Yesterday, the US dollar faced significant pressure as softer inflation and weaker-than-expected retail sales data emerged. This led to a notable surge in three G10 currencies by over 1% against the dollar, resulting in a 0.65% drop in the Dollar Index, marking its most substantial decline this year.

Meanwhile, buoyant buying activity, which propelled the S&P 500 and NASDAQ to fresh record highs, spilled over into the Asia Pacific trading session, driving gains across nearly all regional markets.

In the precious metals market, gold initially extended its upward momentum from the previous day but retreated from a four-week peak just below $2398.

Asia Pacific Markets
Despite Japan's economy contracting by 2.0% in Q1 2024 at an annualized rate, with Q4 2023 GDP revised to flat from 0.4%, signs of recovery are emerging halfway through Q2.

The dollar relinquished four days of gains against the Japanese yen, bolstered by soft US data and speculation that the Bank of Japan might intervene to defend the yen through reduced JGB purchases or a potential rate hike in July. The dollar dipped to approximately JPY154.65 in North American trading yesterday and further slipped to JPY153.60 in today's local session.

Meanwhile, the Australian dollar surged to nearly $0.6700, its highest level in four months during North American trading yesterday, with continued buying pressure pushing it to around $0.6715 today.

European Markets
Market sentiment remains overwhelmingly in favor (95%+) of an interest rate cut at the June 6 ECB meeting, while the likelihood of a rate cut by the Bank of England has risen to about 60%, nearly doubling from the end of April.

The euro rallied ahead of the US CPI and retail sales reports, climbing from approximately $1.0835 to around $1.0870 before profit-taking ensued, pulling it back to nearly $1.0830.
Sterling reached $1.2680, its highest level in a month, meeting the 61.8% retracement level of losses since early March's peak around $1.2895. Today, sterling briefly tested above $1.2700 before retracing to session lows.

American Markets
Softening inflation and below-expectation retail sales data bolstered market confidence in the Federal Reserve's ability to implement two rate cuts this year. On the background a notable increase in weekly initial jobless claims last week, expectations for a rebound in April housing starts remain high following March's significant 14.7% decline. Additionally, the May Philadelphia Fed survey is anticipated to reflect ongoing moderation in economic activity.

The US dollar found support near CAD1.3590 today, with resistance anticipated in the CAD1.3640-50 range.