Insights 
VT 
Impact On Usd Movement
The USD saw sharp declines against currencies like the NZD (-1.33%) and AUD (-1.00%). It fared better against the CAD at -0.21%, its lowest since October 2022. The dollar was also down -0.62% against the GBP and -0.83% versus the EUR.
US yields increased slightly, with the 2-year up by 2.0 bps to 3.938%, and the 10-year up by 2.6 bps to 4.443%. US stocks saw gains, with the Nasdaq rising by 0.67%. Additionally, the S&P and Dow increased by 0.41% and 0.08% respectively.
The ISM manufacturing index remains under 50 at 48.5, while construction spending fell by -0.4%. The previous month was revised lower to -0.8%. The Atlanta Fed GDPNow forecast for Q2 growth rose significantly to 4.6%, up from 3.8%. Q1 GDP was at -0.2%.
Market Outlook And Dynamics
In this context, the earlier section outlines an intricate web of trade tensions and their tangible effects across major asset classes, especially foreign exchange and fixed income. The narrative starts with friction between the US and China, centred around tit-for-tat trade restrictions, spiralling into broader tariff escalation. Washington’s decision to double tariffs on steel and aluminium imports by mid-2025 signals a renewed wave of protectionism, with focus aimed at bolstering domestic production rather than seeking multilateral consensus.
The real-time reaction seen in the dollar’s pullback against a range of developed-market currencies reflects expectations that tariffs, and subsequent retaliatory moves, may dampen global demand and introduce volatility into capital flows. The steep drop in USD versus the New Zealand and Australian dollars, and lesser weakness against the euro and GBP, shows that commodity-linked and higher-yielding currencies have found support. Meanwhile, performance against the Canadian dollar was milder, which may be linked to oil’s muted movement and trade integration complexity between the two North American economies.
US Treasury yields drifted higher, albeit modestly, suggesting some repositioning after a period of rate uncertainty. A slight increase in front-end yields points to short-term inflation expectations remaining sticky, while longer tenors gaining points to a degree of confidence in the upcoming quarter’s strength, as hinted by the revised Atlanta Fed GDPNow estimate. The financial markets, guided by equities, appear to anticipate policy continuity rather than emergency measures.
Manufacturing data remains soft, as the ISM index now sits at 48.5—still in contractionary territory. This weakness has persisted, and together with a decline in construction spending, hints at output softness. The revision lower for the previous month’s figure will likely play into near-term pricing of industrial-sensitive instruments. On the other hand, the GDP tracking model points upward, which suggests a divergence between hard data and predictive indicators. Quarter-to-quarter shifts like this often cause dislocations in pricing tied to growth-sensitive assets, especially in areas which rely heavily on real asset exposure.
The scattered pressure on the dollar, combined with upward drift in yields and a mixed growth signal, gives us little reason to expect calm in the coming sessions. Traders with exposure to short-dated implied volatility are likely to find premiums hold, barring any corrective headlines from either side of the trade dispute. The compression in front-end curves doesn’t yet seem alarmist—but it does suggest there is still hesitation to bet on a seamless policy trajectory, especially with uncertainty embedded into execution timelines for tariff changes that don’t activate until mid-next year.
Vol spaces may widen on the back of unresolved policy decisions, especially as trade partners submit responses in the middle of the week. Monitor gamma exposure near AUD and NZD pairs, which could remain bid in the interim. For our purposes, the move in rates and foreign exchange also points to elevated basis trading opportunities, given how cross-currency spreads are reacting. Spot positioning, especially where economic expectations diverge from recent data, will need to be rechecked against evolving forward guidance from central banks, particularly where inflation calls have proved premature.
Market symmetry could stay fragile for now. There’s no immediate cue for reversal in short-term relative currency performance. With front-end rates showing only marginal changes, options skew is likely to stay directional, favouring yield-supported crosses. This makes short volatility less attractive unless paired with tight delta hedging around scheduled data or central bank remarks.
Pay close attention to the next few macroeconomic releases tied to capital expenditure and goods production, since participants are repricing cyclicals more aggressively than services. If fiscal barriers widen, flows into safe-haven assets could resume, but not uniformly. Keep the risk-weighting adjusted accordingly.
