The US dollar stabilized following a sharp decline that saw it drop to multi-year lows against the euro and pound, and to a 10-year low against the Swiss franc. Recent developments, including progress on multiple trade deals and a clarified agreement with China, have provided modest support. There are also rumors that reciprocal tariffs may be postponed beyond the current July 9 deadline. Despite these supportive factors, the dollar remains under pressure and continues to hover near its recent lows.

Asia Pacific Markets

The dollar weakened significantly against the Japanese yen earlier in the week, driven by declining US yields and overall dollar softness. It dropped from nearly JPY146 to JPY143.75 and now trades within a tight range. Tokyo inflation figures showed a slight easing, reducing expectations of a near-term rate hike. Meanwhile, Japan's retail sales unexpectedly fell in May, signaling weaker domestic demand.
In Australia, the local dollar surged to a seven-month high after a four-day rally. The gains, however, were not tied to monetary policy optimism, as markets still largely expect a rate cut at the July 8 central bank meeting.

European Markets

The euro experienced a notable surge past $1.17, influenced in part by demand tied to expiring options. However, it remained range-bound afterward, with limited upward momentum. Consumer price data from France and Spain showed mixed results, but overall eurozone inflation is projected to remain steady.
Sterling also posted strong gains earlier in the week, climbing four cents from its recent low. Although it pushed above the upper Bollinger Band, further gains may be limited. A drop below $1.3700 could prompt a move down to $1.3650, indicating growing caution in the market.

American Markets

Despite the announcement of a US-China trade agreement and the anticipated removal of a controversial tax, the dollar showed little lasting strength. It briefly climbed but then fell back near the three-year low of 97.00. Today’s focus is on the PCE deflator report, expected to show a modest 0.1% rise in both headline and core measures. However, weakening consumer spending may have a bigger impact on market sentiment. Consumption growth has slowed significantly since early 2024. With rising household debt and softer job growth, markets have increased bets on a July interest rate cut, now placing the odds at 21%.