Softer Oil, Softer Greenback

A new ceasefire between Israel and Lebanon raises hopes of a breakthrough in US-Iran talks, where a low intensity conflict has been waged under the flag of a ceasefire. The Israel-Lebanon deal reportedly does not include Hezbollah, underscoring the fragility and limits of the ceasefire claims. July WTI is near the middle of the $94-$96 range. The market seems cautious. 

The US dollar is mostly softer, with the Canadian dollar the weakest among the G10 currencies. The swaps market has a BOJ hike nearly fully discounted for later this month and the greenback continues to hover near but below JPY160. Japan’s finance minister continued to press with recent rhetoric that it stands ready to act. Poor earnings from Broadcom late yesterday weighed on the chip sector in Asia and has dragged the Nasdaq futures down over 1%. The market-sensitive US May jobs data are due tomorrow but the bar to a change in Fed policy this month, as Warsh chairs his first meeting is very high. 

Prices  

G10

• The euro reached a two-week high on at the end of May near $1.1685 and eased below $1.1600 yesterday in North American session. In the last two weeks of May, it traded below $1.16 on an intraday basis several times but did not close below it once, but it did yesterday. Still, there was no follow-through selling and the euro recovered to almost $1.1635 in European turnover. A close above yesterday’s high, a little below $1.1635, would help lift the tone, ahead of tomorrow’s US jobs data. 

• The dollar trended cautiously but higher against the yen in North America yesterday. After European markets closed, the greenback was pushed to JPY160.10, as if the impish market were daring verbal intervention by the US Treasury like earlier this year, or in Tokyo today. The market is nervous and the dollar spiked down to almost JPY159.60 in the local session but quickly recovered but has not been above JPY160, where options for $2.7 bln expire today. Finance Minister Katayama reiterated that officials are in contact with Washington and are prepared to take action. The US has remained quiet unlike in late January. 

• Sterling continues chopping in last Friday’s trading range (~$1.3410-$1.3485). The lower end of the range held yesterday and today, setting the stage to test the upper end of the range. Yesterday’s high was slightly above $1.3470 and the 20-day moving average is near $1.3460, which sterling has settled above once (and that was barely) since May 11. 

• Risk-off and a poor macro backdrop saw the Canadian dollar fall to its lowest level since early April. The greenback approached CAD1.39 yesterday and reached CAD1.3925 today. The high for the year was recorded at the end of March slightly above CAD1.3965. It settled slightly above the upper Bollinger Band (~CAD1.3910 today). 

• The Australian dollar slipped through yesterday’s low near $0.7130 to almost $0.7120 today, a five-day low. It recovered, perhaps with the help of the swing back into a trade surplus in April but stalled near $0.7140. Options for A$625 mln at $0.7155 expire today. 

EM

• The dollar traded within Tuesday’s range yesterday (~MXN17.2640-MXN17.3665) against the Mexican peso. With a few exceptions, the dollar continues to be confined to the range set May 15 (~MXN17.21-MXN17.40). So far today, it is inside yesterday’s range, which was inside Tuesday’s range (~MXN17.3640-MXN17.3665). The Colombian peso, still in the afterglow of the last weekend’s presidential election, was the strongest of emerging market currency yesterday, with a minor 0.30% gain.

• The offshore yuan’s nearly 0.30% decline yesterday was the largest in two-and-a-half weeks. The dollar’s broad gains played a role. It follows the threat of new US tariffs, the first since President Trump was in Beijing. Also, yesterday, for the first time since August 2024, the PBOC skipped its open-market operation. The dollar is trading with a heavier bias today and has drifted toward CNH6.7730. The PBOC set the dollar’s reference rate at CNY6.8203 (CNY6.8184 yesterday). 

• The Indian rupee remains under pressure even as reports suggest the government is considering new measures to support the currency. The dollar settled at session highs near INR95.7925. Recall on Monday, the dollar reached a low near INR94.73. The central bank meets tomorrow. A Bloomberg survey found 29 of 25 economists expect the RBI to stand pat, though speculation of a hawkish hold has not helped the currency, which settled near two-week lows.

Other Markets

• US equities fell yesterday and the S&P 500 snapped a nine-session advance, its longest in 1995. Asia Pacific equities were unable to get much traction today and snapped a four-day advance. Europe’s Stoxx 600 is slightly firmer after losing 0.65% yesterday. It has not posted back-to-back declines since May 7-8. Poor Broadcom earnings are taking a toll on the NASDAQ futures, which are off about 1%, while S&P 500 futures are off about 0.35%.

• Benchmark 10-year yields are mostly narrowly mixed today after yesterday’s lurch higher that saw a six basis point increase in Tokyo and 6-9 bp increase in Europe and an almost five basis increase in the US 10-year Treasury to 4.49%. The 10-year JGB yield rose 2.5 bp today, while European yields are little changed. The 10-year Gilt yield is the big mover in Europe, and the yield is off about 1.5 bp. The US 10-year Treasury yield is down a couple of basis points to 4.47%.

• Gold was sold to a four-day low slightly below $4427. It is firmer today near $4470 in late European morning turnover. Yesterday’s high was near $4496. The 200-day moving average appears to be offering support. It is found near $4423 today. The yellow metal traded below the moving average last month but settled above it. Silver settled softly and posted its lowest close in a month, near $72.70. It has not traded below $71 in two months. It also has come back better bid today and is near $73.50. Yesterday’s high was slightly below $76. 

• July WTI rose for the third consecutive session yesterday and settled above the 20-day moving average for the first in almost two weeks. It has retraced half of what it lost since the contract high was recorded on May 18 ($105.20). It is consolidating in about a dollar range on both sides of $95. 

Data

• US weekly jobless claims today are overshadowed by tomorrow’s non-farm payrolls. Still, it is notable that a year ago, the four-week moving average of initial jobless claims was around 230k-235k and in the middle of last month was at 202k, the lowest since January 2024. Continuing claims were around 1.935-1.950 mln a year ago and as of May 16, were about 1.786 mln. In late April, continuing claims fell to 1.758 mln, the lowest since January 2024. Given that Q1 GDP was revised lower, then nonfarm productivity will likely be lowered from the 0.8% earlier estimate by as much as half, while unit labor costs will probably edge higher. 

• Mexico reports March gross fixed investment and private consumption today. Capex fell in January and February, and the median forecast in Bloomberg’s survey is for a 0.1% rise in March. Moreover, capex fell in 2024 and 2025. This is a challenge for Mexico, and it cannot all be attributed to the disruption caused or threatened by the US. Private consumption is faring better but the year-over-year in real terms is off to a weak start after a strong finish to 2025. 

• Retail sales in the eurozone fell by 0.4% in April. It would have been the fourth consecutive month in volume terms, but the March series was unexpectedly revised to 0.8% from -0.1% initially reported. 

• The UK’s May construction PMI continued to deteriorate. While most economists Bloomberg surveyed expected a small increase, it fell to38.2 from 39.7. It has not been above the 50 boom/bust level since the end of 2024. It was at 47.9 last May. 

• Australia’s April trade balance swung back into surplus, A$1.79 bln from its first monthly deficit (-A$1.02 bln) in March since 2017. Imports surged 12.2% in March and edged up 0.8% in April. Exports fell 2.5% in March and rose 7.2% in April.