Conflicting news from the Middle East initially elevated oil prices and dampened risk-taking appetites; however, US-Iran negotiations persist, with both parties indicating progress. Oil prices have retreated. The dollar is predominantly stronger, yet it has maintained its position above last week’s lows relative to the euro and sterling. The yen halted a five-day decline ahead of the weekend but is weaker today, while the greenback approaches the recent high (~JPY161.80). The Canadian dollar is continuing its decline for the eighth consecutive session. With a sparse economic calendar today, political developments are taking center stage. The UK has witnessed the resignation of its sixth prime minister since the Brexit referendum a decade prior, and this individual will now manage the process of selecting their successor. Sterling experienced initial selling pressure but has since rebounded to approach session highs as the European morning progresses. US-China tensions have escalated significantly. In apparent retaliation to the recent US decision to include several of China’s largest firms on a list of entities that support the military, Beijing has imposed sanctions on two American rare earth companies. It may be primarily symbolic, as the two companies have largely reported a cessation of inputs from China.

The euro initially declined to its lowest level since mid-March, approximately $1.1420, ahead of the weekend. However, it later rebounded to reach new session highs late in the holiday-thinned North American session, nearing $1.1480. That is approximately the low observed in the initial response to the hawkish hold by the FOMC on June 17. It retraced to nearly $1.1440 in Europe before stabilising. A band of resistance is observed between 1.1480 and 1.1520. The dollar consolidated approximately half a yen above JPY161 as the weekend approached. The evident shortcomings of the April-May intervention, coupled with the noticeable reticence of US authorities, could be fostering a sense of confidence within the market. The dollar maintained a position above approximately JPY161.20 today and is currently probing the JPY161.80 region in Europe. The peak observed in July 2024 approached JPY162, marking the highest level since 1986.

Sterling approached the year’s low, which was recorded at the end of March near $1.3160, just a few hundredths of a cent away, as the weekend approached. However, it rebounded to new session highs near $1.3240 in the final hours of the week’s trading. It settled firmly, yet remained below the low observed in the initial reaction to the FOMC meeting (~$1.3260). It tested 1.3180 in early European turnover, seemingly initially weighed by the political uncertainty that was alleviated when Prime Minister Starmer indicated he would resign and open a formal contest for his replacement on July 9, with the process expected to be completed by September 1, coinciding with the end of Parliament’s summer break. Sterling has rebounded to reach a new session high close to $1.3250. A move above $1.3280-$1.3315 would enhance the technical outlook.

The Canadian dollar is continuing its decline for the eighth consecutive session today. It stands at its lowest point since April 2025. In the 16 sessions this month, including today, the Canadian dollar has experienced a decline in 13 of those instances. Last week’s US dollar closed above the H2 25 high (~CAD1.4140), which contributes to the favourable technical tone. The greenback reached almost CAD1.4195 today. As one might anticipate, the momentum indicators are extended. The upper Bollinger Band is positioned close to CAD1.4180 today. We remain vigilant for a potential reversal pattern. The Australian dollar rebounded from a six-day low near $0.6990 and concluded last Friday with minimal change, slightly above $0.7010. It stalled near $0.7025 today and is straddling the $0.7000 area late in the European morning. A break of $0.6980, the month’s low, could signal the next leg lower. Options for nearly A$1 billion at $0.7010 are set to expire today.