Despite an unexpectedly strong U.S. jobs report that contrasted with prior weak indicators, the U.S. dollar lost ground as traders in Asia and Europe sold into earlier gains. This pullback came amid signs of resumed Chinese rare earth exports to Western automakers and ongoing trade negotiations between the U.S. and China in London. While the U.S. holds sway over chip technologies, China asserted its dominance in rare earth supplies. Chinese exports slowed, with U.S.-bound shipments dropping, though the overall trade surplus expanded. In Japan, upward revisions to consumption and inventory figures shifted the economic narrative from contraction to stagnation. The dollar softened against G10 and emerging market currencies.

Asia Pacific Markets

Asian equities saw a broad advance, notably in Hong Kong and South Korea, while Australian markets remained closed for the King’s Birthday. In currency markets, the Japanese yen lost ground briefly after U.S. jobs data pushed rates higher, with the dollar rising past JPY145.00 before falling back to JPY144.00. Japan's Q1 GDP showed stagnation instead of contraction due to stronger consumption and inventory data, despite weaker business investment. Meanwhile, the Australian dollar rebounded after last week’s pullback, trading near its yearly high. Investors are eyeing upcoming surveys on business and consumer confidence, but no significant rate changes are expected until the central bank’s July meeting.

European Markets

The euro faced pressure last week following disappointing German industrial output and export data. However, it recovered after hitting a low near $1.1370 and has since climbed toward $1.1445 in European trading. The recovery follows a better-than-feared U.S. jobs report and suggests the euro may retest recent highs around $1.15. Sterling also corrected after reaching a new three-year high, slipping to $1.3500 before stabilizing within last Friday’s range. Looking ahead, UK economic data, including employment figures and April GDP, may influence sterling’s direction. Yet, with recent Bank of England comments, a rate cut next week seems unlikely, though markets still anticipate a move later in the year.

American Markets

The U.S. dollar gained momentum late last week on the back of a stronger-than-expected jobs report and weak German data, nearly reaching a key technical retracement level. However, no further buying followed, and the Dollar Index now trades within Friday’s range, showing signs of vulnerability. Domestic unrest and upcoming data releases, such as wholesale inventories and inflation surveys, are not expected to significantly sway markets. The main focus remains on Wednesday’s CPI data. Inflation expectations diverge across surveys and market indicators, with the Fed now seen as less likely to deliver two rate cuts this year, a shift not observed in over three months.