USD, stocks find some stability on trade deal hopes

• Dollar benefits from selling exhaustion, though consolidating near lows
• US equity indices mixed in choppy trading as UnitedHealth drags Dow
• ECB shows increased sense of urgency to cut rates further
• Gold edges down from record high as trade wars continue to provide support

FX: USD traded a little higher but printed an inside day denoting consolidation nears the low at 99.01. Markets continued to digest Wednesday’s remarks by Fed Chair Powell who said he expects high inflation and a weaker job markets due to tariffs, but inflation is the key focus. He also noted that the Fed wishes to wait for greater clarity before considering any change to its policy stance, so no apparent lifeline to markets. A hawkish Fed is not aiding US growth concerns and asset underperformance.

EUR had a relatively quiet day as the ECB cut rates as expected. Ongoing trade tensions and increased disinflationary pressures will likely see more policy easing. Downside risks to growth (rather than upside risks to inflation) are offsetting any previous optimism from the German fiscal policy U-turn, for now. The dovish tone by the ECB didn’t hurt the euro too much as it consolidates near the recent high at 1.1473.

GBP outperformed most of its major peers as it closes in on the recent top at 1.3291. A media report that suggested UK PM Starmer is reportedly closing in on a new partnership with the EU that could put a trade deal with the White House at risk, didn’t hurt the pound.

USD/JPY made a fresh seven-month low at 141.60. Bears are targeting 139.57, the bottom from September 2024. But prices did rebound as the 10-year Treasury yield found a bid. Overnight, BoJ Governor Ueda stated that Japan’s real interest rates remain very low and the BoJ is expected to keep raising interest rates if the economy and prices move in line with projections made in the quarterly report.

AUD enjoyed a seventh straight day of buying as looked to push above the y-t-d high at 0.6408. There was a mixed Australian labour market report in which employment change fell short of expectations and the unemployment rate came in below consensus. CAD consolidated near its lows and support around 1.3827/38 after the on hold BoC rate decision. The risk of further policy easing steps is unlikely to recede too far in the coming months. Officials will need more clarity on the tariff regime facing Canada before acting.

US stocks: The S&P 500 added 0.13% to settle at 5,282. The tech-heavy Nasdaq finished up 0.05% at 18,263. The Dow closed 1.33% lower at 39,141. UnitedHealth shares plunged 23% following a weak outlook on expectations of high medical costs for the rest of the year. The stock dragged on the Dow Jones Industrial Average index. Eli Lily surged over 15%after reporting its experimental weight-loss pill matched the performance of Ozempic in trials. Alphabet fell about 1.6% after a federal judge Google illegally dominated two markets for online advertising technology. Nvidia was off over 3% as the $5.5bn charge on its H20 chips to China continued to cause ructions.

Asian stocks: Futures are mixed. APAC stocks shrugged off the negative handover from Wall St. but with gains capped amid ongoing trade uncertainty. The ASX 200 was led higher by strength in energy and mining stocks following recent gains in underlying commodity prices. The Nikkei 225 reclaimed the 34,000 status amid favourable currency moves and with US President Trump suggesting big progress was made in US-Japan trade talks. The Hang Seng and Shanghai Comp conformed to the positive mood but with the gains in the mainland limited by the ongoing US-China trade frictions.

Gold pulled back from another record high ($3,357) as the dollar and yields moved modestly higher.

Chart of the Day – USD/JPY bears in charge

Trade negotiations remain the primary focus for the yen at the moment, and this week’s talks in Washington are said to have been constructive. Negotiators reportedly did not discuss currency and are planning to meet later this month. US Treasury Secretary Bessent is apparently keen to secure agreements on stronger currencies from trading partners. He is leading the talks with Japan and also South Korea. There is some speculation that there could be some kind of FX deal to engineer a weaker USD/JPY. Prices remain in a long-term bear channel with initial modest support at 141.64 and then the long-term bottom at 139.57. Resistance is at 144.33.

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