Dollar continues to struggle

Dollar is under pressure once again 

The US dollar is slightly on the backfoot again today, following a rather weak session on Monday in the aftermath of the US credit rating downgrade by Moody’s. On the flip side, risk appetite remains mostly supported, with the S&P 500 index recording a sixth consecutive positive session, fully recovering from yesterday’s initial negative reaction. Interestingly, the rally from the April lows is apparently being driven mostly by retail investors.

Meanwhile, yields are attracting attention for the wrong reasons again. The 10-year US yield is currently at 4.45%, with most investors remaining extremely worried about America’s fiscal situation, especially as the much-advertised tariff revenues are gradually drying up and the tax cuts bill is progressing.

Interestingly, foreign sovereign yields are also rising. Japanese yields continue to react to Japanese Prime Minister Ishiba’s comments about the country’s debt issue, with today’s poor 20-year bond auction adding insult to injury. The 10-year yield edged above 1.5% once again, but, notably, the 30-year yield climbed to 3%, which is the highest level since August 2004. This is a new condition for Japan after almost three decades with zero rates and very low borrowing costs.

Focus firmly on trade and Fedspeak

With the data calendar being rather light again today, the focus remains on trade deals and Fedspeak. Following the US-China trade agreements, there were expectations for a series of trade deals to be announced. This hasn’t happened yet, despite some progress made on talks with both South Korea and India. Interestingly, discussions with Japan and the EU appear to be progressing very slowly.

In the meantime, at least seven Fed members will be on the wires today, with FOMC voters Musalem, Collins and Kugler having the most market-moving potential. The hawks are expected to support the current “wait-and-see” approach, with the doves most likely highlighting the recent soft inflation report and lingering uncertainty from tariffs, despite the recent US-China deal.

PBoC cuts LPR; Trump’s reaction awaited

Notably, with the ECB remaining dovish and expected to announce another rate cut at the June meeting, the PBoC announced a 10bps rate cut to its 1- and 5-years Loan Prime Rates. US President Trump has yet to comment on the latter, but he has expressed his desire for lower Fed rates, repeatedly attacking Fed Chair Powell.

At the very least, there seems to be some progress on the geopolitical front, with the Trump-Putin call tentatively opening the door for another round of Ukrainian-Russian negotiations. Gold is in the red again today, as it continues to hover within a tight range, with the 50-day simple moving average capping the downside.

RBA cuts, keeps door open to more easing

The RBA confirmed expectations by announcing a 25bps rate cut earlier today. Despite the recent US-China trade deal potentially reversing the ongoing economic weakness globally, the RBA remains dovish. Interestingly, staff forecasts point to inflation remaining around the midpoint of the 2–3% range throughout much of the forecast period, thus allowing the RBA to keep the door open to further rate cuts.

Markets are pricing around 60bps of additional easing in 2025, with the next 25bps rate cut fully priced in at the August 12 meeting. The aussie is clearly not enjoying today’s meeting, as it is losing ground across the board, suffering the most against the yen.