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FX:  The dollar
     traded mostly higher last week.  I suspect more near-term gains, but
     I am less convinced than I was a week ago.  Given the FOMC minutes
     and more recent commentary from Fed officials, I suspect the market is
     exaggerating the chances of two cuts this year.  That had been my
     leaning too, but I think the recent resilience of the labor market and
     sticky inflation has shifted the views at the Fed.  The futures
     market is pricing in a little more than a 37% chance of a second
     cut.  That is down from 76% on May 17.   There is room for
     further adjustment.  The dollar traded above JPY157 for the
     first time since May 1.  The market is likely to turn more cautious
     as JPY158 is approached.   The euro peaked on May 16, slightly
     shy of $1.09.  It fell to nearly $1.0810 last week.  The daily
     momentum indicators are turning lower. A break of the $1.0785 area would
     lend credence to a top being in place.  Sterling reached a two-month
     high near $1.2760 on a softer CPI report, which saw the market push out
     the expected first cut to November.   Despite the softer May
     flash PMI and a large decline April retail sales (-.23%), sterling
     recovered almost back to the week's high ahead of the weekend.  Prime
     Minister Sunak called national election on July 4.  The Tories are
     expected to lose handily after being office for around 14 years.  The
     US dollar frayed support near CAD1.36 last week and recovered to almost
     CAD1.3750 before selling off ahead of the weekend to slightly below
     CAD1.3660.

Rates:  The US two-year yield
     bottomed in mid-May around 4.70%.  It reached near 4.96% last
     week.  The high for the year was set at the end of April near
     5.05%.  The US 10-year yield bottomed near 4.30% in mid-May and
     reached 4.50% last week to test the 20-day moving average.  This
     month's high was near 4.69%, and the high for the year was seen on April
     25 near 4.74%.  The US 2-10-year yield curve became more inverted
     last week.  The 2-year yield is about 45 bp higher than the 10-year
     and that is the largest premium (most inversion) this year.  Yields
     in Europe and Asia rose.  The 10-year JGB yield rose above 1.0% for
     the first time in a dozen year. Japan's 30-year yield rose to almost
     2.2%.  The last time it was seen was in 2011.  Since the middle
     of April, the US 10-year premium over Germany has fallen from 218 bp to
     about 185 bp last week, a two-month low.   The US two-year
     premium peaked in mid-April near 205 bp.  It fell to about 183 bp in
     mid-May.   Note that the market is pulling back from its
     aggressive outlook for the ECB.  Earlier this month, the market had
     been hovering around discounting three ECB rate cuts this year. It has
     scaled back to two cuts and about a one-in-three chance of a third
     cut.  

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