US Dollar: Under Pressure from Fed and Weak Data

Investors are closely parsing Federal Reserve Chairman Jerome Powell's latest testimony before Congress, where he reiterated expectations for consumer price growth during the summer, largely due to elevated tariffs. Powell emphasized persistent inflationary risks, making a policy pivot towards monetary easing unlikely before autumn—or possibly year-end. Notably, this cautious approach stands in stark contrast to pressure from the White House, with speculation growing over a leadership change at the Fed as early as September or October. Should such a transition occur, markets anticipate a far more aggressive rate-cutting cycle.

Further headwinds for the USD emerged after today's Q1 GDP print revealed a 0.5% contraction—worse than the expected –0.2%—raising recession concerns. Weekly jobless claims increased by 236K (against a forecast of 244K), while the four-week moving average declined slightly to 245K. The total number of Americans receiving unemployment benefits rose to 1.974 million, underscoring continued stress in the US labor market.

Eurozone: Euro Rises vs USD, Stalls Against Yen

The euro advanced against the US dollar but posted mixed results against the yen and pound. German consumer sentiment data from Gfk Group showed a dip in the July index from –20.0 to –20.3 (below the –19.1 forecast). However, household buying intentions slightly improved, while the saving propensity index climbed sharply, signaling a clear risk-off attitude among German consumers amid prevailing uncertainty.

On the policy front, EU leaders are meeting to debate the bloc's position on a potential new trade deal with the US as the July 9 tariff moratorium approaches expiry. Most European officials are expected to accept Republican-driven US trade terms to avoid adverse shifts in transatlantic commerce.

United Kingdom: Sterling Recovers vs USD, Softens Elsewhere

The British pound firmed against the dollar but lagged the yen and traded mixed against the euro. Bank of England Governor Andrew Bailey noted clear signs of labor market "cooling" and persistent inflation. Bailey stressed that monetary policy would remain data-driven, with the possibility of a gradual reduction in borrowing costs ahead. Notably, Bailey downplayed the severity of global headwinds, suggesting that their impact on the UK may be less negative than initially feared.

Meanwhile, UK retail sales volumes slumped, with the CBI index plunging from –27.0 to –46.0, far worse than the expected –24.0. This hints at mounting consumer caution and potential downside risks for Q3 GDP.

Japan: Yen Gains as BoJ Signals Hawkish Tilt

The Japanese yen continued to appreciate against the euro, pound, and US dollar. The Bank of Japan’s monetary policy outlook remains central to market sentiment. Board member Naoki Tamura indicated that inflation is accelerating faster than previously projected, making a case for bolder tightening—even in the face of risks tied to US trade policy. Tamura’s stance, shared by other policymakers, increases the odds of further rate hikes this year.

On Friday, Tokyo’s June CPI will be released. Market consensus points to an annual rise from 3.4% to 3.5%, with the core measure easing from 3.6% to 3.3%—both well above the BoJ’s 2% target, reinforcing expectations for ongoing hawkishness.

Australia: Aussie Dollar Strengthens as Rate Cut Odds Surge

The Australian dollar gained ground against the US dollar, weakened versus the yen, and traded unevenly against the euro and pound. May inflation data showed the weighted CPI index falling from 2.4% to 2.1% (vs 2.3% expected), marking the lower bound of the Reserve Bank of Australia’s 2.0–3.0% target range. The trimmed mean CPI fell to 2.4%, a low not seen since 2021.

Following these numbers, market odds for an RBA rate cut in July have soared to 96%. Analysts largely expect another move in August, potentially bringing rates to 3.35%, followed by a pause to assess the policy’s impact before resuming cuts later in the year or early next.

Oil: Tight Ranges Persist as Supply Risks Ease

Oil prices continue to trade sideways. The truce between Iran and Israel and fading risk of disruption to Strait of Hormuz transit has diminished geopolitical risk premiums. On the flip side, resilient US demand has limited further price declines—according to the latest EIA data, crude inventories fell by 5.836 million barrels, gasoline by 2.075 million barrels, and distillates by 4.066 million barrels.