Equities mixed as investors eye earnings; yen on intervention watch

NEW YORK/LONDON – US and European shares finished mixed on Wednesday ahead of more corporate earnings this week, and the yen was mired near 34-year lows, keeping traders wary of intervention from Japan.

An auction of a record USD 70 billion worth of five-year US Treasury notes on Wednesday helped to push bond yields higher, pressuring equities.

MSCI’s gauge of stocks across the globe rose 1.31 points, or 0.17%, to 759.46.

On Wall Street, the S&P 500 closed slightly higher after choppy trading.

Europe’s broad STOXX 600 index closed down 0.5% as financial stocks dragged the index off a more than one-week peak.

The S&P 500 gained 1.08 points, or 0.02%, to 5,071.63 and the Nasdaq Composite gained 16.11 points, or 0.10%, to 15,712.75. The Dow Jones Industrial Average fell 42.77 points, or 0.11%, to 38,460.92.

“This week is getting back to market fundamentals and earnings. At least temporarily, we are sidestepping geopolitics which have been impacting markets in the last two weeks,” said Samy Chaar, chief economist at Lombard Odier.

Spot gold continued its slide, trading down 0.26% to USD 2,315.82 an ounce. US gold futures GCcv1 settled 0.2% lower at USD 2,338.4.

DATA DIVERGENCE

Purchasing Managers Index surveys on Tuesday showed overall business activity in the eurozone and in Britain expanded at their fastest pace in nearly a year, while business activity cooled in the US

That divergence helped the euro nudge above USD 1.07 in Asia trade, its highest in more than a week.

“For once, US-eurozone divergence in data has come to the benefit of euro/dollar,” said Francesco Pesole, currency strategist at ING, in a note.

“(Though) hard data – inflation and employment above all – has been the real drag on the pair so far, so caution is warranted when it comes to rallies prompted by activity surveys like PMIs.”

US gross domestic product and March personal consumption expenditure data due later this week will be crucial for the dollar and for investors’ attempts to gauge the path of US rates.

Traders expect the Federal Reserve to start easing rates in September and end the year with 42 basis points of cuts, down from previous bets for 150 bps.

“One thing is for sure: the Fed is not raising rates. I believe they want to tighten financial conditions by communicating a further distance is required for cuts, but they can do those cuts at whatever speed is necessary,” said Jamie Cox, managing partner for Harris Financial Group in Richmond, Virginia.

INTERVENTION ZONE

The drastic shift in rate expectations has elevated Treasury yields and lifted the dollar in the past few weeks, with pressure felt particularly in Asia.

In the latest illustration, Indonesia’s central bank delivered a surprise rate hike on Wednesday, stepping up efforts to support the rupiah currency.

The Japanese yen weakened 0.09% against the greenback at 154.95 per dollar and touched its lowest since 1990 ahead of the Bank of Japan’s two-day policy meeting that concludes on Friday.

A senior official of Japan’s ruling party told Reuters they were not yet in active discussion on what yen levels would be deemed worthy of market intervention.

The benchmark 10-year Treasury note rose five basis points to 4.6459%.

In commodities, Brent crude futures fell 40 cents, or 0.45%, to settle at USD 88.02 a barrel, while US West Texas Intermediate crude futures slipped 55 cents, or 0.66%, to USD 82.81.

(Reporting by Ankur Banerjee and Alun John; Editing by Muralikumar Anantharaman, Kim Coghill, Alex Richardson, Christina Fincher, David Gregorio, Richard Chang, and Sonali Paul)

Yields rise before data, five-year auction sees solid demand

US government bond yields gained on Wednesday as traders waited on key economic releases on Thursday and Friday for further clues on Federal Reserve policy, while the US Treasury saw solid demand for an auction of five-year notes.

The main economic focus this week will be first-quarter gross domestic product data on Thursday and personal consumption expenditures (PCE) for March on Friday. They come after a hotter-than-expected consumer price inflation report for March pushed back expectations of when the Fed will begin cutting interest rates.

Markets are “looking to see how robust growth really was in the first quarter given the really strong growth data we’ve seen and resilient, or re-accelerating, inflation prints as well,” said Angelo Manolatos, macro strategist at Wells Fargo in New York.

Meanwhile “next week is the big week,” for markets, Manolatos added. Events include the Treasury Department’s refunding announcement for the coming quarter, the Fed’s April 30-May 1 meeting and the April employment report.

Traders are watching economic indicators for more insight into when inflation will recede closer to the US central bank’s 2% annual target. Many economists have also anticipated a slowing economy, though recent economic data has been unexpectedly strong.

Fed policymakers, including Chair Jerome Powell, last week backed away from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer.

The Treasury saw good demand for a record USD 70 billion auction of five-year notes on Wednesday. The debt sold at a high yield of 4.659%, around half a basis point above where it had traded before the sale. Demand was 2.39 times the amount of notes on offer, slightly below the bid-to-cover ratio of 2.41 times for the last two auctions.

The government drew strong demand for a USD 69 billion auction of two-year notes on Tuesday and will also sell USD 44 billion in seven-year notes on Thursday.

Benchmark 10-year Treasury note yields rose five basis points to 4.646%, holding below the 4.696% level reached on April 16 which if broken would mark the highest since early November. Two-year yields gained three basis points to 4.933%. They reached 5.012% on April 11, the highest since mid-November.

The inversion in the yield curve between two- and 10-year notes narrowed two basis points to minus 29 basis points.

Fed funds futures traders are pricing in 43 basis points of easing this year and see the first cut as most likely in September. They had previously priced in three 25-basis-point rate cuts this year, beginning in June.

(Reporting By Karen Brettell; Editing by Kirsten Donovan and Marguerita Choy)

Oil settles lower as US business activity cools, concerns over Middle East ease

NEW YORK – Oil prices fell on Wednesday as worries over conflict in the Middle East eased and business activity in the United States slowed, although a fall in US crude oil inventories put a floor on those losses.

Brent crude futures fell 40 cents, or 0.45%, to settle at USD 88.02 a barrel, while US West Texas Intermediate crude futures slipped 55 cents, or 0.66%, to USD 82.81.

That reversed some of Brent’s gains earlier in the week, buoyed by a weaker US dollar.

“It appears the fundamentals that we trade with are leaning towards a little settling down in the Middle East,” said Tim Snyder, economist at Matador Economics.

Perceived de-escalation between Iran and Israel could remove another USD 5-10 a barrel in coming months, Goldman Sachs analysts said in a note. These analysts estimated a USD 90 per barrel ceiling on Brent.

US crude stockpiles fell by 6.4 million barrels to 453.6 million barrels in the week ended April 19, the EIA said, compared with analysts’ expectations in a Reuters poll for a 825,000-barrel rise.

The large crude draw was the result of very high crude exports, said UBS analyst Giovanni Staunovo. But it could be a one-off, he said, as preliminary tanker tracking data this week shows lower exports.

US business activity cooled in April to a four-month low, with S&P Global saying on Tuesday that its flash Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 50.9 this month from 52.1 in March.

The US central bank is expected to start lowering rates this year, which could bolster economic growth and, in turn, stimulate demand for oil.

Elsewhere, Germany’s business morale improved more than expected in April, according to a survey on Wednesday, boosting hopes that the worst may be over for Europe’s biggest economy.

Even as concerns about geopolitical tension in the Middle East eased, the Israel-Hamas conflict continues to rage with some of the heaviest shelling in weeks on Tuesday. Sources on Wednesday said Israel was preparing to evacuate Rafah ahead of a promised assault on the city.

(Reporting by Nicole Jao in New York, Robert Harvey in London, Deep Vakil in Bengaluru, Katya Golubkova in Tokyo and Trixie Yap in Singapore; Editing by Kirsten Donovan, Alexandra Hudson, Andrea Ricci, Emelia Sithole-Matarise, and Peter Graff)

Japan’s FX no-show, Meta plunges

The depreciation of Asian currencies against the US dollar, and the steps monetary authorities may take to prevent further weakness, dominate the market landscape across Asia on Thursday as the Bank of Japan gets its two-day policy meeting underway.

The regional economic data highlights include South Korea’s first quarter GDP, Malaysian consumer price inflation for March, and the latest trade figures from Vietnam and Hong Kong.

After-the-bell earnings from US tech giant Meta on Wednesday could weigh on Asian markets – shares plunged 10% in after-hours trade.

Sentiment is fragile: some stock markets have recovered around half of their recent losses but Meta’s slump throws a cloud over that, while US bond yields spiked following a weak auction of five-year notes.

Unease around currencies is deepening after the dollar on Wednesday smashed through 155.00 yen with no sign of Japanese authorities to slow or reverse the yen’s fall. Will Tokyo act?

An executive from Japan’s ruling LDP told Reuters the party is not yet in active discussion on what yen levels would be deemed worth intervening in the market, but a continued slide towards 160 or 170 to the dollar could trigger action.

It’s hard to imagine the Ministry of Finance letting the dollar go to 160 never mind 170 yen before intervening. Then again, few would have imagined there would be no intervention at 155 yen either.

Will MOF instruct the BOJ to wade into the FX market and buy yen just as the central bank starts its two-day policy meeting?

In the current climate, which prompted a rare three-way joint statement on exchange rates from the United States, Japan and South Korea this month, nothing can be ruled out.

In the realms of surprises, Indonesia’s rate hike to counter the weakness of the rupiah would have caught many market participants off guard. The currency’s subsequent 0.4% bounce was modest, but was the biggest in seven weeks and enough to pull it further from last week’s four-year low.

There will be more than a few grumbles across Asia at Tokyo’s reluctance to anchor the yen, which is giving a huge competitive boost to Japan – the yen is at a 31-year low against China’s yuan and close to multi-year lows against the currencies of South Korea, Thailand, Vietnam and others.

India’s central bank has intervened regularly recently to support the rupee and Bank of Thailand officials said on Wednesday the BOT intervened to ease excessive moves in the baht.

US-Sino relations took another twist after the US Senate voted in favor of legislation that would ban TikTok in the United States if its Chinese owner ByteDance fails to divest the popular short video app over the next nine months to a year.

Here are key developments that could provide more direction to markets on Thursday:

– Bank of Japan begins policy meeting

– South Korea GDP (Q1)

– Malaysia inflation (March)

(Reporting and writing by Jamie McGeever)

China turns the heat up on cross-border investments in local govt debt, sources say

HONG KONG, April 23 – Chinese regulators are inspecting the use of a cross-border mechanism to invest in debt-laden local governments’ offshore bonds, two sources said, indicating a ramping up of efforts to contain financial risks in a loosely regulated part of the market.

The move comes after offshore debt issuances by the local governments, who already owe more than USD 9 trillion, surged in recent months and touched the highest monthly volume in more than a year in January.

The rush of new offshore bond offerings by the indebted local governments comes at a time when regulations for onshore issuances have been tightened and many of them are struggling to meet existing liabilities, with a slowing economy and a property sector crisis weighing on their financial health.

The China Securities Regulatory Commission (CSRC) last month queried asset managers holding Qualified Domestic Limited Partnership (QDLP) licenses on their exposure to offshore debt of local government financing vehicles (LGFVs), which borrow on behalf of the governments, said the two sources.

First launched in 2012, the loosely regulated and quota-based QDLP channel allows foreign and domestic fund managers to raise money from Chinese high-net-worth individuals and institutions, which is then invested in offshore products.

The increased scrutiny of QDLP stems from a suspicion that the mechanism’s use for local government offshore debt investing undercuts Beijing’s efforts to resolve provincial debt risks, with investors being lured by the weak domestic market returns and higher yield offered by the offshore bonds.

It was not clear if other cross-border investment mechanisms too face similar checks.

Apart from the query, a team of officials from the CSRC and the State Administration of Foreign Exchange (SAFE) held a closed-door meeting with QDLP fund managers in China’s southern Hainan province late last month, the sources said.

Around 10 domestic and foreign asset managers, who have QDLP licenses, attended the meeting. Local governments in China have the authority to grant QDLP licenses, and Hainan has been one of the most active issuers of such approvals.

At the meeting, which has not been reported previously and was held to review the practices of the QDLP business over the past decade, the regulators asked the managers how the cross-border investment quotas were used, said the sources, who declined to be named due to the sensitivity of the matter.

It was not immediately clear if and when the regulators would take any action against the managers.

CSRC and SAFE did not reply to Reuters requests for comment on Tuesday.

‘TOUGHER MEASURES’

Currently, the process of obtaining QDLP licenses and raising QDLP funds is handled by around 10 local governments, rather than the central government regulator, making it one of the most flexible cross-border investment channels.

Some Chinese investors in the recent past have been offering high fees – in one case as high as 5% of the investment sum – to QDLP license holders to get access to LGFV offshore bond quotas, one of the two sources and a third source said.

LGFVs are used to borrow on behalf of Chinese provinces and cities to finance mainly infrastructure projects. In recent times, a chunk of their borrowings have gone towards refinancing debt.

The total local governments’ dollar bonds issuance hit USD 2.2 billion in January, the highest monthly volume since Nov. 2022, according to data provider Dealing Matrix.

Roughly 40% of the 28 such bonds issued in January offered more than 7%, compared with average returns of 3% on their onshore debt, its data show.

“With issuance by Chinese property developers shrinking over the past few years, LGFVs contributed a bigger portion – around half of the corporate bond issuance in 2023,” said Jessie Tung, senior credit officer at Moody’s, who expected LGFVs to remain a major bond issuance sector in future.

But the more than USD 9 trillion worth of local government debt poses a major risk to the Chinese economy and the country’s financial stability, economists say, amid a deepening property crisis and years of over-investment in infrastructure.

Beijing has rolled out several measures over the last few months to reduce local government debt risks, including instructing some of the heavily indebted municipalities to delay or halt some state-funded infrastructure projects.

Earlier this year, regulators told LGFVs to stop issuing offshore bonds with a 364-day duration.

Although the offshore market only makes up a small fraction, under 5% of total LGFV debt, Moody’s Tung expected “regulators to tighten criteria for LGFVs’ bond issuance offshore”.

LGFVs face a maturity wall of USD 35 billion this year, compared to USD 24 billion in 2023 and USD 33 billion in 2022, according Moody’s data.

Even as Beijing is tightening issuance of new LGFV offshore bonds, the existing debt in the market will trigger “a distressed situation and a mess,” said a QDLP license holder, who did not want to be identified as the matter was sensitive.

(Reporting by Xie Yu; Additional reporting by Selena Li, Samuel Shen, Clare Jim, and Li Gu; Editing by Sumeet Chatterjee and Muralikumar Anantharaman)

Risk asset resilience, Indonesia’s rate call

April 24 – Investors continue to breathe life back into risky assets, paving the way for a positive market open in Asia on Wednesday as attention in the region turns to the latest interest rate decision and guidance from Indonesia.

Trade figures from Thailand and New Zealand, service sector producer inflation data from Japan, and consumer price inflation from Australia are the other main highlights from a packed calendar on Wednesday.

Yen-buying intervention from Japanese authorities still hasn’t materialized, and with the Bank of Japan opening its two-day policy meeting on Thursday, it may be that Tokyo stays out of the currency market at least until next week.

That is by no means certain, and the closer the dollar gets to 155.00 yen, the more vigilant traders will be.

China’s yuan, meanwhile, continues to weaken too. It slid to a new five-month low against the dollar in spot trading on Tuesday and the central bank set its official guidance rate at a seven-week low also.

Indonesia’s central bank is expected to leave its seven-day repo rate on hold at 6.00%, with an outside chance of a quarter-point hike, according to a Reuters poll. The bank’s first rate cut has been pushed out to the third quarter and the rupiah’s slide has also reduced the amount of easing expected this year.

The general tone across Asian markets on Wednesday should be positive, at least initially, after the S&P 500 and MSCI World index on Tuesday put in their best performances in two months, Britain’s FTSE 100 hit a record high, and the MSCI Asia ex-Japan index registered its biggest rise in a month.

Strong demand for a USD 69 billion sale of two-year US Treasuries on Tuesday, lower bond yields across the curve, and a weaker dollar all helped fuel the positive sentiment, a confluence of events that loosens financial conditions.

The US earnings season delivered encouraging news as well, with Spotify and General Motors among those reporting strong results. Tesla’s revenue fell and earnings fell short of forecasts, but shares jumped in after-hours trade after the firm said it had pulled forward the launch of new models.

Could it be that the recent equity market wobble that saw major indices pull back 5% and some of the world’s biggest single stocks like Nvidia tumble 10%, is now over? Perhaps, although there are good reasons to be cautious.

Meanwhile, Sino-US tensions may be bubbling up again ahead of US Secretary of State Antony Blinken’s visit to China later this week. According to a US official, the US has preliminarily discussed sanctions on some Chinese banks as a way to curb Beijing’s support for Russia.

Here are key developments that could provide more direction to markets on Wednesday:

– Indonesia interest rate decision

– Australia consumer inflation (March, Q1)

– Japan services producer price inflation (March)

(Reporting and Writing by Jamie McGeever; Editing by Bill Berkrot)

Yields dip as business activity cools

April 23 – US Treasury yields dipped on Tuesday after data showed that US business activity cooled in April to a four-month low, though trading remained range-bound before gross domestic product and inflation data later this week.

