Overview: The US dollar is extending the pullback seen ahead of the weekend. It is softer against all the G10 currencies and most emerging market currencies today. However, the intraday momentum indicators are stretched, and, perhaps, some US participants will want to wait to see the outcome of President Trump's meeting with Democratic leaders in Congress before extending the greenback's sell-off in the face of what the possible government shutdown starting Wednesday.
Equities are mostly advancing. Japanese equities were the chief exception in the Asia Pacific, with the Nikkei dropping 0.7%, and Taiwan markets were closed. The Hang Seng led today's rally with a nearly 1.9% gain, and mainland shares that trade there rose 1.6%. Europe's Stoxx 600, which eked out a minor gain last week, is up almost 0.40% today. US index futures pared their weekly losses before the weekend and are 0.4%-0.65% stronger now. Bonds have also rallied. Benchmark 10-year yields are 2-3 bp lower in Europe. The US 10-year yield that approached 4.20% in the second half of last week is off 3-4 bp today near 4.14%. The US Treasury has not coupon sales this week but lots of bills. The softer greenback, lower rates, and the prospect of a US government shutdown helped lift gold to a new record near $3820. However, it has stalled and could test the $3800 area in North America. The prospect that OPEC+ could decide at the end of the week to boost output again next month has seen November WTI pull back toward $64.60 today after reaching $66.40 before the weekend, which was the highest since August 1.
USD: After rallying Wednesday and Thursday, the Dollar Index consolidated ahead of the weekend. It peaked last Thursday around 98.60. It has pulled back to further today, reaching almost 97.85. Nearby support is seen in the 97.70-80 area. At the same time, it is increasingly difficult to see how a federal government shutdown tomorrow at midnight can be averted. There seems to be a slim chance that meeting between the president and congressional leaders today, which was canceled last week, will overcome the key obstacle; namely that both sides see advantages in a shutdown. This swamps other near-term concerns. Today's diary is light; pending home sales and the Dallas Fed's manufacturing survey, and tomorrow sees house prices, the August JOLTS and September Conference Board's survey. A government shutdown would delay the September employment report on Friday. That may give the ADP private sector jobs estimate more sway. The median forecast in Bloomberg's survey is for a 48k increase in the ADP estimate.
EURO: The euro fell to a two-week low last Thursday, near $1,1645, before recovering back above $1,1700 ahead of the weekend. Additional buying today has seen in approached the lower band of resistance, which extends from $1.1735 to $1.1750 area could lend credence to ideas a low is in place. At the least, it could signal a test on the $1.1800-15 area. The EU confidence surveys out earlier today typically are not market movers. This week's attention in CPI. Spain, whose credit rating was lifted by Moody's and Fitch at the end of last week, reported today that its EU harmonized measure of CPI rose from 2.7% to 3.0% in September. The other three largest eurozone members report this national figures tomorrow and the ECB's aggregate estimate is released on Wednesday. Headline inflation has been hovering between 1.9% and 2.1% for the past four months. Over the same period, the core rate has been flat at 2.3%.
CNY: The dollar approached the month's high last week, slightly shy of CNH7.15. The heavier greenback tone ahead of the weekend saw it return to almost CNH7.14. It has been sold a little below CNH7.1200. Currently, the yuan looks to be trading rather passively, responding to changes in the greenback. The next technical target may be slightly below CNH7.1100. After setting the dollar's fix higher for the third consecutive session, and the highest this month before the weekend (CNY7.1152), the PBOC set it lower today at CNY7.1089). China sees its September PMI first thing tomorrow. The market reaction is likely to be limited. Chinese markets are from Wednesday October 1 through Wednesday October 8. China data often has little impact on the exchange rate, which is closely managed by the PBOC. In the generally firm US dollar environment seen since the press conference after the recent FOMC meeting, the yuan has yielded a little to the greenback, but it is among the strongest currencies in the world.
JPY: The dollar's recovery that began during Fed Chair's press conference after the FOMC meeting from a two-month low near JPY145.50 stalled last week a smidgeon below JPY150.00 The pullback was limited to around JPY149.40 before the weekend. Follow-through selling today has pushed it slightly below JPY148.50 by early European turnover. It is overextended on an intraday basis. US 10-year yield that was knocking on 4.20% last Thursday is now near 4.14%. That could coincide with the dollar pushing above JPY150. First thing tomorrow, Japan reports industrial production and retail sales. Industrial output is expected to have contracted by 0.9% in August industrial output after a 1.2% decline in July. Q3 is off to a rough start. It averaged 0.2% a gain in the first seven months of the year. Retail sales are expected to rise by 1.2% in August to recover much of the 1.6% decline in July. Through July, the average monthly change was zero. The weak domestic economic backdrop may contribute to the Bank of Japan's reluctance to raise rates so far this year, though the market's confidence of hike is increased. The Tankan survey results may be the economic highlight of the week now, and the LDP will choose its leader this weekend, who will become the next prime minister.
GBP: The UK reported August consumer credit and mortgage data earlier today, but the market looks past it. Since the FOMC meeting, the UK 10-year Gilt yield rose by almost 15 bp, while sterling dropped shed about four cents (~3%). As the momentum stalled ahead of the weekend, it appeared that short covering helped it recover from around $1.3325 to almost $1.3415. Follow-through buying today has lifted sterling to $1.3450, which stretched the intraday momentum indicators. Nearby resistance is seen in the $1.3465 area, and a move above there can signal a return to the $1.3525-50 area.
CAD: The stronger than expected July GDP (0.2%) did not prevent the Canadian dollar from settling at its lowest level since mid-May before weekend. The US dollar reached a high near CAD1.3960 in Europe before data but found support near CAD1.3930. It has fallen to almost CAD1.3915 today. A break of CAD1.3900 could see CAD1.3870 initially. The swaps market also was not impacted much by the monthly GDP and is still discounting around 75% chance of another rate cut in Q4 25.
AUD: Since the US FOMC meeting, the Australian dollar has fallen from the year's high slightly above $0.6705 to $0.6520 at the end of last week. It consolidated but stalled around $0.6550 and rose to almost $0.6575 today. A convincing move above here may boost confidence that the near-term low is in place, but the intraday momentum indicators have stalled in overbought territory. The Reserve Bank of Australia meets the first thing tomorrow. There is little chance of a change in policy. Therefore, the guidance RBA Governor Bullock provides is the key to the market's reaction. Another robust gain (0.6%) in private sector credit is exactly the kind of thing that has spurred Bullock into warning that maybe additional rate cuts are not warranted.
MXN: The dollar rallied from the year's low set around the FOMC meeting earlier this month near MXN18.20 to a high last week before Banxico cut rates around MXN18.5650. It fell to almost MXN18.33 on Friday, ahead of the weekend. This met the (61.8%) retracement of the rally near MXN18.34, but it closed above it. Today, it eased a little through MXN18.32. A break of MXN18.30 would signa a return to MXN18.20. Mexico's economic calendar is busy in the coming days with unemployment, worker remittances, IMEF surveys, and auto sales, but none seem to move the peso. Banxico left open the scope for additional easing. Yet, it does not meet until November 6 (and then December 18). This week's data may not be important inputs for the central bank's decision.
Reviewed by Marc Chandler
on
September 29, 2025
Rating:
