Overview: The US dollar is mostly consolidating today in quiet turnover. Among the G10 currencies, the dollar-bloc, which underperformed before the weekend, are firmer today, while the other G10 currencies are softer. The focus is not so much on data today but on the meeting in the White House with Ukraine's Zelensky and the European leaders to discuss the outcome of the President Trump's talk before the weekend with Putin. Apparently, Putin wants all of the Donbass territory, even the part he has not taken. Trump had threatened tough sanctions if a ceasefire was not agreed. There is no ceasefire and there have been no new sanctions announced. While Europe continues natural gas from Russia, and the US has not stopped trading with Russia completely, and China is the second largest buyer of Russian oil after India, only India has been sanctioned. White House adviser Navarro condemned India in an op-ed piece in the Financial Times. India is now paying a higher tariff than China. India is so insulted that Prime Minister is seeking to mend ties with Beijing.
Asia Pacific equities were mixed, but mostly firmer. Although the Hang Seng and mainland companies that trade there fell, the CSI 300 rose to new highs for the year, and the Shanghai Composite reached its best level since 2015. On the other hand, South Korea's Kospi was tagged for 1.5%, dragged lower by the chip sector. Europe's Stoxx 600 is nursing a minor loss after slipping slightly before the weekend. US index futures off trading around 0.1%-0.15% lower. Benchmark 10-year yields are mostly 2-4 bp lower in Europe, though the 10-year Gilts is a slight laggard and Italy's yield is off five basis points. The 10-year US Treasury yield is down 2.5 bp to about 4.29%. It has risen in eight of the past nine sessions. Gold has traded on both sides of Friday's narrow range. The pre-weekend high was slightly shy of $3349 and a close above there would be constructive. October WTI is firm now (~$62.50), but only after it initially slipped to a three-day low near $61.65. Last Friday's high was around $63.25.
USD: The Dollar Index is consolidating inside last Friday's range, which was inside last Thursday's range (~97.63-98.32). The session high, slightly above 98.00, was seen in early European turnover. Initial support now may be in the 97.80 area. The combination of last week's PPI reading, June-July retail sales data, and some official comments saw the market rein in some of the speculation of a 50 bp cut next month. Many were so taken by downward revisions in the recent jobs report that they forgot Fed Chair Powell's guidance that give weaker supply of workers (see immigration policy) and the slower hiring, the unemployment rate is key because it measures the relative strength of the supply and demand. In the middle of last week, the Fed funds market was pricing in a small chance of a 50 bp cut, but by the end of the week it had returned to where it was on Monday, slightly less an a 90% chance of a quarter-point cut, which slightly less of a chance see on August 8 and virtually unchanged from what prevailed om August 1 after the employment data. The Dollar Index frayed the trendline drawn off the July lows. It is found slightly above 97.80 today. A break would target the low from late July near 97.10. That said, with the Dollar Index having come down around 2.6% since August 1, and the market nearly completely pricing in a quarter-point cut, and the light economic calendar this week, the Dollar Index may spend most of the week consolidating.
EURO: The euro's low last week was set on Monday slightly below $1.16. It reached $1.1730. It is consolidating today between roughly $1.670 and $1.1715. The down trendline connecting the July highs is near $1.1745 today. A move above it sets up a test on the high from late July in the $1.1780-90 area. We are also monitoring the US two-year premium over Germany It has was last above 200 bp in late July, but is now below 180 bp. The low for the year was recorded in early March, near 167 bp. With Q2 GDP out of the way, today's June trade figures understandably had minor impact. The trade surplus averaged 15.6 bln euros a month in the first half. The average in H1 24 was about 17.0 bln euros. Recall that after Russian invaded Ukraine in 2022, the disruption saw it run a huge deficit in H1 22 (average monthly deficit was 25.8 bln euros). It was still in deficit in H1 23 (average ~11.2 bln euros).
CNY: Chinese officials seem wary of getting the short end of the stick in the periodic efforts by the US to force other countries to re-value their currencies against the dollar, rather than seek a dollar devaluation per se. The dollar is over-valued against nearly all the major currencies but the Swiss franc, according to the OECD's model. Beijing prevents the US from getting an export advantage over it by shadowing the dollar. The greenback has been confined mostly to the upper end of its CNH7.15-CNH7.20 range that has dominated for the past few months. It recorded the low for the month last Thursday near CNH7.1680 but finished last week at a three-day high, slightly below CNH7.1900. It is trading between CNH7.1790 and CNH7.1890 today. Last Thursday, the PBOC set the dollar's reference rate a new low for the year (CNY7.1337), and a new low was set today (CNY7.1322). It was the fourth consecutive session that the fix was below CNY7.14.
JPY: Despite the firmer US Treasury yields ahead of the weekend (2-4 bp), the dollar settled about half a yen lower near JPY147.25. It recorded an inside day, having been confined to Thursday's range (~JPY146.20-JPY147.95). Today, it is inside last Friday's range and has traded between JPY147.00 and JPY147.60. A break of last Thursday's range may be technically important, but the more impulsive move may be on the downside. The JPY146 area may be the neckline of a larger topping pattern. At the end of last week, Japan not only reported stronger than expected Q2 GDP (1.0% vs. the median forecast in Bloomberg's survey for 0.4%), but Q1 GDP was revised to 0.6% from the initial estimate of -0.2%. Japan, it turns out was the fastest growing economy in the G7 in H1 25. Net exports, which subtracted 0.8 percentage points from GDP in Q1 added 0.3 percentage points in Q2. On the other hand, inventories that contributed 0.6 percentage points to Q1 GDP subtracted 0.3 percentage points in Q2. And June industrial output was revised to 2.1% from 1.7%. Still, the odds of a rate hike next month barely changed with almost 3 bp of tightening discounted up from 1.5 bp last Monday. In late July, the swaps market briefly had 7 bp of tightening priced. There is about 10 bp of tightening discounted for October. While it is the most for the month, in late July 17 bp were discounted. Now 17 bp of tightening is discounted by the end of the year, up from about 14.5 bp a week ago, but down from 21 bp on July 24.
GBP: Sterling reached almost $1.36 last Thursday, helped by the better-than-expected Q2 GDP, even if bolstered by government spending. The subsequent pullback was limited to about three-quarters of a cent. It held above the five-day moving average before the weekend and today. It comes in near $1.3540 today. Sterling has not closed below it since August 1. Last Thursday's low was about $1.3520 and that may offer intraday support. Sterling has rallied by a little more than four cents since that August 1 low. This is around the average size of sterling rallies this year before corrective forces emerge. This is not to argue that there is something ontologically important about four-cent moves, but simply the way to quantify that it has come a long way in brief period. That in turn may change the risk-reward of establishing new longs now. This week's data is backloaded, with CPI on Wednesday, flash PMI Thursday, and retail sales Friday.
CAD: The US dollar finished last week firmly near the week's high (~CAD1.3820), slightly below the (61.8%) retracement of the greenback's losses from the August 1 high. It is in a narrow range today (~CAD1.3790-CAD1.3815). A push above CAD1.3820 could spur a move to the month's high near CAD1.3880. A move below CAD1.3780 would weaken the US dollar's technical tone. Canada reports July housing starts and June portfolio capital flow. The former is not much of a market mover in the best of times and especially today, ahead of tomorrow's CPI. Foreigners have been sellers of Canadian paper assets this year, liquidating about C$18 bln in the first five months of the year after buying about C$85 bln in the first five months of last year and around C$26.5 bln in the Jan-May 2023. In fact, it is the first time foreign investors have been net sellers of Canadian stocks and bonds through the first five months of the year since at least 1988, when the Bloomberg's history of the time series began. Still, more important for the markets is tomorrow's July CPI report. The bar seems high for a rate cut, and the swaps market is discounting almost a 30% chance of a cut, but it does not have one fully discounted until next March.
AUD: The Australian dollar posted a bearish outside down day last Thursday but there was no follow-through selling ahead of the weekend. It frayed resistance near $0.6520 area but was unable to convincingly surmount this hurdle. It is trading between about $0.6505 and $0.6525 today. With the central bank seen alongside the Fed as the most aggressive G10 central bank over the near 9-12 months, the Australian dollar may not be a favorite in the macro camp and the broad sideways movement will not appeal to the trend-followers and momentum traders. Speculators in the CME futures have their largest net short Australian dollar position since April 2024.
MXN: The dollar made a marginal new low for year in the middle of last week against the Mexican peso, inching a little closer to MXN18.51. It recovered smartly and reached almost MXN18.8530 the next day. It consolidated before the weekend, recording an inside day. After falling a little more than 12% since the early April high, the greenback has stabilized even with that marginal new low, it is in a range and call the floor around MXN18.50. The upper end of the range is MXN19.00. The rule of alternation suggests that after the lower end of the range more or less held, a move to the upper end should be anticipated. The US dollar is trading firmly but so far has held below last Thursday's high (~MXN18.8530).
Reviewed by Marc Chandler
on
August 18, 2025
Rating:
