Overview: A sell-off in equities is continuing while the foreign exchange market is quiet with the greenback confined mostly to narrow ranges. It is firmer against most currencies, though the dollar bloc is the most resilient today. The dollar reached a new nine-month high against the yen. Despite some escalating rhetoric from the MOF, the market is pushing the dollar higher amid concern about the new fiscal package the government is set to unveil shortly and heighten tensions with China. Emerging market currencies are under pressure, and the Turkish lira is at new record-lows.
All the large equity markets have sold off today. The main indices Japan, South Korea, and Taiwan were hit for more 2-3%, while Hong Kong and Australia were tagged for almost 2%. Europe's Stoxx 600 is off about 1.3%, the most since early September. It is the fourth consecutive drop. US index futures are down around 0.25%. Benchmark 10-year yields are lower outside of Japan. European yields are mostly less than a basis point lower, while the 10-year US Treasury yield is down about three basis points to slightly below 4.10%. Gold slipped through $4000 for the first time in a week but recovered to around $4050 in Europe. December WTI is consolidating within yesterday's range (~$59.30-$60.45) and is knocking on $60 from below in late European morning turnover.
USD: The Dollar Index is fraying the upper end of last Thursday's range (~99.00-99.60), which has confined activity. Initial resistance may be in the 99.85 area. The 200-day moving average is a little below 100.00, and DXY has not traded above it since early March. The adjustment of US interest rate expectations may have run its course ahead of new news. The two-year note appears capped around 4.60% and the December Fed funds futures have imply about a 40% chance of a cut, down from 100% before last month's FOMC meeting. ADP provides its weekly update tomorrow, ahead of the BLS September jobs report on Thursday. ADP's monthly report has been fairly accurate this year. As we have noted, in the three months through August, the BLS estimated that US private sector employment rose by an average of 29k a month while ADP's projected an average of 26k a month. For the eight months through August, the BLS shows an average of 74k private sector jobs were created, while ADP's estimate was for 73k. In September, ADP projects a loss of 29k private sector jobs, the most since March 2023. However, it showed a rebound of 42k in October. The weekly jobless claims from mid-October were reported earlier today at 232k, a little below the previous four-week average of almost 238k. The BLS also announced it will report September CPI on Friday so an annual cost-of-living adjustment can be determined for Social Security.
EURO: After recording the high for the month near $1.1655 last Thursday, the euro stalled and consolidated. It tested last Thursday's low (~$1.1580) today and is is barely holding. The low this month was near $1.1470, and the $1.1585 area corresponds to a (38.2%) retracement and the (50%) retracement is slightly above $1.1560. The daily momentum indicators are still moving higher, and the five-day moving average is above the 20-day. The US 2-year premium over Germany reached a roughly two-month peak around 162 bp in late October and early November. It has drifted lower but needs to push below 150 bp to signal anything noteworthy. The data highlight of the week is the preliminary PMI on Friday. An uptick in manufacturing may be offset by slippage in services, leaving the composite little changed around 52.5.
CNY: The greenback found support in ahead of CNH7.09 in the second half of last week. It recovered to about CNH7.1120 yesterday and extended it to CNH7.1170 today. Nearby resistance is seen in the CNH7.1200-30 area. The PBOC set the dollar's reference rate at CNY7.0856 (after fixing it at a new low since last October yesterday at CNY7.0816). A combination of the cabinet's recent call to expedite the implementation of the national economic strategy and the disappointing October data reported last week is boosting speculation of a monetary policy response that could include a cut in reserves as well as a reduction of interest rates. However, banks may be reluctant to reduce their loan prime rates (to be set tomorrow) until there is a clearer sign of Beijing’s intent.
