The dollar's recent decline has extended, though its downward momentum has slowed in the European session. As North American traders return, the Australian and Canadian dollars, along with the British pound, are experiencing losses. Meanwhile, the Swedish krona has surged by over 1%, reaching its strongest level against the euro in years, supported by higher-than-expected inflation. Investors are closely watching the European Central Bank meeting, where another quarter-point rate cut to 2.50% is widely expected. European bond yields continue to rise, with benchmark 10-year yields in the eurozone increasing significantly in the past week. Meanwhile, Asian equities mostly advanced, though exceptions like Taiwan and Australia saw declines. European stocks are down 0.6% following a strong rally the previous day, and US index futures have fallen sharply, with the Nasdaq and S&P 500 both dropping over 0.8%. Gold is trading lower, while oil prices have slightly recovered after hitting six-month lows.

Asia Pacific Markets

The Japanese yen has strengthened following a decline in US 10-year Treasury yields, which was triggered by weaker-than-expected private sector job growth data. The dollar initially traded near JPY149.70 but dropped to JPY148.40 before rebounding slightly. Despite recovering bond yields, the dollar struggles to gain traction against the yen, now trading at its lowest levels since last October. Meanwhile, Japan's Ministry of Finance reports that domestic investors have continued purchasing foreign bonds at last year's pace, while foreign investors have significantly increased purchases of Japanese government bonds but reduced equity holdings.

European Markets

The euro has gained significantly this week, driven by increased defense spending in Europe, rising long-term interest rates, and economic concerns in the US. After ending last week below $1.04, the euro climbed to nearly $1.08 yesterday and briefly surpassed $1.0820 today before stabilizing. Investors anticipate the European Central Bank will cut interest rates by another 0.25 percentage points, bringing the rate to 2.50%. Market pricing suggests further cuts later in the year, though ECB President Christine Lagarde is expected to maintain flexibility in her guidance. Updated economic forecasts from the ECB will also be closely monitored.
Meanwhile, the British pound has continued its upward momentum, crossing the 200-day moving average for the first time since November. Sterling reached $1.2925 today but has since retreated slightly. The UK’s construction sector remains weak, with the PMI index dropping to its lowest level since late 2023, reflecting ongoing economic stagnation. Investors are awaiting next week’s GDP data for further insights into the state of the British economy.

American Markets

The US dollar has reversed its recent gains, with the Dollar Index pulling back after a 1.2% advance earlier this week. It has now declined for four consecutive sessions, falling approximately 3.4% from its recent peak. The index also dipped below its 200-day moving average for the first time since last November. Traders are closely watching key economic data releases, including the January trade balance, which is expected to show a wider deficit following a sharp increase in imported goods. The US goods trade deficit surged by 25% to a record $153.3 billion, likely reflecting efforts to front-load imports ahead of tariff increases. Additionally, US labor market data remains a focal point, with the ADP employment report indicating weaker-than-expected private sector job growth. While weekly jobless claims data is being released today, the market is primarily looking ahead to Friday’s employment report for further direction. Meanwhile, the impact of trade developments on GDP remains uncertain, as a rise in wholesale inventories may help offset some of the negative effects of the growing trade deficit.