The USD is mixed as US-China discussions in London are reportedly “going well.” Focus now shifts to the US CPI release and several Treasury auctions starting today at 1 PM ET with the 3-year note. Major currencies are moving unevenly against the USD. The GBP has risen by 0.30%. The EURUSD and USDJPY are stable despite some daily fluctuations. Other currencies show slight variations: EUR -0.11%, JPY -0.06%, CHF -0.07%, CAD -0.04%, AUD -0.08%, and NZD -0.13%. The US NFIB Small Business Optimism Index increased to 98.8 in May, surpassing expectations due to improving business conditions. However, uncertainty remains, with the Uncertainty Index climbing to 94. Notably, 18% of small businesses cite taxes as their primary concern. US debt yields have changed little as the Treasury initiates its auctions with a $58 billion 3-year note. The 10-year note will be significant, affecting consumer and corporate borrowing rates. The US stock market opened higher, with futures showing gains for major indices. Bitcoin is nearing an all-time high, trading at $109,500. Crude oil prices have risen slightly, currently at $65.60. We are seeing a market shaped by small currency movements and growing interest in ongoing macroeconomic events. While the positive US-China talks haven’t yet significantly impacted prices, they contribute to a calmer risk sentiment in currency markets. This week’s main focus is on the US Consumer Price Index data and the series of Treasury auctions, which began with the 3-year note today. These auctions will test investor interest in government debt amid inflation concerns and the Federal Reserve’s decisions on interest rates. The 10-year auction is particularly noteworthy because of its impact on borrowing costs, including mortgages and corporate debt. Major currencies are showing only mild sensitivity. The GBP had the biggest daily gain, while the EUR and JPY remain in narrow ranges. These movements reflect how the dollar is influenced not only by US economic reports but also by strength abroad. The GBP’s rise follows economic data that has come in stronger than expected, raising speculation about prolonged tighter monetary policy. However, we’re seeing some weakness in risk-sensitive currencies like the NZD and AUD, possibly indicating caution ahead of the CPI and Treasury auction results. The NFIB index shows growing optimism among US small business owners, suggesting they feel better about sales prospects and planning. Yet, with the Uncertainty Index rising and tax policy concerns, this optimism is cautious. It reflects a broader sentiment that while spending intentions may increase, actual spending may lag until we get clearer signals from policymakers. Yields across the Treasury curve have experienced subtle changes, supporting range-bound trading strategies for now. However, traders need to stay flexible, especially with upcoming core inflation data. Even small surprises in CPI could lead to significant shifts in yields based on how consumer price growth matches expectations. We should keep an eye on any widening between nominal and inflation-adjusted yields, often seen as indicators of inflation expectations. Stock market futures opened positively today, reflecting a strong risk appetite despite debt auctions and geopolitical concerns. Meanwhile, the crypto market remains strong, with Bitcoin nearing new highs, likely driven by positive sentiment towards speculative assets. Consistent demand could suggest renewed interest from institutional investors. However, volatility remains a factor, and any major price movement in crypto will require verification through volume and open interest. Oil prices are slightly higher, possibly due to supply adjustments and minor stockpile reductions. If CPI comes in stronger than expected or auction demand decreases, currencies linked to commodities and energy-sensitive assets may start to adjust more significantly. In dynamic markets like these, where the focus shifts between inflation data and government debt issues, price discovery is sensitive to timing. Positioning for tomorrow’s inflation data should lean towards shorter-duration exposure or temporary hedges, especially if implied volatility stays low leading up to the report. Static signals can be misleading in unpredictable yield environments, necessitating a nimble approach rather than a reactive one.

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