US Dollar Movement and Economic Updates

The US dollar began the North American trading day in a weaker position but ended with mixed results. It lost value against the euro, British pound, Swiss franc, and Australian dollar, while gaining against the Canadian dollar, Japanese yen, and New Zealand dollar.

Investor sentiment improved in the Middle East, which put pressure on the dollar. Reports indicated that the US and Iran had come to an agreement on a framework for a peace deal, anticipated to be formally signed on Friday. Trump mentioned that this deal would involve reopening the Strait of Hormuz, lifting the US naval blockade of Iran, ensuring Iran does not develop nuclear weapons, and establishing strict enforcement mechanisms. More details are expected to emerge later this week.

As geopolitical tensions ease, market focus is shifting to a busy week for central banks. The Federal Reserve is expected to maintain current interest rates during its announcement on Wednesday, but all eyes will be on Fed Chairman Kevin Warsh’s first meeting for hints about future policy directions.

Before the Fed’s decision, many anticipate that the Bank of Japan will raise interest rates by 25 basis points, from 0.75% to 1.00%. Price trends and economic surveys suggest strong support for this hike due to ongoing inflationary pressures. During the Bank of Japan’s April meeting, the vote was notably split, with some members already advocating for a rate increase. Since then, inflation expectations have risen, raising concerns among policymakers regarding inflation risks.

The market is also looking for guidance regarding bond purchases. There are expectations that the Bank of Japan might indicate plans to reduce its bond purchases starting in fiscal 2027, while still keeping the option for further rate hikes this year. Current estimates suggest that rates could reach around 1.25% by the fourth quarter. Governor Kazuo Ueda is unavailable due to hospitalization, so Vice Governor Shinichi Uchida will lead the post-meeting press conference.

Meanwhile, the Reserve Bank of Australia is expected to keep interest rates stable during its announcement on Tuesday evening US time. Additionally, the Swiss National Bank and the Bank of England are both likely to maintain their current policies when they announce their decisions on Thursday.

Recent economic indicators presented mixed results. The Empire State manufacturing index for June dropped to 5.7 from 19.6 in May and fell short of the expected 14.0. Although still in the expansion zone, this figure suggests a marked slowdown in manufacturing within the New York area. While new orders and employment outlooks remain positive, overall growth momentum appears weakened amid ongoing price pressures.

Industrial production experienced a slight increase of 0.1% in May, which was below the anticipated 0.2%. Manufacturing output remained unchanged following a 0.7% rise in April, suggesting industrial activity is still expanding but at a diminished rate. Gains in mining and AI-related technology production helped counterbalance the lackluster performance in manufacturing, and capacity utilization saw a marginal increase to 76.2%.

Housing data also fell short of expectations. The NAHB Housing Market Index for June decreased to 35 from 37 in May, lower than anticipated. Rising mortgage rates, affordability issues, and increased construction costs are continuing to dampen builder confidence. The sentiment has lingered below the crucial 50 mark for over two years now, prompting many builders to rely more on incentives and discounts to attract potential buyers.

In the stock market, US shares saw a sharp rebound as investors reacted positively to the reduction in tensions in the Middle East. The Nasdaq recorded the most significant gains, increasing by over 3%.

• Dow Jones Industrial Average: 51,676.18, up 469.07 points (+0.92%) — setting a new record close
• S&P 500: 7,554.28, up 122.83 points (+1.65%) — approaching the previous high close of 7,609.77 from June 2nd
• Nasdaq Composite: 26,683.94, up 795.10 points (+3.07%) — still below its all-time high close of 27,093.90

Yields on US Treasuries varied, with short-term yields dipping slightly while long-term yields increased.

• 2 years: 4.070%, down 1.4 basis points
• 5 years: 4.193%, down 1.7 basis points
• 10 years: 4.475%, down 1.0 basis points
• 30 years: 4.976%, up 3.5 basis points

In the commodities sector, crude oil prices dropped sharply, influenced by a decrease in geopolitical risk premiums. WTI crude oil fell to $79.70 before recovering, ending down $3.54, or 4.17%, at $81.34.

Precious metals saw an uptick, benefiting from lower short-term yields alongside steady demand for tangible assets.

• Gold: up $91 (+2.15%) to approximately $4,309
• Silver: up $1.90 (+2.82%) to $69.93