The price of is consolidating today after yesterday’s surge and this has taken some pressure off bond markets after several countries, including the US, saw rise to new highs for the year. The pullback in yields is also occurring despite unexpectedly strong preliminary July PMIs. Nevertheless, there are reports that suggest the Middle East war could be on the verge of a significant escalation. The prospects could deter significant risk-off moves ahead of the weekend. Meanwhile, the US has announced 10%-12.5% tariffs on 60 countries for either not having or not sufficiently enforcing safeguards against forced labor. These tariffs are meant to replace the expiring tariffs imposed for the past 150 days that were justified on the deterioration of the balance-of-payments.
The has followed the decline in US rates and is softer against the G10 currencies today. The dollar is little changed against the Japanese yen, where it has held slightly below JPY164, the 40-year high approached yesterday. Japanese rhetoric did not change significantly. Intervention is threatened “whenever necessary”.
Prices
G10
• The jump in oil prices and interest rates pressed the to about $1.1365 in North America yesterday, its weakest since July 1, the day before the disappointing June jobs growth was reported. The year’s low was recorded on June 24, near $1.1325. The euro posted a bearish outside down day yesterday. It traded on both sides of Wednesday’s range and settled below Wednesday low. Yet, there has been no follow-through today and the euro is mired in about a quarter of a cent range below $1.14. Options for 1.3 bln euros at $1.1360 expire Monday.
• The dollar rose to nearly JPY164 in North America yesterday, a new 40-year high against the . Rising oil and US yields were the arguable the driving force. Yesterday’s high has held and since then the dollar found support near JPY163.65. Options for around $900 mln at JPY163.30 expire today. The strong correlation between US rates and the exchange rate suggests BOJ intervention may be more effective if it waited for some sign US rates are peaking.
• fell for the sixth consecutive session yesterday. That is the longest losing streak of the year. It tested support around $1.3300, which also corresponded to the (61.8%) retracement of rally from the June 24 low (~$1.3140). It is holding today, though a break could signal a move toward $1.3240-50. On the top side, sterling has not traded above $1.3345.
• The has been unexpectedly resilient in the face of the greenback’s climb in the last couple of sessions. There have been two developments: the rise in the price of oil and the narrowing of the US two-year premium over Canada. The correlation of the changes in the exchange rate and the Us premium is more robust than the correlation between the exchange rate and oil prices. That said, the 30-day rolling correlation between changes the US dollar-Canadian dollar exchange rate and September WTI futures contract turned negative early this month for the first time since mid-March, but at around 0.18, it is not particularly strong. The greenback is consolidating in a narrow range so far today: ~CAD1.4065-CAD1.4085.
• The posted an outside down day yesterday. It fell from around $0.7020 to almost $0.6960. It held a couple of hundredths of a cent above the week’s low set Monday. A band of support extends toward $0.6945. The Aussie is trading with a firmer bias today but has been capped near $0.6990.
EM
• The and Brazilian real snapped three-day rallies yesterday and were both tagged for about 0.60%-0.70%. All but a handful of emerging market currencies fell yesterday. The Colombian peso eked out a minor gain. The dollar posted an outside up day against the Mexican peso. It rallied from about MXN17.3775 to almost MXN17.54. It stopped slightly shy of the week’s high set Monday near MXN17.5540. It has not been above MXN17.5235 today but found support slightly below MXN17,47, The greenback rose a little above BRL5.09 to reach a three-day high against the Brazilian real.
• The dollar posted its highest close of the week against the yesterday, near the session high, slightly below CNH6.78. It is largely consolidating inside yesterday’s range today. A trendline connecting the late April, June 25 and July 8 highs comes in around CNH6.8020 on Monday. Given the greenback’s broad gains, the PBOC seemed to have little choice but to fix the dollar higher today, and indeed it did: CNY6.7939 vs. yesterday’s three-year low of CNY6.7906.
• Reports suggest Indian officials directly or indirectly intervened in the foreign exchange market to support the today. The dollar traded on both sides of yesterday’s range against the rupee and settled little changed around INR96.57. It was the fifth consecutive weekly loss for the rupee, during which time it fell by about 2.4%.
