After yesterday’s setback in North America, the remains under modest pressure today. It is lower against all the G10 currencies. The US dollar also is softer against most emerging market currencies. It was fixed at a new low for the year against the .
The yuan has a five-day advance in tow, the longest rally since last September. Today, the US raises $185 bln in bills and sells $44 bln seven-year notes. The US sees a possible slight upward revision in (3.1% vs. 3.0%) and weekly . Federal Reserve Governor Waller speaks after the markets closed.
The large equity markets in the Asia Pacific region were mixed. The rally in mainland shares continues, but Hong Kong and the index of mainland companies that trade there fell. India, which was on holiday yesterday, when the new US tariffs went into effect, saw stocks come under pressure today.
Europe’s eked out a 0.1% gain yesterday and is straddling unchanged levels today, waiting perhaps for directional cues from the US, where the index futures are also little changed. Benchmark 10-year yields played catch-up today after the rally in the US yesterday.
European yields are mostly softer, though the survival of the Dutch government of a confidence vote has seen little reaction. While the French government is still on tenterhooks, the 10-year French yield is down the most in Europe today (~2.5 bp). The Treasury yield is a little softer, slightly below 4.23%. is firm around $3400, its best level in almost three weeks, while October is softer in a roughly half-dollar range below $64.
USD: After Fed Chair Powell’s indication at the end of last week that the risk assessment may be shifting, and the dollar reversed lower to extend this month’s pullback after the July bounce, the greenback looked poised to resume the H1 25 decline. Instead, the traded better in the first half of the week.
It rose to almost 98.75 yesterday, but North American operators sold into the gains and sent the Dollar Index to a new session low near 98.15. Follow-through selling has seen in slip closer to 98.00 today. Yet it remains within the range set last Friday (~97.55-98.35). We note that the odds of a cut next month remain slightly higher than at the end of last week, and the two-year yield is around seven basis points lower.
The 10-year yield is about three basis points softer compared with the end of last week. Today it is likely to see a small uptick in Q2 GDP, helped by an upward revision in consumption. Weekly jobless claims, , and the KC Fed’s manufacturing survey are due. Of note, eight Fed surveys have been published this month and they are split evenly between improvement and deterioration. Governor Waller, a dovish dissent last month, speaks late today on monetary policy.
: The euro fell to three-week lows yesterday, near $1.1575. This approached the (50%) retracement of this month’s gains, found slightly above $1.1565. In North America, it recovered and set new session highs after European markets closed. It reached almost $1.1650 and left a bullish hammer candlestick in its wake. Follow-through buying has been limited to $1.1655 today but given the intraday momentum indicators, a high for the session may not be in place.
Meanwhile, the US two-year premium over Germany has tightened. Now, below 170 bp, is the smallest since March. We did not expect the downside correction to this month’s gains after Powell spoke, but with another soft US jobs report next Friday, followed by annual benchmark revisions to nonfarm payrolls the following week, and the independence of the Federal Reserve still under attack, we are reluctant to abandon the constructive outlook for the euro.
CNY: After approaching the low for the year yesterday, the dollar bounced back against the yuan. The greenback was bid toward CNH7.1655 after recording a low yesterday near CNH7.1455. Follow-through selling today sent the dollar to a new low for the year, slightly below CNH7.13. The PBOC has been setting the dollar’s fix lower on a trend basis since April/May. For the second consecutive session, it was set a new low for the year today (CNY7.1063 vs. CNY7.1108 yesterday). Separately, mainland investors sold a record of HK20.4 bln of HK listed stocks today and apparently repatriated the helped lift the CSI 300 by almost 1.8%, while driving down the index of Chinese companies that trade in HK by 1.15%.
: The dollar rose to a three-day high near JPY148.20. It was the ninth time this month that it traded north of JPY148, but it was unable to settle above it, which it has done only twice. As the US rates fell 4-5 basis points from intrasession highs, the dollar fell to a new session low near JPY147.30. It has been sold to JPY147 today.
The price action looks poor, but the greenback remains in the range set last Friday (~JPY146.60-JPY148.80). The intraday momentum indicators suggest that the lower end of last Friday’s range will likely remain intact today. This week’s Japanese macro data is concentrated tomorrow. Broadly speaking, the reports look soft. Retail sales may have pulled back after they rose by 0.9% in June (initially1.0%).
Industrial output, which jumped 2.1% in June, also likely slowed. The most important data point, however, is the Tokyo CPI. The headline and core rates may have moderated for the third consecutive month. Net-net this month, the swaps market is little changed with 17-18 bp of tightening discounted before the end of the year. At the end of last week, the US 10-year premium over Japan fell to around 263 bp, a three-year low. It is hovering slightly below there now.
: Sterling was sold to a three-day low yesterday, almost $1.3415. The pre-weekend low, before Powell spoke was closer to $1.3390. It bounced back in North America and, although it took out Tuesday’s high (~$1.3495), and settled above it. Its advance today stalled in front of $1.3520. The odds of another rate cut this year are near 40%, down from 100% that was discounted before the Bank of England met earlier this month. The implied year-end rate in the swaps market has risen by about 12 bp this month, while the 10-year yield is up about 18 bp. In contrast, the implied year-end rate in the US has fallen 22 bp this month, while the 10-year yield has fallen around 14 bp.
: The US dollar was sold to a seven-day low yesterday near CAD1.3780. It settled below the 20-day moving average (~CAD1.3810) for the first time in a month. Selling today pushed the greenback to new two-week lows today below CAD1.3770. Nearby support is seen around CAD1.3750 and then CAD1.3720.
Canada reports the Q2 current account balance today ahead of tomorrow’s Q2 GDP. Canada’s current account deficit was as much as 3.6% of GDP in 2010 and has been improving since 2015 and has averaged less than 0.5% of GDP over the past four years. In Canadian dollar terms, it averaged C$3.5 bln a quarter last year and C$4.6 bln in 2023.
The merchandise trade balance deteriorated sharply in Q2 (~C$19 bln deficit after an almost C$400 mln deficit in Q1 25). The risk is of a blowout deficit of around C$19.3 bln, according to the median projection in Bloomberg’s survey. It would be the largest deficit in at least a decade. A much weaker report could impact expectations for tomorrow’s GDP. Bloomberg continues to show two different median forecasts but the difference (-0.5% and -0.7%) may be inconsequential.
: The jump in Australia’s July CPI (2.8% vs. 1.9% in June) did little to help the Australian dollar, which fell to a three-day low against the greenback (~$0.6465) before recovering smartly in North America. It rose to a new seven-day high near $0.6515. It settled above Tuesday’s high to post an outside up day against the dollar.
The (50%) retracement of the Aussie’s losses since the year’s high was recorded in late July (~$0.6625) is about $0.6520 and it has been met today. The next immediate target may be the trendline connecting the July and August highs is found closer to $0.6530. Expectations for the trajectory of Australian monetary policy did not change significantly.
The futures market has a little more than a 25 bp cut discounted for the November RBA meeting. The implied year-end rate is virtually unchanged this week, near 3.25% (vs 3.60% current target rate).
: Mexico unexpectedly reported a small trade deficit for July, and it added to the pressure on the currency from the firmer greenback and heavier emerging market currencies. Exports rose by 5%, the largest increase since March, to reach a record high. Imports rose a little more than 6% last month, the first increase in three months, and were just shy of last October’s record $57.3 bln.
Mexico reports July unemployment today (expected to rise to 2.86% from 2.69%) but it tends not to have much impact on the market. The dollar rose above last Friday’s high (~MXN18.7760) to approach MXN18.80, and as it found sellers broadly, it returned to the MXN18.65 area, where it consolidated in late dealings. It has slipped to almost MXN18.63 today. Monday’s low was near MXN18.5530.
The dollar posted similar price action against the Brazilian real. The greenback rose to a three-day high initially and tested the 20-day moving average around. BRL5.4555 before reversing. It was knocking on BRL5.4150 at the close. The year’s low was set earlier this month near BRL5.38.