JPY: The dollar reached a nine-month high today slightly shy of JPY155.45, in Europe. Despite some jawboning by the MOF, the market continues to probe the official pain threshold. In fact, Finance Minister Katayama seemed to escalate her rhetoric today, noting that the monitoring of excess volatility or disorderly movement was being monitored with "a high degree of vigilance." Options for about $530 mln at JPY155.50 expires today. The US 10-year yield, which often seems to drive the exchange rate continues to chop between about 4.07% and 4.16% since late last month. The break of above JPY155 could spur gains toward the February high in the JPY155.90 area. The contraction in Q3 GDP, reported yesterday, keeps the market focused on the fiscal package that could be unveiled in the coming days. There is talk that new spending could be JPY15-20 trillion (vs JPY13.9 trillion last year). Meanwhile Prime Minister Takaichi met with BOJ Governor Ueda earlier today. Next month's BOJ meeting concludes on December 20, and the swaps market has downgraded the chances of a hike. Many economists now favor a January move. Yet, tensions with China continue to run high over Takaichi's recent comments recognizing the importance of Taiwan for Japan's national security and the combination of domestic and new international pressure are weighing on Japanese long-term yields. The 40-year bond yield reached almost 3.69% today (up almost eight basis points), the highest since 2007. Tomorrow, Japan auctions 20-year bonds. The yield rose for the ninth consecutive session today and reached nearly 2.82%, the highest since 1999.
GBP: Sterling continues to trade within the range set last Thursday of about $1.3100 to $1.3215. The 20-day moving average is near $1.3185, and sterling has not settled above it since October 17. The daily momentum indicators are still rising. Some demand for sterling was evident against the euro. The euro reached a 2 1/2-year high at the end of last week near GBP0.8865. It posted a three-day low close before the weekend and follow-through selling yesterday sent it below GBP0.8800 for the first time in four sessions. It is holding above there today. October CPI will be reported tomorrow, and all the measures are expected to moderate slightly, including core and service prices. Still, UK inflation is the highest in the G10, though the market is feeling comfortable with rate cut at next month's meeting (~78% vs. ~68% at the end of October).
CAD: The Canadian dollar was the best performer among G10 currencies yesterday, but it still softened against the greenback. It is also atop the G10 today, which is not unusual in a firm US dollar environment. The US dollar consolidated in the upper end of the recent range. It edged up slightly through CAD1.4060 earlier today but is consolidating now around CAD1.4040. The CAD1.4080 area, which may offer a nearby cap. October CPI rose 0.2%, in line with expectations and the year-over-year pace eased to 2.2% from 2.4%, while the underlying core rates slipped. Separately, September portfolio inflows rose to C$31.3 bln (from C$23.6 bln), the most since April 2024. Although the year-to-date inflows are lackluster (~C$58 bln vs C$144 bln in the first nine months of 2024), the net inflows in Q3 were C$80.3 bln, the most in a quarter since January 2022. Separately, with a two-vote margin, the minority government's budget was passed with the help of a couple cross-overs and abstentions yesterday. The fiscal expansion was sought to boost competitiveness, broadly conceived.
AUD: Yesterday was the first time in six sessions that the Australian dollar did not settle between $0.6500 and $0.6550. The Aussie was sold to almost $0.6480 yesterday to approach last week's low and today tested the month's low near $0.6465 before recovering back to $0.6500. The minutes from the recent central bank meeting were released earlier today and had little impact on interest rate expectations. The derivative markets lean toward the RBA having completed its easing cycle with the overnight rate target of 3.60%. There odds of a cut next month were squeezed from a little less than a 7% chance of a cut yesterday to less than 5% today.
MXN: Amid the broadly firmer dollar tone and heavier equity market, the dollar rose to nearly MXN18.43 yesterday. The risk-off moment has extended into today and the greenback traded above last week's high (~MXN18.47) to briefly traded a little above MXN18.49. It is trading in the MXN18.46-47 area in the late European morning turnover. Nearby resistance is in the MXN18.51-MXN18.57 area. The peso was the weakest in the region yesterday, followed by the Brazilian real. Investors responded positively to the Chilean election results and bid the Chilean peso up around 0.40%, the sixth consecutive advancing session, its longest rally since May 2024. It was among the strongest emerging market currency yesterday, after the Argentina peso's 1.2% rally (its fifth consecutive advancing session). Chile's conservative Kast seems a sure winner over Jara in next month's run-off Chilean stocks and bonds also rallied yesterday. Mexico's data highlight is at the end of the week. It includes another look at economic contraction in Q3 and the September IGAE, which is similar to a monthly GDP estimate. In July and August, it fell. It was the first back-to-back contraction since the economy was emerging from the pandemic in early 2021.
Reviewed by Marc Chandler
on
November 18, 2025
Rating:
