Overview: The dollar is trading quietly in mostly narrow ranges against the most of the G10 currencies. The key development has been the escalation of pressure on Russia from a new round of sanctions by the US and EU. The US sanctioning of two of Russia's largest oil companies will disrupt Chinese and Indian buyers who may fear being sanctioned themselves if they continue buying Russian oil after a few weeks grace period. December WTI was at a five-month low near $56 a barrel on Monday has surged to about $61.60 today. The month's high was set around $62.50, which is also now near the 100-day moving average. In the foreign exchange market, the jump in oil prices may be a factor leading to the yen's under-performance today and the Norwegian krone's outperformance. Most emerging market currencies are weaker, though the PBOC set the dollar's reference rate at a new low since October 2024.
The rise in oil prices has taken the wind from the global bond market. Benchmark 10-year yields are up 1-2 bp in Europe and the 10-year Treasury yield is up nearly four basis points to 3.99%. If sustained it would be the largest rise in the US yield this month. Meanwhile, the US is reportedly considering broad software curbs on China, and this may have weighed on Japanese, South Korea, and Taiwanese equities today. Other bourses in the region advanced. Europe's Stoxx 600 is firm, recouping yesterday's nearly 0.2% decline. US index futures are little changed. After a few days of volatile moves, gold is trading quieter in its narrowest range in slightly more than a week (~$4066-$4137).
USD: The Dollar Index has a four-day advance in tow, matching its longest rally in nearly three months. It reached almost 99.15 yesterday, and last week's high was almost 99.50, which is also around where the trendline drawn off the August 1 and early October highs is found today. It is trading firmly but in a narrow range so far today, in about a 10-tick range on either side of 99.00. With the federal government still closed, the economic report calendar remains light. Today features September existing home sales (a 1.5% rise is expected after a small decline in August) and the Kansas City Fed's October manufacturing survey. Both reports pale in comparison to tomorrow’s September CPI and preliminary October PMI. Barring a significant surprise, the market continues to be confident of a rate cut next week. The Fed funds futures have it completely discounted. Meanwhile, pressure on Russia reached an inflection point. The US announced it would sanction Rosneft and Lukoil, which together account for about half of Russia's oil exports. This means that Chinese and Indian companies that buy Russian oil, for example, also risk being sanctioned. The EU announced another round of sanctions against Russian companies. Although the US has not agreed on selling Ukraine Tomahawk missiles, it did agree to allowing Ukraine to use missiles that can strike further into Russia.
EURO: Since reversing lower last Friday from nearly $1.1730, the euro has been sold this week to almost $1.1575. Options for 1.4 bln euro expire there today. This month's lows, around $1.1540-45 were the lowest the euro has been since August 5 when it approached $1.1525. Another other set of options, for 1.1 bln euros at $1.1650, also expires. The euro is in a range of about $1.1590-$1.1615 through the European morning. Tomorrow, the preliminary October PMI is due. It is expected to be little changed. The risk is that after inching high in the previous four months to 51.2, the composite may soften slightly. The ECB meets next week but there is practically no chance of a change in policy.
CNY: The dollar continues to chop inside the range set last Friday against the offshore yuan (~CNH7.1170-CNH7.1325). It is in narrow range today between about CNH7.1230 and CNH7.1290. The greenback has not settled above CNH7.1300 for more than a week. The high for the month was recorded on October 8 near CNH7.1535. The PBOC set the dollar's reference rate at CNY7.0918 today, its lowest since October 2024. The fix has been below CNY7.10 for the seventh consecutive session.
JPY: The dollar recovered from about JPY149.40 last Friday and reached almost JPY152.20 on Tuesday. It consolidated yesterday and largely held above JPY151.50. The dollar has surged today and made new highs in the European morning near JPY152.65. It is at its best level since the key downside reversal on October 10 when it reached slightly through JPY152.25. Some link the yen's sell-off to the jump in oil prices. The new Japanese government is quickly cobbling together a fiscal package, which is slightly larger than last year's effort. Reports suggest it may be around JPY3.9 trillion (~$92.2 bln). It appears to have three major features: measures to soften the inflation pressures for households, investment in growth industries, and national security. President Trump is scheduled to visit Tokyo next week. Tomorrow, Japan reports the September CPI, which based on the previously released Tokyo report, the headline and core rates are seen ticking up to 2.9% from 2.7%, while the measure the excludes fresh food and energy may ease to 3.1% from 3.3%. Recall that Japan's CPI increase peaked in January at 4.0%, which is also the last time the year-over-year rate increased. Japan also sees the preliminary October PMI. It is not typically a market-mover in Japan. Still, recall that the composite eased to 51.3 in September from 52.0 in August. The August reading matched the high for the year and the slippage in September was the first decline since May.
GBP: The softer than expected UK September CPI saw sterling sold to almost $1.3300 yesterday, its lowest level since last week's low was recorded near $1.3250 on October 14. It stabilized but was unable to reclaim the $1.3360 area, where sterling found support on Tuesday. Sterling is trading quietly today between $1.3330 and $1.3365. The five-day moving average slipped below the 20-day moving average for the first time in almost a month. The CBI October surveys, reported earlier today, which was weaker than expected (total orders and business optimism) but with a jump in selling prices (16 vs. 4, a three-month high). Tomorrow sees September retail sales and the first look at the October PMI. The median forecast in Bloomberg's survey expects a 0.3% decline in retail sales (reported on a volume basis) after a 0.5% gain in August. Meanwhile, the October PMI is seen edging up. The composite fell in September to 50.1 (from 53.5 in August). That was the lowest since it dropped below the 50 boom/bust level in April (for the first time since October 2023).
CAD: The US dollar fell to a seven-day low against the Canadian dollar yesterday, near CAD1.3975 and settled below CAD1.40 for the first time since October 8. This is about the (50%) retracement of the greenback's gains from the dip below CAD1.39 on September 30. The next technical target may be in the CAD1.3965 area, which houses the (61.8%) retracement of the leg up from September 30 and the 200-day moving average. The area also offered resistance earlier this month. The greenback is in a narrow range of about 10-ticks around yesterday's settlement (~CAD1.3995). StatsCan reports August reports retail sales today. The median forecast in Bloomberg's survey is for a 1% gain after a 0.8% decline in July. The Bank of Canada meets next week and the swaps market is pricing in about a 75% chance of a cut. It was around 50% at the end of last month.
AUD: The Australian dollar continues to trade broadly sideways. It has traded on both sides of $0.6500 for the tenth consecutive session. It is firm, but still in Tuesday's range (~$0.6475-$0.6525). The daily momentum indicators are oversold but look to be bottoming. A move above $0.6535 would help lift the tone, but the $0.6545-55 area must be overcome to boost confidence a low is in place. Australia also sees the preliminary October PMI tomorrow. Recall that in September, the composite snapped a three-month advance with the sharpest decline in nearly two years. It fell from 55.5 to 52.4. The Reserve Bank of Australia meets on November 4, and the futures market has slightly more than a 55% chance of a cut discounted. Still, expectations will be sensitive to the quarterly CPI due in the middle of next week.
MXN: The dollar has not deviated much from the range see on October 10, roughly MXN18.36-MXN18.6375. The five- and 20-day moving averages have converged in the MXN18.41 area. Options for $580 mln at MXN18.40 and another $350 mln at MXN18.41 expire today. The greenback is trading uneventfully between almost MXN18.41 and MXN18.4550 today. Argentina's crucial midterm election is Sunday, and the peso will be sensitive to the results. Ironically, the US financial support might be slowing the Argentine pesos slide but might alienate voters of worry about the long arm of the US and reject the not very thinly veiled attempt to influence the election. Today, Mexico reports August retail sales, where a small gain is expected (0.2% after 0.1% in July). Mexico also reports CPI for the first half of October. The headline and core rates may slip marginally. The central bank meets on November 6. The market sees it as a close call and has about half of a quarter-point cut discounted.
Reviewed by Marc Chandler
on
October 23, 2025
Rating:
