Overview: The US dollar is slightly firmer against most of the G10 currencies, with the Antipodeans, leading the move with around 0.25% losses. Rising tensions between Japan and China, coupled with shift in expectations away from a Fed cut and a BOJ hike next month keeps the dollar within strike distance of JPY155, where $1.4 bln in options expire today. The euro is straddling the $1.16 area, where options for around 485 mln euros expire. The nearly flat performance of the Swedish krona and Canadian dollar put them atop the G10 performers heading into the North American session. Emerging market currencies are also mostly softer today, including the Chinese yuan, despite the PBOC setting the dollar's fix at a new low for the year today.
Equities ae mixed. In the Asia Pacific region, Japan, China, and Hong Kong markets fell, while the other large bourses advanced, led by a nearly 2% gain in South Korea. Europe's Stoxx 600 is off for the third consecutive session, while the S&P and Nasdaq futures are 0.20%-0.45% higher. Japanese bond yields rose with the 10-year yield rising to a new multi-year high near 1.74%. Benchmark 10-year rates are mostly lower in Europe. Fitch upgraded Greece's rating to BBB (from BBB-) late Friday, and the yield is off nearly two basis points today. Moody's review Italy at the end of this week, and an upgrade is possible. The 10-year US Treasury yield is 2-3 bp softer, near 4.12%. After falling 2% before the weekend, gold is consolidating in a roughly $4050-$4105 range. December WTI is also consolidating today within the pre-weekend range. It tested $58 last Thursday and is struggling to sustain a foothold above $60.
USD: The Dollar Index held the 99.00 level in the last two sessions and, although it settled below the 20-day moving average ahead of the weekend, it settled near session highs. It reached nearly 99.50 today. There may be near-term potential back into the 99.65-85 area. encouraged, perhaps be the paring of odds that the Federal Reserve will cut rates next month. While the September nonfarm payroll report may be released later this week, the impact is likely to be marginal at best. It is too old for what is generally regarded as a lagging indicator and weakness has already been tipped by the ADP estimate. The NY Fed's November manufacturing survey also is due today. It is a volatile series and poses headline risk. It has fallen by an average of 4.1 through October (-10.6 average in the first 10 months of 2024). The 4.6 average over the last three months is the highest for a three-month period since April 2022. Four Fed officials speak today: Williams, Jefferson, Waller, and Kashkari.
EURO: The euro stalled last week after marginally surpassing the (38.2%) retracement of the pullback since the multi-year high was set near $1.1920 on September 17. The retracement was around $1.1640, and the single currency reached $1.1655. Although it held above $1.16 before the weekend, it slipped lower earlier today. Options for about 485 mln euros struck at $1.16 expire today. Support is seen in the $1.1575-85 area. It is a subdued week for eurozone data. Today's highlight was the updated EC economic forecasts. Growth this year is seen at 1.3% (0.9% previously), 1.2% (from 1.4%) next year, and 1.4% in 2027. CPI is seen at 2.1% this year, unchanged from its earlier project, while next year's forecast has edged up to 1.9% from 1.7%, and 2.0% in 2027. The ECB's September projections put GDP growth at 1.2% this year and 1.0% next year, but the CPI forecasts were for 2.1% this year and 1.7% in 2026.
CNY: The dollar found support at the end of last week slightly above CNH7.09. The greenback can recover into the CNH7.1100-CNH7.1150 area with little implications. The PBOC set the dollar's reference rate at a new low for the year (CNY7.0816 vs CNY7.0856 a week ago). Many observers suspect that the PBOC is guiding the exchange rate toward CNY7.0. Despite the disappointing data last week, China's loan prime rates are unlikely to be cut this week. As Chinese trade has made up for the decline of shipments to the US, and though more trade is reportedly conducting in yuan, it makes sese that the fx customer settlement generally increases. It has averaged CNY837 bln a month this year through October after averaging net sales of almost CNY750 mln in the first ten months of 2024 and net sales of CNY223 bln in the same 2023 period. We think arguments conflating this with intervention are exaggerated. It also does not do justice to the undisputed fact that the PBOC has been reducing the dollar's reference rate.
JPY: The dollar recovered from a four-day low near JPY153.60 to JPY154.75 ahead of the weekend. The downgraded of the chances of a Fed cut and of the probability of a BOJ rate hike next month means that the JPY155.05, nine-month high set last week may come under more pressure. The dollar reached nearly JPY154.85 in early European trading today. There are options for $1.4 bln at JPY155 that expire today. The swaps market has reduced the chances of a BOJ hike for the seventh session in a row today; to about 30% from nearly 50% a week ago. A move above JPY155.00 target the February high next (~JPY155.90). Without tighter monetary policy, the risk is that material intervention would be criticized by the United States, which could undermine whatever effectiveness it may have. Meanwhile, tensions with China have risen since Prime Minister Takaichi's comments about the significance of Taiwan in Japan's miliary security. The first pushback was to threaten Chinese tourism to Japan (~7.5 mln in Jan-Sept). and further action is being threatened. Separately, earlier today, Japanese economy contracted at an annualized rate of 1.8% in Q3 (-0.4% quarter-over-quarter), which was slightly less than expected. The economic weakness may help explain the Bank of Japan's reluctance to raise rates. Consumption slowed to 0.1% quarter-over-quarter (0.4% in Q2) and business spending rose by 1.0% (0.8% in Q2, rather than 0.6% as initially reported). Inventory liquidation shaved 0.2% off the quarterly GDP and net exports were almost a 0.2% drag on Q3 growth. Nevertheless, as last week's tertiary industry index (0.3% in September after 0.1% in August) and today's final September industrial production report showed (2.6% after -1.5% in August and -1.2% in July), the economy enters Q4 with some positive momentum.
GBP: Sterling was virtually unchanged last week despite a series of disappointing data and the perceived increased chances of a Bank of England cut next month. It is trading quietly today inside last Friday's range. It has been confined to about $1.3135 to $1.3180 so far today. Options for about GBP380 mln at $1.3185 expire today. Another set for GBP540 mln at $1.3100 also expire today. The euro reached a new 2 1/2-year high against sterling ahead of the weekend near GBP0.8865, which virtually meets the (61.8%) retracement of the decline since PM Truss's crisis in September 2022. It is trading roughly between GBP0.8500 and GBP0.8840 today. At GBP0.8830, almost 515 mln euros of options expire today. This week's data begins in earnest in the middle of the week with the October CPI. Due to the base effect, a 0.4% increase would see the year-over-year rate slip to 3.6% from 3.8%. Service prices may ease from the 4.7% level that has been at in four of the past five months (the exception was the 5.0% pace seen in July). Public finances, which take on greater importance as the market looks toward next week's budget statement, and slower (October) retail sales, and the preliminary PMI are reported at the end of the week.
CAD: The US dollar fell from CAD1.4140 on November 5 to CAD1.3985 on November 13. That met the (61.8%) retracement of the rally since both central banks cut rates in late October. Yet, the US dollar recovered on November 13 and posted a bullish outside update. Follow-through buying ahead of the weekend lifted it to CAD1.4045. It is trading in a narrow range between CAD1.4015 and CAD1.4040 so far today. Initial resistance is seen in the CAD1.4060-80 area. Canada reports October existing home sales and housing starts today. The monthly portfolio flows for September and October CPI will also be reported. The market understands that the Bank of Canada is on hold. Through the first half of 2026, the swaps market is not discounting more than a 1-in-3 chance of another cut. Portfolio inflow has dried up this year. They are about 75% lower in the Jan-Aug period compared with a year ago. Canada's CPI rose at an annualized rate of 1.2% in the third quarter half of what it was in Q2. The Bank of Canada puts more weigh on the underlying core measures, but Governor Macklem has argued they are overstated a little above 3%, and it may be closer to 2.5%.
AUD: The Australian dollar rallied from about $0.6460 on November 5 to $0.6580 on October 13. The setback to almost $0.6500 before the weekend, met the (61.8%) retracement of the rally. Still, it settled last week firmly near $0.6540. It has been confined to last Friday's range today. The minutes from the central bank meeting earlier this month will be published tomorrow, but the market impact will likely be negligible. The stronger than expected jobs data diminished further any lingering speculation of another rate cut. Through Q1 26, the futures market is not pricing in more than a 25% chance of a cut.
MXN: The dollar initially rallied to a four-day high near MXN18.4040 before the weekend against the Mexican peso. But, as US equities, the peso found better traction. The dollar retreated to almost MXN18.30 and left a potential bearish hammer candlestick in its wake. It is in a narrow range today straddling the MXN18.30 level. Last week's low was recorded on November 13 around MXN18.25. The October low was closer to MXN18.24, and the year's low, set September 17, was near MXN18.20. The MXN18.1840 area corresponds to a (61.8%) retracement of the rally from the April 2024 low (~MXN16.2620) to the MXN21.2930 high from early February. The Chilean election results were largely as expected. There was a shift to the right in parliament and a run-off election for president will take place on December 14. The dollar bounced ahead of the weekend after setting a four-month low last Thursday slightly below CLP923.
Reviewed by Marc Chandler
on
November 17, 2025
Rating:
