Soft enough: doves in command
Antonio Ruggiero – FX & Macro Strategist
The dollar index (DXY) sank yesterday to levels last seen in 2022. The brief spike during recent geopolitical turmoil only underscored the dollar’s fragility: in today’s undersold, undervalued state, it should have rallied. Its failure to do so says plenty about how deeply embedded dollar-negative sentiment is.
The dollar is likely to find support if further trade-positive headlines build on the recently announced US–China truce. Still, bearish forces are expected to persist through the remainder of the month, limiting any meaningful upside. As noted in yesterday’s daily piece, mechanical USD selling tied to month-end portfolio rebalancing is amplifying pressure. Add to that a more dovish Fed—driven both by internal signals and political pressure from Trump’s administration—and downside risks are intensifying. Markets are now pricing in a 20% chance of a quarter-point cut at the next meeting, up from zero last week. Expected easing by year-end has also jumped, from 50bp to 62bp in just days.
Yesterday’s data offered a mixed macro signal: GDP was revised sharply lower to an annualized -0.5% q/q, due to a surprising drop in consumption, while durable goods orders surged 16.4%. The headline figure was, of course, driven by aircraft, but even the core readings came in much stronger than expected. Initial jobless claims were lower than forecast, although continuing claims ticked higher.
Market reaction was still fairly muted, the S&P rose, and both the dollar and yields held onto their declines. But when it came to policy expectations, the mixed print was still read as a signal of softening demand, giving traders the green light to add to bets on lower borrowing costs—with September increasingly seen as the month in which the Federal Reserve will resume rate cuts.
One could argue that mixed data—or not overtly negative data—is the new “soft,” at a time when expectations skew toward downside surprises. That makes the dovish barometer more sensitive, close to flashing dovishness even when data isn’t firmly deteriorating.
Meanwhile, Trump has shifted focus back to domestic policy, pressuring Congress to approve a sweeping tax bill before July 4. The legislation aims to cut taxes to ease household economic concerns and stimulate business investment—central to his economic agenda, with tariff revenues expected to fund the cuts.
Euro bulls charge back
Antonio Ruggiero – FX & Macro Strategist
The euro extended its winning streak to a fifth consecutive session yesterday, briefly breaching the $1.17 level before paring gains amid news of a tentative US–China trade truce.
Still, euro bulls remain firmly in control—and the options market reflects that. The 25-delta risk reversal has surged 100 basis points, rebounding from negative territory during the height of geopolitical stress. The demand for euro calls now matches levels last seen around Liberation Day, with that 100bp shift from negative to positive territory over five days ranking among the sharpest sentiment reversals in option market history.
If optimism around the trade front persists, some of the bullish momentum could ease. Yet a continued narrowing of rate differentials in the euro’s favour may provide a firmer anchor, limiting downside.
As we’ve long maintained, a meaningful push toward the psychologically important $1.20 level still hinges on homegrown conviction. Rate spreads have compressed by around 20bp since May, with the Fed tilting incrementally dovish while the ECB holds a more hawkish line. One ECB cut is still priced in by year-end, with September currently favoured—though resilient data could shift expectations toward October or even December. In the near term, it’s the Fed, however, that markets see as having more room for dovish manoeuvre, with a rate cut by the September meeting now almost fully priced in.
The tighter rate gap suggests EURUSD may not be as overstretched as it was a few months back—when the spot was trading well above fair value. With valuations now more in line, the euro is more comfortable hovering at higher levels—and could push even higher on this sentiment-driven rally. Still, to maintain traction above the $1.17 handle, fresh dollar-negative catalysts are needed. Without them, the pair may drift lower again—as we have already seen today as the pair eased toward $1.16 following advancements on the trade front.
Clinging to monthly gains
Kevin Ford – FX & Macro Strategist
Following the ceasefire confirmation between Iran and Israel, the Canadian dollar dipped back below the key 1.37 support level and its 20-day moving average at 1.368. Over the past two weeks, CAD has swung sharply, from a low of 1.354, its weakest since October, to 1.379, the highest in a month. The dollar’s broader weakness, now at a three-year low, has helped lift the Loonie closer to 1.36, bringing it back in line with the long-term uptrend from 2021 and reaffirming 1.37 as a critical technical pivot. On the monthly chart, the 40-month moving average at 1.355 coincides with this year’s low. If the decline continues, this would mark the fifth straight monthly gain for the Loonie, last seen during the April–August 2020 stretch amid the COVID-19 shock.
Also, the 2-year yield differential between U.S. and Canadian government notes has narrowed by 53 basis points since reaching a record high in February, helping the Loonie trade below 1.38 over the past month.
On the macro front, inflation held steady at 1.7% year-over-year in May, in line with expectations. The Bank of Canada’s preferred core inflation metrics ticked down to 3% from 3.1% in April, still clinging to the upper edge of the 1–3 percent target range. Core inflation has now hovered at or above 3 percent in seven of the past eight months, underscoring persistent underlying pressure. As a result, market pricing for a July rate cut by the Bank of Canada has risen from 25% to 40% this week.
GBP/USD highest since 2021
Steve Dooley – Head of Market Insights
The British pound was stronger as the USD declined and global sharemarkets rallied with the GBP/USD reaching the highest level since October 2021.
The GBP has been caught between two opposing factors but for now the more positive case is wining.
Most recently, the speculation around the likely new Federal Reserve chair has caused the US dollar to weaken as markets figured any new appointee would be more willing to cut interest rates. Yesterday, the USD declined on reports that US President Donald Trump may name a successor to Fed chair Jerome Powell as early as this summer, according to the Wall Street Journal.
On the other hand, Bank of England Governor Andrew Bailey sounded more inclined to cut local interest rates during Thursday’s British Chambers of Commerce Global Annual Conference.
Bailey said there is now stronger evidence of “slack” in the UK economy and noted that data suggests a significant decline in wage growth is coming.
Financial markets have become more convinced the BoE will cut rates, with the probability of a 7 August rate cut rising from 72% to 84% over the past two weeks (source: Bloomberg).
Internal division
Kevin Ford – FX & Macro Strategist
Banco de México reduced the overnight interest rate by 50 basis points to 8.0%, as expected. The decision was split, four members voted to cut, while Jonathan Heath dissented, preferring to keep the rate at 8.50%. The June press release reflects worsening inflation dynamics and rising internal disagreement, despite modest improvement in economic activity. It signals a more data-dependent and possibly less aggressive easing path ahead. Despite the split decision, the peso remained largely unresponsive to the announcement, as markets had already priced in the rate cut.
Looking ahead to the second half of the year, expectations point toward a more gradual and data-dependent monetary policy path. Year-to-date the Peso has gained 10% versus the USD and is trading near its 10-month high. Despite today’s 50bp rate cut by Banxico, narrowing the Mexico–U.S. rate spread below 400bp, the peso is expected to remain steady. This resilience reflects Mexico’s strong macro resilience and limited foreign exposure to local bond markets, which helps insulate it from sudden shifts in global sentiment.
Euro and Pound shine on fresh 2025 highs
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: June 23-27
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
