The dollar is mixed as the last North American session of the week gets underway. As widely expected, the Bank of Japan left rates on hold and the gyrations of the yen immediately afterward gave rise to some speculation of material intervention. We are a bit skeptical but recognize the heightened verbal intervention and the possibility that officials checked rates. The other notable development is the PBOC set the dollar’s reference rate below CNY7.0 for the first time since 2023.
President Trump is expected to announce his pick for Fed Chair in the coming days. Whether Powell stays after May to complete his term as governor is unlikely to be announced for some time. The FOMC meets next week and the decision to stand pat is likely to be less controversial than last month’s decision to cut rates. Meanwhile, the Republican-led House of Representative passed a funding bill for the federal government through the remainder of the fiscal year. Some pushback against the president’s priorities was included. Still, the Senate is expected to approve the bill, and Trump is expected to sign it, averting another government shutdown at the end of this month.
Prices
G10
• The euro posted an outside up day yesterday, trading on both sides of Wednesday’s range and settled above it high. More significantly from a technical perspective is a close above last week’s high (~$1.17) would be an outside up week. The euro edged up to almost $1.1760, stopping shy of Tuesday’s high of almost $1.1770. It has slipped slightly below $1.1730 in consolidative trading, but the intraday momentum indicators are stretched, setting the stage of a possible rebound in North America.
• Bloomberg has the dollar making a new six-day high yesterday by 1/100 of yen (almost JPY158.90) before reversing lower. There are options for $1.7 bln struck at JPY159 that expire today. After the BOJ left rates on hold, the greenback spiked to almost JPY159.23, and then reversed low, falling to nearly JPYU157.35, and new low since January 8. There is some speculation of intervention, but material intervention does not look particularly likely. Heightened verbal intervention, and possibly a check on rates, seems more probable than intervention. The dollar frayed the 20-day moving average near JPY157.55 today but is near JPY158.25 in late European morning turnover.
• Sterling tested and held Wednesday’s low yesterday, a whisker above $1.3400, and from there launched a run to a two-and-a-half week high a few hundredths of a cent above $1.3500, but only after the expiration of about GBP380 mln option at $1.3495. Sterling recovered slightly through $1.3535 today, its best level since January 6. The high earlier this month was slightly below $1.3570, which was the highest it has been since the day after the Federal Reserve delivered its first cut of 2025 on September 17. The daily momentum indicators look poised to turn higher.
• The greenback posted an outside day against the Canadian dollar but did not settle below Wednesday’s low (~CAD1.3785). Still, it looks heavy. It has held below CAD1.3800 so far today and has remained above CAD1.3780. The next technical retracement target is near CAD1.3750, and below it, is CAD1.3710. The momentum indicators have turned lower. The five-month low set last month was slightly below CAD1.3645 and looks to be a reasonable target over the next week or two.
• The Australian dollar was one of the strongest G10 currencies at the start of the year before yesterday’s stronger than expected employment data and heighted speculation of a rate cut as early as next month propelled it to nearly $0.6645. It reached nearly $0.6655 today. It has not been higher since October 2024. The Aussie bulls risk getting ahead of themselves. The Bollinger Band is set at two standard deviations above the 20-day moving average, and the Aussie settled more than three standard deviations above the 20-day moving average yesterday. By this statistical measure, it is more overbought than it has been in years. That three-standard deviation mark is near $0.6860 today, while the standard Bollinger Band is a little above $0.6810 today.
EM
• The dollar remained pinned near Wednesday’s year-and-a-half low against the Mexican peso when it reached MXN17.4225. It did not trade below MXN17.4380 yesterday. Today’s low was slightly lower. The next area of support chart we identified is MXN17.38. The daily momentum indicators are getting stretched but have not turned up yet.
• For the first time since 2023, the PBOC set the dollar’s reference rate below CNY7.00 (today’s fix was at CNY6.9929 (CNY7.0019 yesterday). The CNY7.0 has not only been a target many expected for the last few months, but setting the reference rate below is of psychological significance. It is also the biggest reduction of the dollar’s fix since last August. This is the important story. That some state-owned banks are blowing air under the dollar’s parachute as the greenback falls seems less significant.
• The Indian rupee remains under pressure. So far this year, foreign investors have sold about $3 bln of Indian equities. They have bought a little more than $200 mln of Indian bonds. The value of reserves at the central bank rose by $14 bln last week (to $701.4 bln) suggesting stepping up intervention. It is the largest weekly increase since last March. But the dollar reached a new record today near INR91.97.
Other Markets
• While most large bourses in the Asia Pacific region advanced today, India is an exception. Europe’s Stoxx 600 rallied 1% yesterday, its largest gain since November, is nursing a small loss through the morning. US index futures are also a bit heavier, paring yesterday’s gains.
• The 10-year JGB yield edged up today by a single basis point and is off one basis point on the week. The 30- and 40-year yields slipped for the third consecutive session but are 13-15 bp higher on the week. European benchmark 10-year yields are mixed today and up mostly 4-7 bp this week. Greece’s 10-year yield is up 16 bp this week, even with the small pullback today. The 10-year US Treasury yield is slightly softer, a little below 4.24% and is up 1.5 bp this week.
• Gold set a record near $4967.35 today but reversed low and is near $4920 in late European morning turnover. Silver also set a record (~$99.40) and is holding better than gold. It is slightly below $99.
• March WTI is firm near $60.40 but trading within yesterday’s range (~$58.95-$60.80).
Data
• The Atlanta Fed’s GDP tracker sees US growth in Q4 at 5.4% after Q3 GDP was revised to 4.4% yesterday from 4.3%. With tax cuts and refunds, the economic momentum is expected to carry over into first part of the year. The preliminary January PMI is expected to be consistent with this narrative. Small increases in manufacturing and services may see the composite PMI edge up to 53.0 from 52.7 in December, which follows two months of softer readings. The final University of Michigan’s consumer survey is also due, but market’s sensitivity is with the preliminary release.
• Canada reports November retail sales. The 1.2% rise projected by the median forecast in Bloomberg’s survey would offset the previous two months, which saw a 0.2% decline in October and a 0.9% decline in September. The lion’s share of the rise is anticipated to come outside of autos. A 1% gain there would more than offset the declines in September and October.
• Mexico reports the IGAE economic activity for November, which serves as a monthly GDP estimate. After increasing almost 1% in October, the most since July 2024, a small gain of a little more than 0.1% is expected in November.
• The aggregate eurozone preliminary January PMI was mixed, with firmer manufacturing and softer services. The composite was flat at 51.5. It had risen for six months through November before slipping in December. November reading of 52.8 was the highest since April 2023. The manufacturing PMI firmed but remains below the 50 boom/bust level. It peaked last August at 50.7. The services PMI eased to 51.9 from 52.4. Germany’s composite fell in November and December but rose in January (52.5 vs. 51.3). The French composite PMI ended 2024 at 47.5 and finished 2025 at 50.0. It fell to 48.6 in January.
• The UK reported that retail sales rose by 0.4% in December after slipping 0.1% in November. The median forecast in Bloomberg’s survey was for a flat report. Economists expect the British economy to eke out 0.1% growth in Q4, matching Q3 performance. Separately, the preliminary January PMI was marginally better and the composite rose to 53.9 from 51.4. Last year’s high, set in August was 53.5. Lastly, we note that behind the scenes a Labour challenge to Prime Minister Starmer may be taking shape as Manchester’s mayor (Andrew Burnham) may run for a soon-to-be vacated MP seat in his area. That would give him standing to challenge Starmer.
• Australia’s flash January composite PMI rose to 55.5 from 51.0 in December to match last year’s peak seen in August. Still, the strength of the labor market data and hawkish comments by the leadership of the central bank has put the market on heightened alert for the possibility of a hike as soon as the early February meeting. The odds in the futures market have more than doubled this week (to nearly 60% from about 25% at the end of last week).
• Japan’s December CPI softened to 2.1% from 2.9% and the core measure eased to 2.4% from 3.0%. This was in line with expectations after the Tokyo CPI was reported a few weeks ago. The preliminary January composite PMI rose to 52.8 from 51.1 in December. The updated BOJ forecasts show anticipation for better growth this fiscal year and next while core inflation projects were tweaked higher. BOJ Governor Ueda pointed to wage growth in the spring as a key in the decision-making process. He seemed open to adjusting BOJ bond buying in light of the surge in yields. Finance Minister Katayama used code words to signal another step up the verbal intervention escalation ladder (“watching the yen with a sense of urgency”).
Reviewed by Marc Chandler
on
January 23, 2026
Rating:
