USD is mostly firmer ahead of jobs report for which the market is on notice for downside risks

Overview: The US dollar is firm. The only G10 currency that is stronger today is sterling, which is recovering from yesterday's sharp losses and the UK's drama eased following Prime Minister Starmer's support for Chancellor Reeves. Of note most of the final June PMI readings were revised higher from the initial estimates. The US struck a trade agreement with Vietnam, the third deal reached, and the clear intent is to deter it from re-exporting Chinese goods. Meanwhile, the US also lifted export requirement for chip design software sales to China, which would seem to imply that the administration is satisfied with the resumption of rare earth and magnet shipment to the US. 

Most emerging market currencies are firmer today, led again by the Taiwanese dollar (~0.65%). On the other hand, the South Korean won is the weakest (~-.45%). South Korea's Kospi, on the other hand, rose 1.3% today to lead the Asia Pacific bourses higher, while Taiwan gained slightly less than half as much. Hong Kong shares fell the most (~0.65%) in the region. Europe's Stoxx 600 is up about 0.25% to extend yesterday's gain but is still nursing a small loss for the week. US index futures are virtually flat. UK Gilts lead the European bond market recovery today. The 10-year Gilt yield is off around 8 bp to 4.52%, while the other regional bond yields are off around three basis points. The 10-year US Treasury yield is almost two basis points softer at 4.26% ahead of the US employment report. Gold edged up to almost $3366 before meeting sellers that knocked it back to $3343 before support was found. August WTI is consolidating yesterday's 3% rally. It reached nearly $67.60 yesterday and is almost a buck lower now. 

USD: Even after the disappointing ADP private sector jobs estimate (-33k vs. median forecast in Bloomberg's survey of a gain of 98k), the Dollar Index made a new session high yesterday near 97.15. Only after European markets close, it sulked back to almost 96.75. Ahead of the US employment report, it is trading in an exceptionally narrow range (~96.70-96.90). The Fed's forward guidance is that it is taking policy decisions meeting by meeting. Although two Fed governors seemed to be open to cutting later this month, most other officials and the markets appear skeptical. From Tuesday's low to Wednesday's high, DXY bounced about 0.80% and it was sufficient to bring in new sellers. Despite the ADP showing the first private sector job less since March 2023, the odds of a July rate cut barely increased. It is about a 1-in-4 chance rather than a 1-in-5 chance, according to the futures market. Ahead of tomorrow's US holiday, a slew of data will be reported today. Chief among these is the employment report. Weaker job growth is expected (~106k vs. 139k in May subject to revisions). The unemployment rate is expected to tick up to 4.3%, which would be a new cyclical high. President Trump's social media post late yesterday, saying Fed Chair Powell should resign immediately, after he may have been briefed on today's employment report, was seen as a possible confirmation of soft report today. It will overshadow the May trade deficit, which is expected to have widened, and the weekly initial jobless claims that will be reported at the same time as the nonfarm payroll report. Shortly afterwards, the final services and composite PMI, the services ISM, and factory orders will be reported.

Euro: The euro recorded session lows yesterday slightly below $1.1750 in early North American trading before the ADP report. It was choppy for the rest of the North American morning and after European markets closed worked its way back to $1.1800 were it stalled. It settled fractionally lower on the day to post its first losing session since June 17. It is trading in around a 10-tick range so far today on both sides of $1.1800. The eurozone saw its final reading of the June services and composite PMI. The flash reading was 50.0 for the services PMI after slipping below the boom/bust level in May for the first time since last November. The composite PMI has held above 50 this year. 50.2 in June. It was revised to 50.6 from the flash reading of 50.2, with the help of the stronger services reading (50.5 vs. 50.0) and better French and Spanish readings. The composite PMI averaged 50.4 in Q1 and Q2 (49.3 in Q4 24). Tomorrow, the eurozone reports May PPI. Producer prices are expected to hall fallen for the third consecutive month. Eurozone producer prices declined on a year-over-year basis starting in May 2023 through late last year. The 0.3% anticipated June reading would be the lowest this year. Despite the mild price pressures and what appears to be slowing growth, the swaps market has around a 5% chance of a hike later this month, and about a 50% chance at the next meeting (September 11), but what some expect to be the last cut in the cycle is fully discounted at the last meeting of the year  (December 18).

CNY: The dollar edged higher against the offshore yuan for the second consecutive session. However, the gains were not impressive, and the downtrend appears to remain intact. It settled below the five-day average and has not closed above it this week. It is found near CNH7.1625 today. It is trading quietly in the range seen in the past two sessions. The PBOC set the dollar's reference rate at CNY7.1523, a new low (CNY7.1546 yesterday and CNY7.1620 last Thursday). The Caixin services and composite PMI were mixed. The services came in softer (50.6 vs. 51.1), a nine-month low, but the composite was firmer at 51.3 (from 49.6). It does not change the underlying views that the economy continues to struggle to sustain forward momentum. The PBOC appears to have pulled away from earlier pledges to cut interest rates and reserve requirements. Beijing's new initiative seems to be to try to curb the aggressive price competition that flows from excess capacity and competition for market share rather than short-run profitability. 

