The upside stalled near the five-day moving average, and a little above the neckline of the head and shoulders top pattern we have been monitoring. It projects to around $1.2940 and the halfway point of this year’s range.

It also settled below its lower Bollinger Band (~$1.3270). It bounced to about $1.3280 today where sellers emerged to drive it back toward $1.3235. There seems little chart support ahead the $1.3140 area. With little new data between now and August 7, there is practically nothing that will shake market expectations of a rate cut next week. The last time that the swap market was not discounting at least a 90% chance of a cut was two weeks ago. 

: The US dollar rose for the fifth consecutive session against the Canadian dollar, the longest advance since late February/early March. The greenback rose and settled above CAD1.38 for the first time since the end of May. It reached CAD1.3845 yesterday, leaving little on the charts to deter from a test on CAD1.3900. After a shallow pullback (to CAD1.3815), the US dollar is pushing against yesterday’s high.

The Bank of Canada left its target rate at 2.75%. The swaps market had about a 66% chance another cut will be delivered at the end of the year and it has eased slightly to around 62% today. The central bank’s new forecast is sobering. Under the current tariffs, the central bank projects a 1.5% annualized contraction in Q2, which is deeper than the market expects, but forecasts a rebound in Q3 of 1%. Growth this year is seen at 1.3% and 1.1% next year.

In the January report, the central bank had anticipated 1.8% growth this year and next. It assumes the US tariff rate of 25% for only those goods that are not exempt under the USMCA. Tariffs on steel, aluminum, and non-US content imported vehicles are assumed to remain in place, as will Canada’s retaliatory tariffs. It continued to hold out the possibility of another cut if a weakening economy exerts downward pressure on inflation.

: The Australian dollar also fell for the fifth session yesterday. The streak began last Thursday when it was turned back after making a new high for the year (~$0.6625). It fell to almost $0.6425 yesterday, its lowest level since June 23. It has recovered to $0.6475 today but is hovering around $0.6450-5 in late European morning turnover.

Nearby support may be seen around $0.6400, and the 200-day moving average is slightly below (~$0.6390). Australia reported a slew of data today but none of it is enough to dissuade the market from its high conviction that the central bank will deliver its third-quarter-point rate cut on August 12.

Building approvals were a whopping 11.9% in June and well above expectations for a 1.8% gain. It was the second consecutive monthly gain after three straight drops. Retail sales jumped 1.2% in June, three times more than the median forecast in Bloomberg’s survey. After adjusting for inflation, retail sales rose 0.3% in Q2 after a revised 0.1% gain in Q1 (initially flat). Private sector credit grew by 0.6%, which is about the average pace seen this year. Lastly, import and export price indices fell in Q2. Export prices fell 4.5% after rising by 2.1% in Q1. Import prices slipped by 0.8% after rising 3.3% in Q1. 

: The dollar traded on both sides of Tuesday’s range against the peso yesterday but settled above its high. The dollar rose slightly above MXN18.87 in late turnover. It took out the July 15 high (~MXN18.8850) slightly, before pulling back to almost MXN18.7830. Still, it has turned better bid in Europe and recovered to MXN18.85. Above MXN18.8850, the next of note is around MXN18.93, the (50%) retracement of the dollar’s last leg down from the June 23 high (~MXN19.3430). Mexico surprised with a 0.7% expansion in Q2. The median forecast in Bloomberg’s survey was for 0.4% growth after 0.2% in Q1.

However, the impact on the peso was overwhelmed by the US dollar’s broad gains. As widely anticipated, Brazil’s central bank left the Selic rate steady at 15.0%. The market expects the next move to be a cut. It was a volatile day for the exchange rate, but the dollar settled slightly weaker on the day near BRL5.57.

News that America’s 50% tariff was going to be delayed by a week and that exemptions, including orange juice, oil products, , aircraft, and machinery, helped the real recover from early losses.