- Geopolitical tensions eased, restoring the bearish bias on the dollar after a brief rebound. With the greenback still seen as a safe haven (inversely tracking the S&P), the combination of risk-on sentiment and entrenched dollar negativity pushed it lower, underperforming against most G10 currencies.
- Fed Chair Powell struck a familiar note in his congressional testimony—cautious and data-dependent—but hinted at more flexibility if inflation remains subdued. His remarks echoed dovish signals from Governors Bowman, Waller, and Goolsbee, who downplayed tariff-driven inflationary risks.
- Speculation mounted over the Fed’s future leadership, as reports surfaced that President Trump is considering naming Powell’s successor well before his term ends. Meanwhile, a slate of economic data favored dovish positioning, with markets now pricing in up to three rate cuts by year-end—further pressuring the dollar.
- The euro surged past $1.17, a level last seen in 2021, and is now eyeing the $1.20 handle. While domestic momentum remains limited, the move is primarily a dollar story. However, narrowing rate differentials – driven by a more dovish Fed and hawkish ECB – are realigning valuations closer to fair value, supporting further euro strength.
- Tariff and deficit risks are back in focus, with two critical deadlines approaching: July 4th, when Trump aims to pass a sweeping tax bill, and July 9th, when punitive tariffs could return if no agreement is reached. Both will shape sentiment in the weeks ahead.
Global Macro
Geopolitical fears short lived
Escalation: The week started with a geopolitical panic but the nerves were quickly resolved and US shares ended the week near record highs. The US dollar strengthened early Monday as markets moved into safe haven assets after the US announced strikes on Iranian nuclear facilities over the weekend. The initial reaction was relatively moderate, however, with the dollar up about 0.5%. The US confirmed it used a mix of submarine-launched Tomahawk missiles and bunker-busting bombs dropped from B-2 stealth bombers late Saturday US time.
De-escalation: However, markets bounced back by Tuesday with US equities gaining more than 1.0% after Iran’s retaliatory strikes on US assets were seen as largely symbolic. Iran reportedly gave advance notice to the US ahead of 19 missile launches targeting the Al Udeid Air Base in Qatar. All but one of the missiles were intercepted, with the other causing no damage. The measured response was viewed as a step toward de-escalation. Oil prices tumbled 7.2%, falling back below USD 60 per barrel.
Who’s on next at the Fed? A split became apparent at the US Federal Reserve as President Trump-aligned Federal Reserve board members Christopher Waller and Michelle Bowman both called for the Fed to cut rates at its next meeting on 30 July. Fed officials might be positioning themselves for succession. US President Donald Trump may name a successor to Fed Chair Jerome Powell as early as this summer, according to the Wall Street Journal, citing people familiar with the matter.
Global Macro
Key data turns mostly positive
PMIs shake off political noise: Away from politics, the macro data was more positive, starting with a sequence of better-than-expected purchasing manager index numbers. The PMI numbers provide the most up-to-date reading of the global economy and the June figures were more upbeat. Notably, manufacturing in the US, UK, Japan and Germany were standouts. Both manufacturing and services in France disappointed, however.
US data holds steady: Other US data was also more positive with May durable goods orders better than expected (up 16.4% versus the 8.6% forecast) and, importantly, an improvement in the weekly unemployment claims that had recently taken a turn for the worse. Next week, markets will be looking to the key monthly US non-farm employment report – due on Thursday rather than Friday due to the Independence Day holiday.
UK to cut? In the UK, 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.
Inflation stays patchy: Inflation results over the week continue to show wide variations across the globe. In Canada, the headline monthly number was reported at 0.6% versus the 0.5% expected while the core annual number was also higher. In Australia, annual headline inflation rose 2.1%, undercutting forecasts of 2.3%. Financial markets now see a 94% chance of a cut at the RBA’s 7 August meeting.
Week ahead
Dovish drift, hawkish hold
ECB on alert. Eurozone Flash CPI will be a crucial input for ECB watchers. A hotter-than-expected flash reading could reinforce the hawkish undertones from the last policy meeting, widening the divergence with the Fed’s recent dovish tilt.
Jobs data takes the stage. The US ADP Employment Report—while often noisy—offers an early glimpse into labor dynamics ahead of the all-important Nonfarm Payrolls. Markets will be laser-focused on wage growth and participation for signals of sooner-than-expected Fed easing.
Sentiment under scrutiny. The ISM Manufacturing PMI will be dissected for signs of industrial momentum, but the real spotlight will fall on the Prices Paid component—a key early gauge of inflation pressures. With tariff-driven price effects looming, any acceleration here could stir rate volatility.
Eurozone momentum builds. Germany’s Flash CPI, expected to come in broadly in line, would build on last week’s stronger-than-expected prints in France and Spain—reinforcing the case for a more hawkish ECB stance.
BoE doves eye GDP revisions. After Bank of England Governor Andrew Bailey signaled a greater openness to rate cuts last week, citing mounting evidence of economic slack, any downward revision to the quarterly GDP figures would further reinforce that view.
