The US dollar is mixed against the G10 currencies. Yet the broad consolidative tone remains intact. It may be challenged tomorrow with the US employment report and the anticipated Supreme Court decision on the president’s use of emergency powers to levy tariffs. Meanwhile, President Trump announced more domestic initiatives including curbs on defense contractors' CEO pay and their return of capital to shareholders. He also wants to stop institutions from buying single-family homes. Meanwhile, Germany reported a surge in factory orders, suggesting its recovery has traction despite disappointing PMI results. On the other hand, Japan reported weaker wage growth, and this may challenge the Bank of Japan’s efforts to continue to normalize monetary policy. Yet, the euro and yen are little changed. The consolidation is likely to continue through the North American session.
Prices
G10
• The euro slipped to session lows near $1.1670, a three-day low after Germany reported the largest jump in factory orders in a year (5.6%). It weas the third consecutive monthly gain. Although the euro stabilized in the European morning, it needs to re-establish a foothold above $1.1700 to lift the technical tone.
• Poor labor earnings in Japan may have helped lift the greenback to almost JPY157, a three-day high. However, there are nearly $2.9 bln in options there that expire today. The dollar retreated to about JPY156.45 in early European turnover. After the option expiry, the dollar would seem to be freer to respond to tomorrow’s US jobs data.
• After reaching a four-month high on Tuesday near$1.3570, sterling reversed lower and is threatening to post its third consecutive decline. It reached nearly $1.3430 today. The 20-day moving average is around $1.3455, and sterling has not settled below it since late November. Monday’s low was closer to $1.3415 and push below $1.3400 would weaken the technical tone.
• The greenback is extending its recovery against the Canadian dollar. It reached its best level in a month today near CAD1.3890 and has now retraced about half of its losses since the peak on November 21 around CAD1.4130. The next retracement objective is CAD1.3945. The momentum indicators warn against picking a top in the US dollar.
• A smaller than expected trade surplus saw the Australian dollar extend yesterday’s downside reversal after poking above $0.6765 to a new high since late 2024. It was sold to a three-day low near $0.6690 today. The 20-day moving average is slightly above $0.6675, and Monday’s low was around $0.6665.
EM
• The US dollar continues to consolidate in its trough against the Mexican peso. The week’s high was set Monday near MXN18.0365. The week’s low was also set then (~MXN17.8720). We suspect that the near-term may favor the greenback and initial potential may extend toward MXN18.05.
• The PBOC set the dollar’s reference rate higher for the second consecutive session (CNY7.0197 vs. CNY7.0187 yesterday). It is the first back-to-back increase in a month. The dollar rose to almost CNH7.0, its highest level since the end of December, but has come back off to return to yesterday’s low (~CNH6.9785).
• Although the Reserve Bank of India is believed to have intervened for the second consecutive session to support the rupee, the US dollar recovered from INR89.7365, a new low since the end of December, to resurface above INR90.13. Monday’s high was about INR90.
Other Markets
• Global equities are under pressure. Nearly all the large bourses in the Asia Pacific retreated today, with Australia the notable exception. Europe’s Stoxx 600 is lower for the second session, and US index futures are trading heavily.
• A decent reception to Japan’s 30-year bond auction helped lift Japanese bonds and the 10-year yield fell by almost five basis points. However, benchmark yields in Europe are mostly around 2-3 bp higher, though UK Gilts are more resilient. The 10-year US Treasury yield is a little more than a basis point higher to push slightly above 4.16%.
• Gold and silver are lower amid talk of rebalancing of key industry indices.
• February WTI is firmer after briefly dipping below $56 yesterday. It is near session highs in late European morning turnover, near $56.70.
Data
US Q3 productivity and unit labor costs are derived from the GDP figures and are not directed observable. Productivity is expected to have risen to 5.0% (annualized) from 3.3% in Q2. It would be the strongest rise since Q3 20. This will translate into flat unit labor costs (from 1.0% in Q2). While economists scrutinize the data, it typically does not move the capital markets. Weekly initial jobless claims are overshadowed by tomorrow’s jobs report. The October trade balance will feed into Q4 GDP forecasts, and after a dramatic narrowing in August and September, October likely saw deterioration. November consumer credit is due late in the session. It averaged almost $9.2 bln a month through October compared with $7.9 bln in the first 10 months of 2024.
Canada reports October merchandise trade balance. Canada’s goods balance has deteriorated this year, primarily due to the disruption from the US. Through September the trade deficit was C$28.1 bln compared with a C$6.4 bln shortfall in the year ago period.
Mexico’s December CPI is likely to have softened slightly. The median forecast in Bloomberg’s survey projects the headline pace to slow to 3.76% from 3.8%, while the core rate ticks down to 4.34% from 4.43%. After cutting rates several times last year, Banxico is seen on an extended pause.
The ECB’s CPI survey showed unchanged expectations in November, with the three-year outlook steady at 2.5% and the one-year projection slightly at 2.8%. November producer prices were also reported, and deflationary forces remain potent with a year-over-year decline of 1.7% (-0.5% in October). In November 2024, producer prices were 1.2% lower year-over-year. Meanwhile, unemployment in the eurozone ticked down to 6.3% after holding at 6.4% since May. The cyclical and record low was at 6.2% in November 2024. Lastly, Germany’s November factory orders unexpectedly surged 5.6%. The median forecast in Bloomberg’s survey was for a 1% decline. Even without large-scale orders, factory orders rose by 0.7%.
Japan’s labor cash earnings disappointed. They slowed in November to 0.5% year-over-year from 2.5% in October. In November 2024, they had risen by 3.9%. This may overstate the case but only slightly. Using the same sample base, put the cash earnings at 0.9% year-over-year. And adjusted for inflation, real earnings were 2.8% lower year-over-year (0.8% in October). They were slightly positive in November (and December) 2024. The news must be a blow the Bank of Japan, which has linked the continued normalization of monetary policy to rising wages and the economy performing as it projected.
Australia’s November trade balance narrowed to A$2.9 bln from A$4.39 bln in October. Exports tumbled by 2.9% and imports increased by 0.2%. Through November, Australia’s trade surplus was A$42.6 bln vs. A$62.9 bln in the Jan-Nov 2024. Australia appears to have run a current account deficit of around 2.2% of GDP last year, about the same as in 2024.
Reviewed by Marc Chandler
on
January 08, 2026
Rating:
