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Overview: The dollar is broadly lower, and stocks are under pressure. Comments by a Japanese official, which did not appear to break new ground, coupled with Trump's interview in BusinessWeek, where he was critical that Japan was benefiting from a weak yen, despite having apparently spent some $80 bln this year trying to stop it from falling, may have been trigger. The dollar has fallen to its lowest level in a month against the Japanese yen (~JPY156.10). At the same time, slightly firmer than expected UK CPI diminished speculation of a BOE rate cut on August 1, and sterling has been lifted above $1.30 for a new 2024 high. The euro has risen to about $1.0945, its best level in four months. The dollar's intraday momentum indicators are stretched ahead of the North American open. Most emerging market currencies are higher, with the notable exceptions of Türkiye, Mexico, and South Africa. 

Equities were mixed in Asia but have fallen in Europe and the US index futures are sharply lower (~1.0%). The Stoxx 300 is lower for the third consecutive session and is off nearly 2% so far this week. In the past two weeks, it has been up almost 2.5%. Benchmark 10-year yields are mixed. Most of European yields are little changed, but the two-basis point rise in the 10-year Gilt yield stands out. The 10-year US Treasury yield is up less than a single basis point near 4.16%. Gold extended its record high slightly above $2482 today. September WTI is trading quietly in less than a $1-range above $79.40. Yesterday's low was near $79.20, its lowest level in nearly a month. 

US Dollar: The US retail sales were better than expected last month especially after one look past the weakness in auto sales. Excluding auto sales and gasoline, retail sales rose an impressive 0.8% and May's 0.1% gain was revised to 0.3%. This bodes well for Q2 US GDP (that will be released next week) when consumption likely improved from Q1's 1.5% to around 2.0% at an annualized pace. The Atlanta Fed's GDP tracker was revised to 2.5% from 2.0%. Today, attention turns to June housing starts and permits, which are expected to pare May's losses, and industrial production (a small gain after a May's 0.9% rise was revised to 0.7%). The Fed's Beige Book ahead of the FOMC meeting at the end of the month is due late in the session. Richmond Fed President Barkin (voting member this year) and Governor Waller speak in the east coast morning. The Fed funds futures are pricing in a cut of a little more than 25 bp in September, as if there is a small risk of a 50 bp cut to begin the cycle. It is also discounting about a 60% chance of 75 bp in cuts this year rather than 50 bp. The Dollar Index has been sold through support at 104.00 for the first time in three months. The 103.55 area corresponds to the 50% retracement of this year's gains. The next retracement (61.8%) slightly below 102.90. 

Yen:  Despite indications that Japanese officials intervened last Thursday and Friday, the dollar set session highs yesterday in early North American trading, before the retail sales report, near JPY158.85. Today, comments by the head Japan’s digital agency Kono, who may challenge Prime Minister Kishida later this year, complained about the yen's weakness. Separately, in a Businessweek interview, Trump was critical of Japan for benefitting from a weaker yen. The dollar ground lower against the yen, without the sharp price action that is sometimes associated with intervention. The dollar has been sold to almost JPY156 in the Europe, its lowest level in a month. The intraday momentum indicators are stretched, and the greenback can recover toward JPY157. 

Euro: After trading briefly above $1.0920 on Monday, a four-month high, the euro consolidated at lower levels yesterday. It fell back to almost $1.0870 after the US retail sales report beat expectations. The single currency has been scooped up today and driven to almost $1.0950 in European turnover. That is its best level since mid-March, shortly after the high for the year was set on March 8 near $1.0980. The intraday momentum indicators are stretched. Initial support in the North American session may be near $1.0920. 

Sterling: The UK reported a 0.1% increase in June CPI earlier today, leaving the year-over-year rate unchanged at 2.0%. The core rate and services inflation were unchanged at 3.5% and 5.7%, respectively. UK producer prices were softer than expected, with output prices slipping by 0.3% (flat in May, initially -0.1%), and input prices tumbling 0.8% (May revised from flat to -0.6%).The swaps market shaved the odds of a BOE rate cut on August 1 to about 40% from nearly 50% yesterday. After a brief period on consolidation earlier this week, sterling shot up to$1.3045 today. This is a new high since last July, when the 2023 high was recorded near $1.3140. The intraday momentum indicators are stretched, as one might imagine. Initial support is seen in the $1.3000-10 band. 

Canadian Dollar: Softer than expected June CPI weighed on the Canadian dollar and boosted confidence that the central bank will cuts rates again when it meets next week. Headline CPI fell by 0.1% last month and the year-over-year rate slipped to 2.7% from 2.9%. The median core rate eased to 2.6% from a revised 2.7% (initially 2.8%), while the trimmed core was unchanged at 2.9%. Economists in Bloomberg's survey are nearly evenly split with a small bias for the Bank of Canada to stand pat. In contrast, the swaps market boosted the odds of a cut for the fifth consecutive session through yesterday, but has stabilized today near 85%, up from almost 65% a week ago. The US dollar rose to a two-week high near CAD1.3710 yesterday before pulling back. The greenback is trading with a heavier bias to test the CAD1.3660 area in Europe. A break below CAD1.3650 targets CAD1.3600. 

Australian Dollar:  The Australian dollar fell to six-day lows yesterday (~$0.6715), weighed down, it appears by some long liquidation after it stalled in front of $0.6800 at the end of last week and the start of this week. Support is seen near $0.6700, the upper end of the mid-May to early July trading range. It has come back firmer today but is within yesterday's range (~$0.6715-$0.6765). Look for consolidation in North America. New Zealand reported a 0.4% rise in Q2 CPI, slightly less than expected, and given the base effect, the year-over-year rate fell from 3.3% to 3.4%. It was the eighth consecutive quarter that the year-over-year rate did not rise. It peaked in Q2 22 at 7.3%. At the end of June, the swaps market was discounting about a 15% chance of a cut at next month's RBNZ meeting. After today's CPI, the odds are now seen around 45%. Yesterday's losses saw the Kiwi trade to almost $0.6035, a two-month low. It recovered fully today and is knocking on the $0.6100 area. This meets the (50%) retracement objective the drop since start of last week. 

Mexican Peso:  The US dollar rose by about 0.75% on Monday and gave two-thirds of its back yesterday against the Mexican peso. It found support near MXN17.65, holding above last Friday's low near MN17.6065. The greenback has come a long way since testing MXN18.50 on July 2. It is trading firmly (~MXN17.6475-MXN17.81) today. The momentum indicators are stretched but have not turn higher. Separately, the Brazilian real also traded firmly, The US dollar recorded the year's high on July 2 near BRL5.70. It fell to almost BRL5.37 in the middle of last week. The real bounced on Monday to almost BRL5.48 before retreating yesterday to nearly BRL5.40. A break of last week's lows could signal a move toward BRL5.32.

Chinese Yuan: The pressure on the yen, despite the signs that Tokyo intervened on Thursday and Friday last week, and the prospects of a second Trump term weighed on the yuan. One bank estimated that 60% across the board US tariffs on Chinese goods could see growth cut in half. Today, the greenback has given up the gains recorded over the last few sessions to return toward the low set in the middle of last week (~CNH7.2580). It has approached CNH7.26 today. The PBOC set the dollar's reference rate at CNY7.1318 (CNY7.1328 yesterday). Last Wednesday's fix (CNY7.1342) was the highest so far in this cycle.

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