FX Views
Dollar’s soft path continues
USD A fresh 3-year low. The dollar index (DXY) slid to a three-year low, mirroring a drop in U.S. yields as the 10-year Treasury fell below 4.3 percent for the first time since early May. A U.S.-brokered ceasefire between Iran and Israel eased volatility, pushed WTI crude below 70 dollars a barrel, and lifted U.S. equities near record highs. While the S&P 500, Dow, and Nasdaq are up 5%, 4%, and 7% this month respectively, the DXY is heading for a fifth straight monthly loss, coincidentally last seen during Trump’s first term. At the same time, macro data is muddying the Fed’s outlook. Q1 GDP was revised down to minus 0.5% on weaker consumption, continuing jobless claims keep rising, and tariff-driven inflation is yet to show up. Fed Chair Powell maintained a wait-and-see stance before Congress, but several officials are signaling a potential rate cut as soon as July. The policy split has reignited dovish momentum and raised questions about internal FOMC tensions. President Trump has suggested he may nominate a new Fed candidate as early as September, well before Powell’s term ends in May. This increasingly fractured backdrop has also added pressure on the U.S. dollar. With month- and quarter-end rebalancing weighing on the greenback, bearish sentiment is likely to persist into the second half. But Q3 could prove pivotal as markets shift focus to the Trumponomics trifecta: tariffs, fiscal stimulus, and the anticipated deregulatory agenda entering the scene.
EUR 1.20 in sight. Support for the greenback, briefly buoyed by geopolitical tensions and its safe-haven appeal, has faded. In its place, persistent headwinds are weighing on the dollar, indirectly boosting the euro, which has climbed nearly 2 percent since tensions began easing earlier this week. The euro posted a new 2025 high at 1.174. Despite entering overbought territory as measured by the the 14-day RSI, bullish momentum persists, with the pair marking a sixth straight session of higher highs and trading at levels last seen in September 2021. The next resistance is the September 2021 peak at 1.1909, with a potential move toward the 1.20 handle. Weekly resistance stands at 1.1744, with support at 1.1655.
GBP GBP gathers steam despite Bailey’s inflation concerns. Bank of England Governor Andrew Bailey acknowledged that recent inflation upticks introduce additional uncertainty into medium-term outlook projections while noting signs of labor market cooling. These comments come as markets reassess BoE policy trajectory amid mixed economic signals. GBP/USD is now on a fresh three year high. Despite Bailey’s cautious tone, cable rally re-accelerated after bouncing off the 50-day EMA as support, advancing into a broad confluence of longer-term resistance at 1.37-1.45. The technical picture remains constructive with key trend support holding in the 50-day EMA of 1.3414 and 200-day EMA of 1.3038. The pound’s resilience reflects underlying economic optimism despite central bank caution. Market participants will scrutinize upcoming GDP figures, current account data, S&P Global manufacturing and services PMIs, plus Nationwide HPI for directional cues.
CHF Swiss strength The Swiss franc’s recent run of gains continued over the last week with the USD/CHF falling to the lowest point since 2015 – levels last seen when the Swiss National Bank shocked the world and abandoned the so-called EUR/CHF “floor”. Again, the SNB is grappling with a stronger CHF after last week cutting interest rates back to zero in an attempt to calm FX inflows. For now, the ongoing weakness in the USD is being seen in CHF gains and the trend in USD/CHF remains lower. On USD/CHF, topside orders to 0.8075 and downside orders to 0.7980. Next week, Swiss CPI is due on Thursday.
CNY CNY steadies as state developers get default shield. Chinese authorities have mandated state-owned developers avoid defaulting on publicly issued debt, with SASAC adding this directive to performance metrics for approximately 20 developers. This move underscores growing urgency to contain credit risks from China’s prolonged property downturn as Beijing seeks to stabilize the sector. USD/CNY continues its sideways consolidation within the 7.15-7.30 range as markets await clearer policy signals from Beijing. Key resistance sits at 21-day EMA of 7.1848 while support holds at 7.1500. A break below this level could target 7.1000. Market participants will closely watch upcoming composite, manufacturing and non-manufacturing PMIs, alongside Caixin manufacturing and services data for clearer economic direction signals.
JPY BoJ hawk sets markets on edge. BoJ board member Naoki Tamura maintained his hawkish stance, suggesting they may need to raise rates “decisively” despite potential US tariffs weighing on Japan’s economy. Tamura emphasized the importance of timely, appropriate rate hikes while noting inflation should stay near 2% until fiscal 2027. He highlighted strengthening wage momentum, services inflation exceeding 2%, and gradually rising rent and public service costs. USD/JPY slumps to near 2-week low. The pair consolidates in a tightening coil pattern beneath key resistance just below 150 following the first-half negative trend. The technical setup favors a second-half break below the critical 138-141 support zone, which has provided a floor for several years. Next key resistance levels are at the 50-day EMA of 145.06 and 200-day EMA of 148.43. Market participants will focus on industrial production, Tankan surveys for big manufacturers and non-manufacturers, plus household spending data.
CAD Clings to monthly gains. 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. 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.
AUD Australia’s May CPI miss; AUD/USD wavers at crossroads. Australia’s May CPI rose 2.1% y/y, below the 2.3% consensus. The trimmed mean CPI eased to 2.4%, down from 2.8% in April, indicating moderating core inflation. Key drivers included food & non-alcoholic beverages up 2.9% y/y versus 3.1% previously, housing up 2.0%, alcohol & tobacco up 5.9% offset by electricity down 5.9% y/y. AUD/USD is near the highest level since November 2024. The pair enters the second half with conflicting technical signals around the 0.6500 handle. A sustained break above 0.655 Fibonacci resistance would shift focus to the 0.6714-0.6727 zone. Conversely, a break below 0.6357 short-term pattern support would finally activate recent sell signals and trigger a broader retracement of the April-June rebound. The bigger picture suggests further weakness should hold above the April low while building a longer-term base. Market participants will monitor upcoming building approvals, retail sales and trade balance data.
MXN Banxico cut rates to 8%. 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.
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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.
