US
Crude oil prices are holding on to most of this week’s gains as US-Iran hostilities continue to delay the full reopening of the Strait of Hormuz. The US resumed blockading maritime traffic entering and exiting Iranian ports yesterday, but President Donald Trump dropped his demand for a 20% fee on all cargo transiting the waterway.
Equity markets are firmer powered by technology stocks and led by the semiconductor-heavy Kospi index. The sell off in bonds stabilized while USD steadied after sliding yesterday on softer than expected US June inflation.
US headline CPI fell -0.4% m/m (consensus: -0.1%) vs. 0.5% in May on lower gasoline prices, to be up 3.5% y/y (consensus: 3.8%) vs. 4.2% in May. More encouragingly, CPI measures which filter out extreme price swings, like core, trimmed mean, median, sticky, and super core all eased in June. As a result, odds of a 25bps Fed funds rate hike on July 29 were slashed from 43% to just 14%.
We see limited follow-through to the dollar’s post-CPI decline for three reasons. First, a stabilizing US labor market combined with a less worrisome inflation backdrop reinforces the US economic outperformance narrative and should underpin USD.
Second, Fed Chair Kevin Warsh’s unwavering commitment to the Fed’s 2% inflation target is also consistent with a higher for longer policy stance and supports USD. Warsh vowed yesterday to “double down” on the Fed’s 2% inflation target, adding that the softer June CPI data doesn’t make him think it’s “mission accomplished” or “everything is swell.”
Third, underlying demand for USD remains strong. The US Treasury International Capital (TIC) data showed net foreign purchases of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds) increased by $263bn in May (the most since November 2025) vs. $207bn in April. And, in the twelve months to May, foreign investors accumulated nearly $1772bn of long-term US securities, eclipsing the -$728bn accumulated US trade deficit over the same period..
Today, the US June PPI print (1:30pm London, 8:30am New York) will help firm up estimates for the policy-relevant June PCE data which is due July 30. The Fed Beige Book (7:00pm London, 2:00pm New York) will offer fresh anecdotal insights on US economic activity. Warsh testifies before the Senate Banking Committee, New York Fed President John Williams delivers keynote remarks, and Fed Governor Lisa Cook speaks on the economic outlook.
CANADA
USD/CAD is consolidating yesterday’s losses triggered by the benign US June CPI inflation report. The Bank of Canada (BOC) is widely expected to keep the policy rate on hold at 2.25% for a sixth consecutive meeting (2:45pm London, 9:45am New York). The BOC will also publish its July Monetary Policy Report. We expect the BOC to signal that it’s in no rush to start raising rates.
Leading indicators point to a soft labor market, most firms still report ample spare capacity, and underlying inflation is contained around the bank’s 2% target. Bottom line: there is room for BOC rate hikes bets (50bps in the next twelve months) to adjust lower against CAD.
CHINA
USD/CNH is nearing support at its June multi-year low of 6.7539. China’s economic growth slowdown was broadly in line with expectations. Real GDP matched consensus at 0.9% q/q vs. 1.3% in Q1 and in the first half year, real GDP printed at 4.7% y/y (consensus: 4.8%) vs. 5.0% in Q1, tracking the government’s 4.5% to 5.0% growth target for 2026.
China’s growth target is used as a policy tool to guide economic/social planning rather than a reflection of underlying supply and demand dynamic. That means the quality and sources of China’s growth is more relevant for investors.
From that perspective, China’s long-term economic health remains weak because consumer spending is struggling to gain traction and non-residential fixed asset investment is an ongoing drag. In the first half of the year, retail sales growth slowed to 1.3% y/y (consensus: 1.2%) vs. 1.4% in May, and fixed asset investment growth excluding real estate development fell -2.7% y/y vs. -1.2% in May.
Regardless, USD/CNH downtrend is intact in our view reflecting both CNH internationalization potential and China’s internal rebalancing story.
NORWAY
NOK underperformed across the board. Norway underlying inflation cooled sharply in June, weighing on Norges Bank rate expectations. Underlying CPI unexpectedly dropped to an 18-month low at 2.7% y/y vs. 3.4% in May. That was below the 3.3% y/y projection by both the Norges Bank and consensus.
Nevertheless, we doubt one month of softer inflation will be enough to curb the Norges Bank’s hawkish bias. Inflation has run above target for several years, arguing for tighter monetary policy.
At its last June 17 meeting, the Norges Bank left the policy rate unchanged at 4.25% and flagged a hike “at one of the forthcoming monetary policy meeting.” The next policy decision is on August 13, and markets price in 42% odds of a 25bps hike and rates to peak at 4.50% by year-end.
One more rate increase and done seems appropriate in our view, which is a headwind for NOK. The policy rate is already above the Norges Bank’s neutral rate estimate (between 2.25% and 3.75%) and Norway’s output gap is slightly below zero.
