Forex

• Next week's economic outlook focuses on the headline Consumer Price Index (CPI) reading, which is expected to cool due to a decline in energy prices. • Retail sales are also projected to soften, a trend driven in part by lower gasoline costs. • While consumer spending has shown resilience recently, analysts warn that weakening fundamentals could create economic headwinds in the coming months.

• Oil prices dominated market attention today due to a lack of other significant economic drivers. • The focus remains on the collapse of a ceasefire, raising concerns that the US and Iran are far from a permanent agreement. • A primary point of contention is the need to ensure safe and unhindered maritime passage through the strategically vital Strait of Hormuz.

• Wall Street rebounded after a long weekend, with the Nasdaq rising over 1% and the Dow Jones closing at another record high despite initial volatility. • Treasury yields experienced choppy trading, with net daily changes ranging from -3.1 bps for 3-year notes to 0.1 bps for 30-year bonds. • Japan's Ministry of Health, Labour and Welfare reported May labor cash earnings rose 3.2% year-over-year, falling from April's 3.6% and missing market expectations.

• US investors returned to trading following the Independence Day long weekend, though their return provided little new momentum to overall market dynamics. • European and UK yields remained stable, fluctuating by less than 1.5 basis points due to a lack of significant EMU economic data. • 10-year spreads versus swaps for Italy (72 bps), France (73 bps), Belgium (51 bps), and Spain (43 bps) have shifted from levels seen prior to the US-Iran conflict.

• US markets were closed on Friday, July 4th, in observance of the Independence Day holiday. • During the European session, stocks rose by 0.8% and yields increased by 2–3.8 basis points, while the US dollar remained mostly flat. • The USD/JPY pair stood out as an exception, with initial gains for the yen evaporating as the trading day progressed.

• The Federal Open Market Committee (FOMC) is scheduled to release the minutes from its June meeting next week. • Investors are looking for clues regarding what specific economic triggers could push a divided Committee toward further monetary tightening. • Analysts expect the Fed to keep interest rates on hold, suggesting that recent inflation spikes are caused by fading supply-side factors rather than overheating demand.

• A high-profile panel debate at the ECB Sintra forum featuring Fed Chair Warsh, ECB President Lagarde, BoE Governor Bailey, and Bank of Canada Governor Macklem failed to provide new insights into short-term monetary policy. • In contrast, the Bank of Korea is expected to raise its current 2.5% policy rate multiple times in the coming months due to persistent inflation above the 2% target. • South Korea's economy continues to benefit from the AI and semiconductor boom, though the Korean won remains historically weak, trading around USD/KRW 1554.75.