Business activity cooled due to weaker demand, while rates of inflation eased slightly even as input prices rose sharply, suggesting some possible relief ahead as the Federal Reserve looks for signs that the economy is ebbing enough to curb price pressures.

Inflation readings in Thursday’s GDP and Friday’s Personal consumption expenditures (PCE) reports will be evaluated on whether the market reaction to sticky consumer price pressures in March was justified.

“People will be focused on the specific trajectory of inflation,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

The PCE data is expected to show that core prices rose by 0.3% in March for an annual gain of 2.7%.

If the data comes in as anticipated, bonds could rally as a result, said Hartman.

“There’s greater potential for it to be traded as the passage of an event risk, and as long as it comes in at consensus or lower it will be more likely a relief rally,” he said. “If it comes in at 0.3%, that will imply much less inflationary angst than core CPI did in the month of March, so that might even suggest that the initial reaction to core CPI was overdone.”

Yields rose to five-month highs after hotter-than-expected consumer price pressures for March released earlier this month dashed hopes that elevated prices in January and February were an anomaly.

Benchmark 10-year note yields were last down 3 basis points on the day at 4.596%. They are holding below the 4.696% level reached on April 16 which, if broken, would be the highest since early November. Two-year yields fell 5 basis points to 4.925%. They reached 5.012% on April 11, the highest since mid-November.

The inversion in the yield curve between two-year and 10-year notes narrowed by 3 basis points to minus 33 basis points.

The Treasury saw strong demand for a USD 69 billion auction of two-year notes on Tuesday, the first sale of USD 183 billion in short and intermediate-dated supply this week.

The notes sold at a high yield of 4.898%, almost a basis point below where they had traded before the sale. The bid-to-cover ratio was 2.66 times, the highest since December.

The Treasury will also sell USD 70 billion in five-year notes on Wednesday and USD 44 billion in seven-year notes on Thursday.

(Reporting By Karen Brettell; editing by Christina Fincher and Marguerita Choy)

Global equity market-neutral hedge funds shine

April 23 – Global equity market-neutral hedge funds have lured investors as they can deliver better returns in times of global rates uncertainty and geopolitical tension than traditional stock markets.

WHY IS IT IMPORTANT

Equity market-neutral hedge funds (EMN) execute strategies that capitalize on discrepancies in stock valuations by purchasing undervalued securities and selling overvalued ones, making them less exposed to fluctuations in broader market indices.

Analysts say volatile market conditions are likely to result in the mispricing of stocks that these funds are well-equipped to exploit.

They also say these funds could offer a hedge against market instability in the face of significant events, including the US Presidential elections, global interest rate policy shifts, and concerns about an economic downturn.

WHAT THE NUMBERS SAY

According to HFR data, global equity market-neutral hedge funds achieved a 4.1% gain in the first quarter of this year, marking the highest quarterly increase in nearly 24 years.

The data also showed the funds attracted an inflow of USD 942.8 million in the first quarter of this year, compared with an outflow of USD 95.9 million in the previous quarter.

QUOTES

“With a strong start to the year, I expect equity market-neutral (EMN) hedge funds to continue their success through Q2 and Q3 of this year, especially compared to the market as a whole,” said Jeff McClean, chief executive officer at Solidarity Wealth.

“EMN funds provide diversification to investors with a low correlation to the overall market. For institutional investors, this can be incredibly important as they need to provide return and/or income to their retirees or pension holders in good and bad markets, ” he said.

(Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Barbara Lewis)

Gold holds steady as focus turns to US economic data

April 23 – Gold prices steadied on Tuesday after hitting a more than two-week low on diminishing fears about an escalation of tensions in the Middle East, with investors awaiting key economic data for further clarity on the timeline on US interest rate cuts.

Spot gold was little changed at USD 2,325.80 per ounce by 1:40 p.m. ET (1740 GMT) after earlier hitting its lowest since April 5. Bullion’s March to April rally drove it up by nearly USD 400 to an all-time high of USD 2,431.29 on April 12.

US gold futures settled 0.2% lower at USD 2,342.10.

Israeli strikes intensified across Gaza in some of the heaviest shelling in weeks, but with fears of a wider conflict receding after Iran said last week it had no plan to retaliate following an apparent Israeli drone attack, financial markets showed signs of sharper appetite for risk.

That has meant gold, traditionally seen as a haven from risk, has lost ground, said Julia Khandoshko, CEO at European broker Mind Money.

The market is also closely monitoring signals from the US, where inflation data and statements from the Federal Reserve indicate that interest rates may not be cut in June, Khandoshko said.

Recent remarks from Fed officials hinted at no urgency to cut rates, reducing the appeal of non-interest paying bullion. Traders now expect the first Fed rate cut to come most likely in September.

The market will keep a tab on US GDP data due on Thursday and the Personal Consumption Expenditures (PCE) print on Friday for more clues on the health of the economy and the timing of cuts.

Khandoshko added that overbought gold was also witnessing a technical correction.

“There are many investors who have missed out on the big rally in gold and will be looking to pick up dips like these,” said Fawad Razaqzada, market analyst at City Index.

Elsewhere, spot silver rose 0.4% to USD 27.29. Autocatalyst metal platinum dipped 0.5% to USD 912.75, while palladium gained 1.1% to USD 1,020.12.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Jan Harvey and Marguerita Choy)

Firm dollar turns up heat on yen, heightening intervention talk

TOKYO, April 23 – A firm dollar had the yen locked near a fresh 34-year low on Tuesday, keeping investors on heightened intervention watch as they looked ahead to key US inflation report and the Bank of Japan’s rate decision this week.

The Japanese currency remained pinned after hitting 154.85 yen on Monday, its lowest level since 1990, as the stark US-Japan rate differentials came into focus again amid an easing in Iran-Israel tensions.

Traders have been keeping a wary eye as the yen slips towards 155.00, a level considered by many participants as the new trigger for intervention by Japanese authorities.

Japan’s finance minister on Tuesday said last week’s meeting with his US and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning yet on the chance of intervention.

The yen was last up marginally at 154.74 per dollar, buoyed by authorities’ latest comments.

However, there are doubts about whether Tokyo will act so close to the Bank of Japan’s (BOJ) two-day policy meeting that starts on Thursday.

The BOJ is expected to project inflation will stay around its 2% target for the next three years in new forecasts, signaling its readiness to raise interest rates again this year from current near-zero levels.

Yen weakness may force the central bank to “strike a more hawkish tone,” which would bring forward expectations of another rate hike and support the yen, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“But I expect USD/JPY to remain elevated in the near term because of broad USD strength, which will keep alive the possibility of FX intervention.”

The dollar’s strength has been broad-based, with gains edging toward 5% this year.

It was last trading around 106.10, below the five-month highs hit last week after comments from Federal Reserve officials and a run of hotter-than-expected inflation data forced a paring back of rate cut expectations.

Markets are pricing in a 46% chance of the Fed’s first rate cut starting in September, with November not far behind at 42%, according to the CME FedWatch Tool. That was in sharp contrast to just a few weeks ago when markets were betting on June for the US monetary easing cycle to begin.

Investors will have another chance to assess the strength of the US economy this week, with first-quarter gross domestic product data on Thursday and personal consumption price expenditures (PCE) index, the Fed’s preferred measure of inflation, on Friday.

“It is conceivable that markets further push back the timing of the expected first rate cut from September, if this week’s GDP and/or PCE adds to concerns about disinflation stalling out. The risk therefore lies towards higher US yields and a stronger USD,” said the Commonwealth Bank of Australia’s Kong.

While September has emerged as the new bet for the Fed’s first rate cut, expectations remain for the European Central Bank (ECB) and Bank of England (BoE) to start cutting by mid-year.

That divergence has put both currencies on the back foot against the dollar.

The euro, mostly unchanged on Tuesday at USD 1.065575, was on track for its biggest monthly drop against the dollar since January.

Sterling was last trading at USD 1.23535 after dropping to a fresh five-month low against the greenback at USD 1.2299 on Monday.

Ahead of US PCE this week, PMIs published across Europe later on Tuesday could offer some relief.

“If the PMI data continues to show that…the rest of the world outside the US is improving, that could continue to keep the dollar in check,” said Moh Siong Sim, a currency strategist at the Bank of Singapore.

Elsewhere, the Australian dollar rose to a one-week high of USD 0.6465.

China’s yuan slipped to 7.2455 per dollar, its weakest level since mid-November last year.

In cryptocurrencies, bitcoin fell 0.23% to USD 66,386.00, after touching over a one-week high of USD 67,267.34 earlier in the session.

(Reporting by Brigid Riley; Editing by Shri Navaratnam and Sam Holmes)

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