JPY: The dollar peaked yesterday near JPY144.25 before North America entered the fray. Alongside the pullback in US rates after the ADP report, the greenback fell to JPY143.50. It remains mostly in that range today (~JPY143.45-JPY143.95). The 10-year Treasury yield slipped 3-4 bp to 4.26% after the ADP data but recovered and set new session highs in early NY afternoon turnover a little above 4.30% but it did little to help the dollar. It is near 4.26% now. The final composite PMI stood at 51.5 in June, the highest since February and the second highest since last September, up from 51.4 preliminary estimate. The 51.0 Q2 average (50.7 average in Q1) was the best since Q3 24. Still, Japan's economy is stuck in a low gear. It contracted at an annualized pace of 0.2% in Q1 25 and the median forecast in Bloomberg's survey for Q2 is 0.3% annualized growth. Like Q1, it is little different from stagnation. Economists in Bloomberg's survey see growth picking up in Q4. The US tariffs, especially on Japanese autos, a sector that accounts for around 10% of GDP, is a serious threat. Separately, the largest union federation, Rengo, reported that annual wage negotiations produced an average wage gain of 5.25% for ~7 mln workers (~10% of the Japan's work force, at over 5100 companies. It is the largest increase in 34 years. 

GBP: No. The fact that sterling sold off at the same time that Gilt yields rose does not make the UK an emerging market. The 10-year Gilt yield rose almost 16 bp as the market prepared for more supply, even if the BOE stops or slows its sales. The yield is off almost 9 basis points today and sterling is firmer. Late yesterday, after the tears, Prime Minister Starmer gave a full throated endorsement of Chancellor Reeves. This was the first meaningful crisis for the year-old Labour government and intrigue at 10 Downing Street over the Reeves' tenure as Chancellor took an outsized toll on sterling. The pullback was sufficient to retrace more than half of sterling's gains from the June 23 low (~$1.3370) and briefly traded slightly below the 20-day moving average (~$1.3580). It recovered back to $1.3645 before stalling yesterday. The recovery was extended to about $1.3675 today. The final June services and composite reports were revised higher from the preliminary estimates. The services PMI is at 52.3, up from the initial estimate of 51.3 (50.9 in May). The composite improved to 52.0 from the 50.7 flash estimate and 50.3 in May. Still, the average in Q2 was 50.3 compared with 50.9 in Q1 25 and Q4 24. It is the lowest quarterly average since Q3 23. The UK economy appears to have gone from the top performer in the G7 in Q1 to one of the slowest in Q2, which exacerbates the fiscal challenge. 

CAD: The Canadian dollar was the strongest G10 currency yesterday, gaining about 0.40% against the greenback. The Canadian dollar's gains seemed to reflect a little catch-up in a firmer greenback environment. While several other major currencies made new highs for the year this week, the Canadian dollar was not one of them. The US dollar's low for the year was recorded on June 16 near CAD1.3540. Yesterday's low matched Tuesday's low near CAD1.3590. It edged down to about CAD1.3580 today. The June manufacturing PMI fell to 45.6 from 46.1 in May, which was the first gain of the year (45.3 in April, the cyclical low. The US tariffs, real and anticipated, are taking a toll. The Bank of Canada has front-loaded its rate cuts, but the Bank of Canada turned somewhat cautious as the perceived neutral rate is approached. While the market is warming up to a rate cut soon, the next cut is not fully discounted until Q4. Canada reports May merchandise trade balance today. There has been dramatic deterioration this year. Through April, the goods deficit was about C$8.3 bln. In the first four months of 2024, the trade deficit was almost C$3.6 bln. Canada's merchandise exports slid 10.8% in April, the largest drop since the end of 2008 and reached their lowest level since June 2023, as shipments to the US tumbled by 15.7%. Exports of light vehicles and parts fell by nearly a quarter. 

AUD: The Australian dollar was sold to almost $0.6540 as the greenback recovered broadly, but buyers re-emerged on the dip and lifted the Aussie to new session highs to almost $0.6590. It stalled near the upper Bollinger Band, which it has frayed in recent sessions (found ~$0.6600 today). It is trading with a softer bias today (~$0.6565-$0.6590). The final June services and composite PMI were also revised higher from the preliminary estimates. The composite was revised to 51.6 from 51.2 initially and 50.5 in May. It averaged 51.0 in Q2 and 51.1 in Q1. Separately, Australia's merchandise trade balance narrowed for the second consecutive month in May. The A$2.2 bln surplus was half of what was expected and compares with A$5.6 bln surplus in May 2024 and $A5.4 bln in April 2025. Exports fell (2.7% month-over-month), while imports jumped (3.8%). In the first five months of the year, the trade surplus averaged about A$4.1 bln compared with an average of A$5.6 bln in Jan-May 2024. The futures market lifted the chances of a rate cut next week to more than 100% from about 65% on Tuesday. Tomorrow, Australia reports May household spending. The softer than expected retail sales (0.2% vs. 0.5% median forecast in Bloomberg's survey) warn of downside risks, the median forecast for a 0.5% increase in household spending. 

MXN: The dollar posted an inside day against the Mexican peso yesterday. Still the greenback eked out a minor gain (<0.0.3%) and settled higher for the first time in eight sessions. It has held below MXN18.82 today and is near MXN18.77 in European turnover. Tuesday low was slightly above MXN18.66. The week's high was set on Monday slightly below MXN18.90. Yesterday, Mexico reported domestic auto sales slowed by 3.25% in June after the nearly 10.8% surge in May. It is a volatile series, but the sales in H1 25 (~118.2k monthly average) were slightly higher than in H1 24 (~117.7k monthly average). Today, Mexico reports April fixed investment and private consumption. It rose on a year-over-year basis in March (1.16%) after contracting for the previous three months. The base effect makes for a difficult comparison this year, and the median forecast is for a 3.6% year-over-year decline, which would be the largest since early 2021. The swaps market expected Banxico to pause its easing course with the overnight cash rate target at 8%. The terminal rate is seen between 7.25% and 7.50% a year from now.