Other Markets
• After Asia Pacific equity markets advanced yesterday, sharp losses in Europe and North America set the stage for today’s sell-off. The large bourses in the Asia Pacific region fell, led by South Korea’s 5.7% drop. Japan’s Nikkei 225 was off 2.7% and its 3.3% loss on the week was the most among the large regional markets. China’s CSI 300 fell almost 1.7% today but was the strongest in the region this week with a 2.65% gain. Europe’s Stoxx 600 has recouped about half of yesterday’s nearly 1.2% decline. It is little changed on the week. US index futures are firmer but nursing around 0.3%-0.5% losses for the week.
• Benchmark 10-year yields jumped 3-6 bp in Europe yesterday and five in the US. Yields in the Asia Pacific region played catch-up today. Lower oil prices appear to be helping European bonds recover from yesterday’s losses. Yields are off 2-4 bp today. The 10-year US Treasury yield is off around a basis point to 4.68%.
• The rising dollar and interest rates proved too much for gold, which unwound Wednesday’s gains in full, with a little less than a 2% drop. Losses were extended to almost $4022 today before gold recovered to a little below $4062. The week’s low on Monday was a little below $3983 and last Friday’s low was the low for the month (~$3960). It is up about 1% this week, which is sustained would be the first weekly advance in three weeks. Silver’s four-day rally was snapped with prejudice and marked by a 3.60% decline. It is firmer today near $58.50 in late European morning turnover. If today’s gains are sustained, it will be the fifth day in the past six that the price of silver has risen. Monday’s low was slightly below $55.40 and last Friday’s low (for the year) was almost $54.75.
• September WTI climbed steadily yesterday through the European and North American session. It reached $93.50 in the North American afternoon before settling near $92.20. It was the fifth consecutive gain and the eighth in the last nine sessions. Since July 10, the price of WTI for Sept delivery has risen from about $71.35 to $93.40 (~30%). It is trading lower today and reached about $88.75. Yesterday’s low was about $87.30. We see the price action as consolidative in nature and reports warn that the war could be on the verge of a major escalation. September WTI is up about 9% this week after it surged 14.6% last week. According to AAA, the average price of unleaded gasoline has risen by almost 6% over the past two weeks to around $4.10, the highest since June 11.
Data
• The preliminary estimate for the US July PMI is expected to have edged up. Recall that the June composite of 51.9 matched the highest reading since January. It finished last year at 52.7 and was at 55.1 last July. June will also be reported. After a 7.3% slump in May, they are expected to have bounced by around 4.5%. Through May, new family home sales are off about 15% since the end of last year and about 7% below the first five months of 2025.
• The eurozone’s flash July PMI was stronger than expected. The manufacturing PMI edged up to 52.0 from 51.4. The high this year was in April (52.2) after finishing last year at 48.8. The services PMI rose to 51.6 from 49.4. It had not been above 50 since March and was at 52.4 at the end of last year. The composite is at 51.9, up from 50.0 in June. The year’s peak was in February, before the Middle East war began, 51.9.
• The UK reported an unexpected 1.0% rise in retail sales (the median forecast in Bloomberg’s survey was for a 0.3% decline after the outsized 1.2% jump in May). Excluding gasoline, UK retail sales, which are reported on a volume basis, rose by 1.1%. Separately, the preliminary July PMI was also stronger than expected. Manufacturing rose (52.8 vs. 52.5), while services improved and rose above 50 for the first time since April (51.8 vs. 48.8). The composite jumped to 52.1 from 49.3. It peaked this year at 53.7 in January and February.
• Australia’s preliminary July PMI improved. The manufacturing reading edged up to 51.7 from 51.5 in June. The services PMI rose to 53.0 from 50.5. The composite now stands at 52.6 (50.4 in June). The year’s high was in January at 55.7, which was its best level since before the pandemic. It was 53.8 last July and 51.0 at the end of 2025.
• As tipped by the Tokyo CPI report a few weeks ago, Japan’s national CPI crept up in June. The headline rose to 1.7% from 1.5% and the core, which excludes fresh food, rose by 1.6% (1.4% in May). The BOJ targets a 2% core rate. It has not been above there this year. The measure that excludes fresh food and energy slipped to 1.7% from 1.8%. Separately, the preliminary July PMI showed continued strength albeit slightly less, though the market typically does not react much to the report. The manufacturing PMI is 54.7 (54.8 in June) and the services PMI is 51.9 (52.2 in June). The composite is at 53.1 (52.8 in June). It averaged 51.5 in Q4 25, 53.3 in Q1 26, and 52.0 in Q2 26.
