The USD rebounds, oil prices firm, equity markets are up, and US yields are mixed as risk sentiment improves. The USD edged higher in early trading but remains on track for its fifth straight month of declines, which would be the greenback's longest losing streak since 2017. Trump's on-again, off-again tariffs and concerns over the worsening US deficit outlook continue to undermine sentiment towards US assets, keeping pressure on the USD. Meanwhile, the yield on 30-year US Treasuries, which impacts US government borrowing costs to home mortgage rates, fell eight bps, its lowest level in a week. Bonds rallied worldwide after Japan indicated it's looking to stabilize its debt market after weeks of rising yields. Global equities rallied as risk sentiment improved. US futures are holding their gains from Monday's holiday after President Trump extended the EU tariff deadline. Investors are expected to remain cautious ahead of the Fed's preferred inflation measure, the US personal consumption expenditures price index excluding food and energy, which will be released on Friday. Elsewhere, oil prices are steady as markets await clarity from OPEC on output increases, Bitcoin firms to $109.5k, while gold and silver prices weaken. Today's focus, US Durable Goods, Housing Price Index, and ECB Knot and Nagel speeches, will help guide currency markets.
In the news. European companies hail Japan's embrace of non-US defence procurement. EU plans sweeping stress test of non-banks. Greenland says it will turn to China if the US and EU shun its mining sector. Japanese bonds rally on hopes of less supply. EU to keep calm and carry on in trade talks after Trump tariff reprieve. India and Pakistan's drone battles mark a new arms race. Germany ends Japan's 34-year run as the world's top creditor nation. Wildfires erupt near Alberta oil well sites amid hot weather. The final day of King's visit will include a throne speech amid Trump annexation threats. Canada faces 'massive challenge' as NATO eyes new 5% spending target.
In currency markets. The USD edges off multi-year lows, while INR slips on month-end import dollar requirements. JPY weakened after Japan's finance minister said that the government will closely monitor the bond market ahead of the auction of super-long debt this week, warning that interest rates could pressure state finances. CNY eased by 0.1%, while Asian currencies weakened 0.4% on average against the USD. Trading currencies came under pressure, with JPY tumbling 0.9%, CHF, SEK, NZD & PLN weakening 0.65%, AUD, NOK, CZK, DKK & ZAR falling 0.4%, and MXN flat against the USD.
In commodity markets. Oil prices firmed by 0.3%. Natural Gas and Gold prices tumbled 2.2%. Silver, Copper and Wheat prices weakened by 1.45%, and Soybean prices gained by 0.4%.
CAD continues to weaken from its near eight-month highs as the USD rebounds amid tariff relief, weakening metals pricing and increasing uncertainty for oil prices ahead of the OPEC+ meeting. Investors appear to be turning cautious due to the lack of fresh Canadian economic data to provide guidance ahead of next week's Bank of Canada meeting, where expectations have shrunk to 30% that the bank will cut rates. Intraday, US data releases will help provide direction to the loonie today, with investors expected to be sidelined ahead of Friday's CAD GDP report.
EURCAD eased towards 1.5600 with improving oil prices, which helped to support the loonie intraday.
EUR weakens as the USD finds demand ahead of a busy week of US data releases. The euro eased in early trading as the USD recovers following the delay in the EU-US tariffs. We anticipate the euro will remain vulnerable to further volatility amid the ongoing Senate tax debate and caution ahead of Friday's key US PCE report. Domestically, ECB Policymaker Villeroy de Galhau argued today that policy normalization in the eurozone is not complete. At the same time, ECB Simkus said that inflation risks in the eurozone area are expected to be below the ECB's target in the future. Intraday focus will be on the US durable goods to help provide direction to currency markets.
GBPEUR edged higher amid ongoing EU-US trade uncertainty.
GBP dips below 1.3550, off multi-year highs ahead of US data and Senate tax debate. The pound eased from its 39-month highs against the USD as the greenback recovers, with investors focusing on US fundamentals and the Senate debate on Trump's tax bill. After releasing the hotter-than-expected inflation and retail sales data in April, the pound is finding some underlying support as markets reassess the Bank of England's monetary policy outlook. The focus will be on this week's flurry of US economic data, culminating in Friday's key US PCE report, which will help guide the Fed's interest rate policy.
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