Overview: After extending this week's rally yesterday, the US dollar is consolidating yesterday's gains in what appears to be favorable price action. The pullback from greenback's best level has been shallow. The US struck several trade deals this week, and secured a trade truce with China, even if many are skeptical of its longevity, and the Federal Reserve pushed against a December cut, and the futures market has reduced the odds to about 2/3 from near certainty. Emerging market currencies are mixed, but this week's highlights include the PBOC setting the dollar's fix at a new low since October on Wednesday before steadying it in the last two sessions and the (3.6%) recovery of the Argentine peso following last Sunday's election.
The Nikkei extended its weekly advance today. The 2.1% gain today brings the weekly rise to 6.3%. Most of the other large equity markets in the region but South Korea's Kospi weakened today. Yet, the MSCI Asia Pacific index is closing higher on the week and is securing its seventh consecutive monthly advance. Europe's Stoxx 600 is weaker for the fourth consecutive session, which matches its longest decline since June. Still, it is poised to settle higher for the fourth consecutive month. Helped by Amazon and Apple, US index futures are trading higher after yesterday's heavier today. The S&P 500 and Nasdaq will settle higher for the sixth and seventh consecutive months, respectively. European and US 10-year benchmark yields are slightly firmer today. Near 4.10%, the 10-year US Treasury yield is up around 12 bp this week, the most among the G10 countries. Gold is trading heavier, and barring a significant recovery, will settle lower in back-to-back weeks for the first time since July. December WTI is hovering near $60 and is off about 2% this week.
USD: A combination of the hawkish cut by the Fed and what appears to be an important de-escalation of US-China trade tensions (with some hope it can last a year) helped lift the Dollar Index to a new high for the month, near 99.70. Since the high was recorded in early North American turnover yesterday, DXY has remained above 99.40. Today's consolidation, near yesterday's high looks constructive, and the next target is the 100.00-100.25 area. October is the second month of the year that DXY has risen and more broadly, the dollar appreciated against all the G10 currencies. The Dollar Index has risen by around 2% this month despite lower yields, the government shutdown and the anticipation and delivery of the Federal Reserve's second rate cut of the year. The greenback's gains seemed to be a function of market positioning, optimism that the elevated Washington-Beijing tensions were part positioning ahead of new negotiations, and poor developments in Europe and Japan. While the House of Representatives remains out of session, the Senate has symbolically moved this week to check tariffs on Brazil seek, for end the "emergency" that has been used to justify many tariffs and make SNAP contingency funds available. Yet without the House's approval, these are symbolic measures but show dissent among some Republican Senators.
EURO: The euro held above $1.1600 in the European morning yesterday, but the entry of North American players saw it sold to about $1.1545, a few hundredths of a cent above the month's low. It is holding today, but the single currency has barely traded above previous support near $1.1575. A break of the $1.1540 area leaves little on the charts ahead of the late July/early August lows near $1.1400. A move back above $1.16 would help stabilize the technical tone. The US two-year premium over Germany is around 162 bp, the highest since early September. The ECB's decision to stand pat yesterday and comments from President Lagarde suggesting the bar to another cut is high takes thunder from today's preliminary October CPI. It rose 0.2% in the month, but due to the base effect, the year-over-year rate slipped to 2.1% from 2.2%. The core rate was steady at 2.4%.
CNY: The dollar rose by about 0.25% against the offshore yuan yesterday, its largest single-day advance this month. It reached almost CNH7.1180 and this holding today. The halfway mark of this year's range is around CNH7.1210. Above there, resistance is seen in the CNH7.1280-CNH7.1300 area. Apparently, the foreign exchange market was a not a subject of US-China negotiations. The PBOC set the dollar's fix at CNY7.0880 (CNY7.0864 yesterday and CNY7.0928 a week ago). It is the first back-to-back increase in the dollar's reference rate this month. China's October PMI softened. The manufacturing PMI eased to 49.0 from 49.8. It has been below the 50 boom/bust mark since April. The non-manufacturing PMI has held up better. Although it has not been below 50 this year, it has not been above 50.5 since May. It ticked up to 50.1 from 50.0, the low for the year. The composite eased to 50.0, which is the lowest it has been since the end of 2022 (50.6 in September). It averaged 50.4 in Q2 and Q3.
JPY: The backing up of US interest rates, despite or because of the Fed's cut Wednesday, and the BOJ's seeming lack of urgency to raise rates yesterday weighed on the yen. The dollar, which finished last week near JPY152.85 rose to nearly JPY154.45 yesterday, which is the lower end of a resistance band that extends to JPY155. Its consolidation today (between ~JPY153.65 and JPY154.40) looks bullish. The dollar's low for the year was recorded in April a little below JPY140. The high for the year was seen in January, almost JPY159. Today's data may help inform the BOJ's next rate decision. The economy recovered in September from a weak August and core Tokyo CPI likely signals the direction of the national reading due in a few weeks. The headline and core measures rose from 2.5% to 2.8%. The September jobless rate was steady at 2.6%, while retail sales rose 0.3% after a revised 0.9% decline in August (initially -1.1%) and industrial output rose 2.2% (-1.5% in August). The swaps market has about a 46% chance of a hike in December, down slightly from the end of last week. On the contrary, we suspect the odds have crept up.
GBP: Sterling has had a tough week, though the economic diary was light. It was sold to a six-month low yesterday, slightly above $1.3115. Although it stabilized and recovered back above the $1.3140 area that help in May and August, the technical tone has deteriorated, and it remains below the 200-day moving average (~$1.3245) for the first time since April. It has held above yesterday's lows today but has been unable to rise above the $1.3165 area. A weekly close below $1.3140 would leave it in a vulnerable position. The main feature next week is the central bank meeting. The swaps market has around 25% chance of a cut. It was less than 10% at the end of last month. One large US investment bank forecasts BOE cut and is one of the two of 16 economists surveyed by Bloomberg that anticipate a cut.
CAD: After the Bank of Canada cut rates on Wednesday, the US dollar extended its pullback against the Canadian dollar, falling to its lowest level in more than a month, slightly below CAD1.3890. The greenback's surge after the hawkish cut by the Fed lifted it back to around CAD1.3950, and the follow-through action yesterday, saw it near CAD1.4015. This met the (61.8%) retracement of the US dollar's retreat from the six-month high recorded on October 14 near CAD1.4080. It is trading quietly (~CAD1.3980-C AD1.4010), but firmly in the upper end of yesterday's range. StatsCan is expected to shortly report that the economy stagnated in August after growing 0.2% in July. The monthly GDP has not risen for two consecutive months since September-October 2024. The Bank of Canada delivered its fourth rate cut of the year on Wednesday, and the official comments confirm what the market already suspected: the bar to another cut is high,
AUD: The Australian dollar rallied from around $0.6445 on October 17 to about $0.6615 before the Federal Reserve's rate cut on October 29. Yesterday, it was sold to almost $0.6530 to meet the (50%) retracement of the rally. While yesterday's low is holding, the Aussie has barely traded to $0.6560. A break of $0.6530 can spur a move toward $0.6500. The elevated CPI reading on Wednesday is understood as practically ruling out a rate cut by the Reserve Bank of Australia next week. Today's Q3 PPI does not change that calculus. It rose 1.0% (0.7% in Q2) and the year-over-year rate edged up to 3.5% (from 3.4% in Q2).
MXN: The dollar broke out of the narrow consolidative range to the upside and briefly traded above MXN18.60 yesterday for the first time in two-and-a-half weeks. The high for the month set, October 10, was a little below MXN18.64, while the high from October 14 was slightly below MXN18.63. The dollar is holding above MXN18.50 today. It has not spent an entire session above there since September 10. The 0.3% contraction in Q3 GDP that Mexico reported yesterday reinforces speculation that Banxico will cut rates next week to 7.25% from 7.50%. It will be seventh rate cut this year for a cumulative reduction of 275 bp. In 2024, the central bank cut 125 bp. Brazil's central bank also meets next week. It is expected to keep the Selic rate at 15.00%, where it has been since June. The US dollar recovered from BRL5.3345 on Wednesday and approached the week's high and the 20-day moving average near BRL5.3950 yesterday. The next area of resistance is around BRL5.4050-BRL5.4300. Coming into today, the US dollar has fallen by about 3.5% against the Argentine peso since this week, since Milei's party did better than expected in the election. The 10-year dollar bond yield has fallen by almost 25 bp this week. Although the US Treasury has declared victory, for many market participants, the jury is still out.
Reviewed by Marc Chandler
on
October 31, 2025
Rating:
