Overview: After yesterday's pullback, the US dollar has rebounded. It is trading its best level against several of the G10 currencies since Fed Chair Powell spoke at Jackson Hole before the weekend. Most emerging market currencies are weaker, too, with the notable exception of the pegged Hong Kong dollar, and the Thai baht. The PBOC set the dollar's reference rate at a new low for the year, but the greenback is firmer against both the onshore and offshore yuan.
Washington's extra 25% levy on India for buying Russian oil went into effect today but Indian markets are closed for a national holiday. China and Hong Kong indices were off more than 1% amid profit-taking. Europe's Stoxx 600 is a little firmer after the past two sessions when it fell around 1.3%. US index futures are practically flat. European benchmark 10-year yields are mostly 1-2 bp lower. The French two-year and 10-year yields are poised to rise above Italy's. The 10-year US Treasury yield is one basis point higher, slightly below 3.66%. The US will sell $28 bln two-year floating rate notes and $70 bln five-year notes, and $65 bln of four-month bills. The firmer dollar and firm rates saw gold turned down from a two-week high near $3394 after posting what appeared to be a bullish outside day yesterday. October WTI is trading at a four-session low in Europe near $63.
USD: The Dollar Index is chopping inside the broad range set before the weekend, roughly between 97.55-98.85. It reached nearly 98.70 today after recording a low yesterday slightly below 98.10. While the price action is messier than we anticipated, it may take an unexpectedly strong US jobs report on September 5 to negate our bearish dollar outlook. In terms of the price action, a move above last Friday's high was blunt negativity of the outside down day that was recorded then. US durable goods orders tumbled by 12.2% in June and July, the sharpest two-month decline since the pandemic. Some of the details, though, were better than expected, including core orders (excluding aircraft and defense) which rose 1.1% instead of the 0.2% of the median forecast in Bloomberg's survey. Core shipments rose by 0.7% (vs. 0.2% expected). Today's economic calendar is light. Tomorrow sees revisions to Q2 GDP, which may be tweaked up to 3.1% from 3.0% and weekly jobless claims. The 11k rise in the week ending August 15 was the largest in three months. The seasonal adjustment accounted for almost 2/3 of the rise. Continuing claims are at their highest since November 2021, rising by 30k, which speaks to the weak demand for labor. Richmond Fed President Barkin speaks today. He is on the hawkish side of the spectrum currently but does not have a vote this year. Governor Waller, one of the dissenting votes at the last meeting, speaks tomorrow.
EURO: The euro settled a little above $1.1605 last Thursday, the day before Fed Chair Powell's speech at Jackson Hole. It fell slightly below $1.1585 shortly before Powell spoke. It had held above $1.16 this week, until today, when it was pushed to almost $1.1575. The $1.1565 area corresponds to the halfway point of this month's range. The (61.8%) retracement is near $1.1525. The next front in the US-EU macabre dance emerged: digital services tax. President Trump has threatened new export restrictions and tariffs in retaliation for the tax that exposes US companies. EC officials defend the digital service tax while preparing to publish the legislation formalizing the trade framework struck with the US. When this is done, the US promised to lower the 27.5% tariff on EU autos and parts to 15%. Still, the agreement needs a qualified majority of members to approve as well as the European Parliament. The task is fraught with risk. Lastly, we note that pressure on France is increasing. A confidence vote (September 8) threatens the tenure of the Bayrou government. Recall that the last government, under Barnier, collapsed at the end of last year over the same issue: the government seeks steep reductions in public spending without the support of parliament. The 10-year French premium over Germany near the widest in four-months (~75-80 bp), and it is conceivable that the French yield rises above Italy's. The two-year yield is already knocking on Italy’s. It does not help sentiment for French Finance Minister Lombard warn that it may have to turn to the IMF.
CNY: The greenback approached the year's low against the offshore yuan recorded in July near CNH7.1440. earlier today before rebounding to almost CNH7.1650. Yesterday's low was nearly CNH7.1470. Nearby resistance is seen around CNH7.1685 and then CNH7.1735. The PBOC set the dollar's reference rate at CNY7.1161 on Monday, a new low since last November. Yesterday's fix was at a new low since last November today at CNY7.1108 (CNY7.1188 yesterday). The changes of the daily fix tend to be greater on the dollar's downside than upside for at least the better part of the past two months. China reported that industrial profits fell 1.5% year-over-year. Strong profits from the high-tech sectors offset part of the weakness in other industries. Meanwhile, Chinese figures show that rare earth magnets exports to the US reached a six-month high in July of 619 metric tons. This was a 5% increase year-over-year and a 76% increase month-over-month. The US is the second largest export market for rare earth magnets after Germany. Shipments to Germany reached 1115 metric tons in July, which represented a 6% increase month-over-month, but a 3% decline year-over-year.
