Overview: The prospect that the longest US government shutdown in history may end in the next few days has bolstered risk appetites, driven equities broadly higher and left the dollar non-plussed. The greenback is mixed against the G10 currencies. The Japanese yen, which appears have been dragged lower by the jump in US rates. The dollar-bloc currencies and Scandis are leading the move against the dollar. Among emerging market currencies, the Indian rupee, Turkish lira, Thai baht, and a few central European currencies are nursing minor losses. The South African rand, Malaysian ringgit, South Korean won lead the complex higher.
Several large bourses in the Asia Pacific region rose more than 1% today, including the Nikkei, Hang Seng, and South Korea's Kospi. A potential cut in the dividend tax in South Korea and a likely increase in the domestic equity allocation by a pension fund, lifted the Kospi by 3%. Europe's Stoxx 600 is 1.4% higher through the morning turnover. It is sustained it would be the largest advance in six months. The S&P 500 futures are trading nearly 1% better, and the Nasdaq futures are up around 1.5%. Asia Pacific benchmark 10-year rates rose 2-4 bp, but in Europe, they are decidedly mixed, with peripheral premiums narrowing against Germany. The 10-year US Treasury yield is hovering slightly below 4.13%. Last week's high was near 4.16% and last month's high was closer to 4.20%. Gold is up 2% today after falling for the past three weeks. It has risen through the 20-day moving average (~$4080) for the first time in more than two weeks. The next target may be near $4135. December WTI is trading quietly, inside last Friday's range, which was inside last Thursday's (~$58.85-$60.50).
USD: The Dollar Index is consolidating inside last Friday's range (~99.40-99.85). The losses since the middle of last week saw the Dollar Index give back a little more than half of the gains since last month's Federal Reserve's hawkish cut. That retracement was a little below 99.50. The next retracement and the 20-day moving average are in the 99.20-25 area. If a top is in place, we should look for a retracement of the larger rally that began with the September 17 rate cut. The initial retracement target (38.2%) is slightly above 98.75. While the US government is still closed, a deal that will re-open in a few days appears to be in the works. The Dollar Index's high today was recorded in initial trading in the Asia Pacific when the news first hit. The low was recorded in early European turnover. The economic calendar is empty today. Tomorrow's holiday will close the bond market but not the stock market. Meanwhile, some pressure in the money market has eased but with reserves low, and being exacerbated by Treasury's General Account (TGA), which is at high levels due to seasonal factors and the government shutdown means money goes in but is not spent due the lack of spending authorization. That tightens financial conditions. One important difference between now and 2019 is that the Federal Reserve has established a standing repo facility. Its current use may be helping the financial system cope with the pressures.
EURO: With the recovery since the middle of last week, the euro nearly recouped (61.8%) of the decline since the Fed's hawkish cut late last month. It stalled near $1.1595 at the end of last week, which also is around where the 20-day moving average was found. It is trading quietly today between about $1.1540 and $1.1585. Above there, the next immediate target is around $1.1620 but the high from the eve before the Fed's cut was near $1.1670. Options for 1.14 bln euro at $1.1600 expire today. The price action itself is more important than this week's economic data. Germany's November ZEW survey is due tomorrow. The current assessment has fallen for the past three months. It stood at -80 in Oct after finishing last year at -93.1. Expectations tell a different story. They have risen for the past two months and five of the last six. It was at 39.3 in October and 15.7 at the end of last year.
CNY: The greenback recovered from a little below CNH7.09 after the Fed's rate cut late last month and reached almost CNH7.14 in the middle of last week. It found support ahead of CNH7.12 in the second half of last week, but slipped through it today almost CNH7.1185, a five-day low. It is noteworthy that while the PBOC has been lowering the dollar's reference rate, the greenback recorded this year's low against the offshore yuan near CNH7.0850 on September 17, when the Fed delivered its first rate cut of the year. The PBOC set the dollar's fix today at CNY7.0856 (CNY7.0836 before the weekend and CNY7.0867 a week ago. China reported October CPI and PPI over the weekend. The CPI unexpectedly rose 0.2% year-over-year, the most since January. A year ago, it was at 0.3%. Food inflation is still a drag. Food prices are 2.9% below year ago levels. But it does not jive with the consensus narrative about weak demand being the source of consumer deflation. Non-food prices are up almost 1% year-over-year. Core CPI stands at 1.2%. Deflation is still evident in producer prices, which are 2.1% below year ago levels and that matches the least deflation since August 2024. Producer price deflation has moderated since -3.6% in June and July.
JPY: The dollar took a leg up from about JPY151.55 on October 29 to JPY154.45 the next day. It traded choppily, almost begrudgingly, and pulled back to around JPY152.80 before the weekend. The (61.8%) retracement of that two-day spike is near JPY152.65, and the 20-day moving average is about JPY152.55. Yet, the jump in US Treasury yields in response to the possibility of the US government re-opening has seen the dollar recover to almost JPY154.25 today. Initial support is now seen in the JPY153.80 area. The record from the recent central bank meeting did not impact expectation for next month's BOJ meeting. Japan reports is September current account the first thing tomorrow. The surplus averaged JPY2.62 trillion (~$17.7 bln) a month this year. The average in the first eight months of 2024 was JPY2.58 trillion. On the other hand, the trade deficit on the balance of payments basis has averaged JPY232.5 bln a month (~$1.57 bln) compared with an average of almost JPY415 bln in the January-August 2024 period.
GBP: Sterling traded poorly since the FOMC meeting last month. It was reached six-month lows last week, but as $1.30 held and the US dollar fell more broadly, the sterling snapped back. Ahead of the weekend, it set a six-day high near $1.3175. Follow-through buying today has seen $1.3185. Near-term potential may extend toward $1.3230-65. Options for GBP940 mln expire Wednesday at $1.3230. With the Bank of England holding policy steady last week, tomorrow's labor market update is unlikely to seriously impact expectations for next month's meeting. The labor market is slowing but the central bank will have more recent data in hand when it meets. The swaps market is discounting a little more than a 70% chance of a cut in December, which would bring the base rate to 3.75%. The terminal rate is seen around 3.50%, with about a 40% chance that it is 3.25%.
CAD: Canada has a light economic calendar this week and local markets are closed tomorrow for the Day of Remembrance. In the broad US dollar rally, since both the Federal Reserve and the Bank of Canada cut interest rates in late October, the Canadian dollar tumbled to its lowest level last week since April. The greenback reached CAD1.4140 and the (50%) retracement of this year's losses is near CAD1.4165. The US dollar's heavier tone in the second half of last week and the decline in the Canadian unemployment rate, pushed the US dollar to a three-day low around CAD1.4055. Follow-through selling today saw it test the CAD1.40 level. The CAD1.3985 area is where the (61.8%) retracement of the rally since late last month is found.
AUD: The Australian dollar recorded an inside day before the weekend, in a roughly a third-of-a-cent range below $0.6500. It has surged to almost $0.6540 today and has met the (50%) retracement objective of the down leg that began at the end of last month. The next retracement (61.8%) is slightly above $0.6555. There are options of nearly A$450 mln that expire at $0.6560 today. The Reserve Bank of Australia stood pat last week, and today's bank surveys have little impact on the next month's decision. The same is true of tomorrow's house loan value estimates. The futures market has almost a 15% chance of a cut in the target rate in December.
MXN: The peso was resilient ahead of the weekend. In the face of more than 1% drops in the S&P 500 and Nasdaq, the peso gained about 0.30% against the dollar. The greenback peaked in the middle of last week near MXN18.77 and before the weekend approached the week's lows set on November 3 around MXN18.4650. The US dollar has been sold slightly below MXN18.37 today. Nearby support is seen near MXN18.34. Following last week's rate cut (overnight target is 7.25%) and the CPI, Mexico reports September industrial production tomorrow. With Q3 GDP already in hand, September industrial output is unlikely to have much impact on the central bank's policy trajectory. The swap market sees scope for another quarter point cut. We suspect that if the economy struggles to find much traction and the Federal Reserve extends its easing cycle, Banxico will have scope to cut rates below 7.0%, if needed.
Reviewed by Marc Chandler
on
November 10, 2025
Rating:
