The U.S. dollar traded with a softer tone against most major currencies as investors reacted to developments in Japan and China. The yen strengthened after Finance Minister Katayama encouraged national pension funds to increase allocations to domestic assets, helping push the dollar down from levels near JPY162.40 to around JPY161.30 before a partial rebound. At the same time, the People’s Bank of China set the dollar reference rate below CNY6.80 for the first time in three years. Meanwhile, reports indicated that technical discussions between the United States and Iran were continuing, while oil prices extended their retreat from this week’s highs.

Asia Pacific Markets

Japan was the focal point of regional trading. The Nikkei advanced 1.2%, while the 10-year Japanese government bond yield fell 13 basis points, its first decline in two weeks and the largest one-day drop of the year. Support for the yen also came from stronger producer price data, with annual PPI accelerating to 7.1% in June, the highest reading since early 2023. Japanese machine tool orders continued to surge, rising 52.8% from a year earlier. In China, the offshore yuan strengthened after a new three-year low dollar fixing by the PBOC, with the currency reaching its strongest level in roughly two and a half weeks.

European Markets

European trading was marked by moderate currency and bond market moves. The euro briefly climbed above its 20-day moving average and reached $1.1460 before reversing lower toward $1.1425. Sterling remained one of the stronger performers, extending a rally that has seen gains in ten of the last eleven sessions. The British currency approached $1.3450 before easing back in European dealings. Bond markets also improved, with most benchmark European yields declining by 2-3 basis points. Narrowing spreads in peripheral debt markets reflected a more constructive tone, while the Stoxx 600 added to the recovery that began after weakness earlier in the week.

American Markets

Attention in North America centered on Canada’s labor market report. Economists viewed it as difficult to surpass May’s strong employment performance, which included a 154,000 increase in full-time jobs and a decline in unemployment to 6.6%. The Canadian dollar strengthened modestly as the U.S. dollar briefly fell to its lowest level since June 19 before recovering. In Mexico, inflation slowed further, with headline consumer prices rising 3.37% year-over-year, the lowest pace in five years. Commodity markets remained active as gold slipped back below $4,100 after ending a previous losing streak, while August WTI crude approached $71 after retreating sharply from a peak above $76 reached earlier in the week.