The foreign exchange market is becalmed today. The greenback is in narrow ranges with a slightly softer bias against most of the G10 currencies, but the and Canadian dollar. The news stream is light, and the leadership of the North American market seems awaited. The US announced a new sectoral investigation into robotics, industrial machinery, and medical devices. Under Section 232 of the Trade Expansion Act, the investigation can last 270 days. Separately, the White House budget office reportedly is preparing for large-scale permanent layoffs during a government shutdown, which looks increasingly likely. Workers deemed nonessential are typically furloughed during a funding lapse, but the administration appears to be threatening their permanent dismissal. About four in 10 federal workers are often considered nonessential during such periods.
Equities are mostly softer after losses on Wall Street yesterday. In the Asia Pacific region, Japan, China’s CSI 300, and Australia, among the large bourses bucked the move. Europe’s Stoxx 600 is off around 0.40% after falling about half as much yesterday. US index futures are little changed but with a softer bias. European benchmark 10-year yields are narrowly mixed, while the yield is a little softer around 4.13%-4.14%. The US Treasury finishes this week’s auctions with $44 bln in and $185 bln in bills. is firmer near $3754 as it recoups around half of yesterday’s decline. The record high was set Tuesday near $3791. November settled above $65 yesterday, its best close since early this month. It is holding slightly below there today but mostly remaining above the 200-day moving average near $64.35.
: The rose for the first time this week yesterday and approached the 97.90 area. It is consolidating in the upper end of yesterday’s range. It has been confined to about a 97.75-97.90 range so far today. As long as nearby support near 97.60 holds, the next target is 98.25, and a move above there sets the stage for a test on the more formidable resistance around 98.70. There is a slew of US data today, including the advance goods trade balance and the preliminary August durable goods orders. With Q3 winding down, the revision of Q2 is of little consequence. Given the focus on the labor market and the recent volatility, weekly jobless claims may be the most important data point today. Meanwhile, the Treasury completes this week’s sales with $185 bln in bills and $44 bln seven-year note auction. Lastly, at least eight of the 19 Federal Reserve governor and regional presidents speak today and there is a good mix of hawks and doves. Watch Dallas Fed’s Logan for insight into the Fed’s balance sheet and QT. While casting a wide net to define US strategic interest, many are not persuaded that Argentina rises to the level of systemic risk. The contagion has been limited. The Mexican peso and Brazilian real recorded new highs for the year last week, and the Colombian peso did so on Tuesday this week. It is not a significant trade partner for the US. The appeal seems more ideological than economic.
: The euro reached a new four-year high last week near $1.1920. It finished last week near $1.1745. We have been looking for follow-through selling, and after some consolidation Monday and Tuesday, the euro was sold to almost 1.1725 yesterday. It is consolidating today between $1.1730 and $1.1755. Nearby support is seen extends to the $1.17 area, and a break could spur a move toward $1.1655. A modest widening of the US two-year premium over Germany and the turning of the daily momentum indicators favors this euro pullback. EMU money supply figures no longer capture the market’s attention, while the lending figures are sufficiently firm to reinforce the sense that the bar to another ECB rate cut is high. Still, M3 money supply growth at 2.9%, matches the slowest pace since last July, but lending to both households and companies edged up. A shock, perhaps in the form of new USD tariffs, such as on pharma, or an escalation of Russia’s asymmetrical disruption in central Europe could prompt a reassessment of ECB policy.
: The dollar rose by almost 0.35% against the offshore yuan yesterday, its largest advance since the end of July. It settled above the 20-day moving average (~CNH7.1280) for the first time in over a month. The dollar briefly poked above CNH7.14. The yuan’s pullback seems to be a function of the greenback’s broader gains, but also in the past two weeks, the PBOC stabilized the dollar’s reference rate between CNY7.10 and CNY7.1130. Today’s fix was set at CNY7.1118 (CNY7.1077 yesterday). The dollar is paring yesterday’s gains in quiet turnover. It is near CNH7.1280. Below here, the near-term risk extends toward CNH7.1225.
: With the help of higher US 10-year yields, the greenback rose to almost JPY148.90 yesterday, its highest level since September 4. It settled above the 200-day moving average (~JPY148.55) for only the second time since mid-February. The dollar is in a JPY148.55-90 range so far today. This month’s high was set near JPY149.15. Japan’s August producer service PPI was edged up to 2.7% from a revised 2.5% in July, but the more important price gauge is tomorrow’s September Tokyo CPI. The headline and core rates are expected to rise for the first time in four months.
: Sterling’s price action in the second half of last week was poor but it consolidated to start this week. The selling pressure resumed yesterday, sending sterling to almost 1.3425, its lowest level since the US employment data on September 5. While the low has held, it has not been much above $1.3465 today. A break of the $1.3420 area could signal losses toward $1.3365 next, and the month’s low is closer to $1.3335. Short-term market positioning and the firmer dollar tone appear to be the main drivers, though the UK’s economic outlook and the government’s fiscal promises are concerning. After weak reception at the Gilt auction earlier this week, it is seeking to raise another GBP2 bln today. It has already sold GBP1.25 bln nine-year bond and will sell GBP750 mln 13-year bond shortly.
: In the context of the firmer US dollar, the Canadian dollar was the second strongest currency among the G10 yesterday, trailing behind the Australian dollar, which helped by the reassessment of the trajectory of RBA policy after a firm CPI reading. The greenback reached almost CAD1.3910 to record a new high for month. It is pinned in a narrow range around CAD1.39 today. The late August high was about CAD1.3925 and above there, CAD1.40 beckons, which also is where the 200-day moving average is found. The US dollar has not traded above CAD1.40 since mid-May.
: The Australian dollar reached almost $0.6630 yesterday, but the greenback’s recovery proved too much for, and the Aussie was sold to session lows near $0.6575 in North America. It is in a $0.6580-$0.6605 range now. A break of $0.6575, which was also Monday’s low, could signal a move back toward the $0.6525-60. The five-day moving average looks set to cross back below the 20-day moving average for the first time since late August. The market continues to adjust its outlook for the Reserve Bank of Australia, which meets on September 30. The current target rate is 3.60%. As recently as last week, the futures implied a mid-2026 rate of a little less than 3.10%. Now, it implies slightly about 3.25%.
: The US dollar has been consolidating against the Mexican peso since it approached MXN18.20 last week to set a new low for the year. It firmed to almost MXN18.4565 yesterday. The dollar is holding above MXN18.40 today but has not been above MXN18.43. Last week’s high was closer to MXN18.47, and the bottom of the old range was above MXN18.51. The CPI for the first half of September, reported yesterday, was slightly firmer than expected, but it does not preclude a rate cut by Banxico today. A quarter-point cut brings the overnight target rate to 7.50%. The swaps market sees the terminal rate at 7.0%, but we suspect it can fall a bit further, maybe 6.50%-6.75% next year.