JPY: The dollar remains well within the range set last Friday of about JPY146.60 to JPY148.80. It rose to a new marginal high for the week near JPY148. The greenback settled above JPY148 twice this month. Both times the US dollar was sold into the follow-through buying in the following session. The intraday momentum indicators suggest the scope for additional gains may be limited today. Meanwhile, we note that the latest opinion polls show support for Prime Minister Ishiba has improved. A poll in Yomiuri Shimbun, released earlier this week, found 50% of the respondents think he should remain in his post and 42% said he should resign. In a poll last month, 54% said he should resign and 35% though he should stay. A survey by Kyodo News put support for the cabinet at 35.4%, up 12.5 points after July's upper house electoral defeat. A poll by Mainichi Shimbun puts support for Ishiba at 33%, the first time he has broken above 30% since February.
GBP: Sterling was sold to $1.3435 yesterday before rebounding to almost $1.3495. Initial resistance is seen in the $1.3500-20 area. It briefly slipped through yesterday's low to make a marginal new low for the week near $1.3430. It remains comfortably in the range set last Friday (~$1.3390-$1.3545). With rate cuts expected in the US and Norway this year, and fading hopes of another UK cut, and sterling may be supported by being the high yielder with the G10. Meanwhile, the UK's 10-year premium over Germany has pushed above 200 bp for the first time in two months, and its two-year premium set a new high for the month near 205 bp. The euro has not closed below GBP0.8600 since July 1 but we suspect that with the widening rate differentials, the risk is on the downside, provided the GBP0.8665-70 area holds. The euro is trading a new five-day low around GBP0.8620.
CAD: The greenback was turned lower after approaching CAD1.3870 yesterday. This represented the (50%) retracement of the Powell-induced sell-off at the end of last week. At the low near CAD1.3520, it approached the Friday-Monday low near CAD1.3815. The 20-day moving average is slightly below there, and the US dollar has not settled below it since July 24. The greenback is firm but in a narrow range today, holding a little above CAD!.3825 but capped ahead of yesterday's high. As is often the case, when the US dollar is bid, the Canadian dollar the best performing G10 currency today, off around 0.1%.
AUD: The consolidation of the Australian dollar in the past two sessions is under pressure today. It settled at $0.6490 before the weekend and a few hundredths of a cent higher yesterday. Today, it came within 1/100 of a cent of Monday's high ($0.6505) band was turned back, falling to a three-day low near $0.6465, which is near the (50%) retracement of the rally from last Friday's lows. The (61.8%) retracement is around $0.6450. Australia's July CPI surged much more than expected. It jumped to 2.8% from 1.9% in June and the trimmed mean measure edged up to 2.7% from 2.1%. Housing jumped 3.6%, bolstered by higher electricity prices. The central bank puts more stock on the quarterly report but the bar to a cut next month after reducing the cash rate target earlier this month was always high. The odds in the futures market have been hovering below 30% for the past two weeks and are now near 20%. Still, the cut is fully discounted, plus some, at the following meeting in November. Nearly 30 bp is priced into the futures market, down from 35 bp yesterday. The policy-sensitive three-year yield rose nearly three basis points today.
MXN: In a little more than three-months through late July, the dollar fell by about 12.2% against the Mexican peso. Since then, it has been chopping in between about MXN18.51 and MXN19.00 range. The peso was little changed yesterday, but the Brazilian real (~-0.60%) and the Colombian peso (~-0.75%) were the weakest among emerging market currencies. The dollar is trading a new high for the week in Europe today, near MXN18.73, and fraying the 20-day moving average (~MXN18.72). Last Friday's high was around MXN18.7760. Mexico reports July trade figures today. In H1 25, Mexico recorded an average monthly trade surplus of about $239 mln. In H1 24, the average monthly deficit was nearly $1.82 bln and $1.16 bln in H1 23. Exports have risen by almost 4.4% year-over-year while imports have risen by slightly less than 1.8%.
Reviewed by Marc Chandler
on
August 27, 2025
Rating:
