Overview: The US dollar is under pressure. The losses seen yesterday have been extended against nearly all the G10 currencies. It is also lower against all the emerging market currencies but the Turkish lira and Russian ruble. There were some murmurings the Fed cutting 50 bp next month, and Treasury Secretary Bessent suggested it may be appropriate. The Fed funds futures have almost 25 bp cut discounted but looking at some pricing in the options market, some observers are concluding the market is pricing in a small chance of such a move. US rates are softer today. The two-year Treasury yield and the 10-year yield are off 2-4 bp, though at 3.70%. The former is not below yesterday's low or the August 1 low (~3.65%). The 10-year is near 4.25%. Yesterday's low was slightly below 4.24% and the August 1 low was closer to 41.8%.
After the US S&P and Nasdaq set new record highs yesterday, global equities were pulled higher today. Nearly all the equity markets in the Asia Pacific rallied today. Australia and the Philippines were the notable exceptions. The Hang Seng and the index of mainland companies that trade there led today's advance with a 2.6% surge. Europe's Stoxx 600 is up almost 0.5% in late morning turnover. Europe's 10-year benchmark yields have tumbled mostly 4-6 bp today. US index futures are firm. The weaker greenback and softer rates have helped gold extend its recovery to around $3366 after reaching a seven-day low yesterday near $3331. September WTI settled on its lows yesterday and sold to $62.55 today, a new two-month low.
USD: The US dollar was sold after the July headline CPI came in unchanged at 2.7% due to rounding after the expected 0.2% month-over-month increase. The core rate rose by 0.3%, and due to rounding here, the year-over-year was slightly firmer than expected at 3.1% (up from 2.9%). The US dollar retreated, and interest rates softened a little. The Dollar Index was sold to a marginal new low near 97.90, and today has been sold to slightly below 97.65, meeting the (61.8%) retracement target of the DXY rally from July 1 through Aug 1. It has approached the trendline off the two July lows(~97.60). The low from late July is near 97.00. The economic calendar is light today. The Fed's Barkin (non-voter), who spoke yesterday, is likely to mostly repeat himself today, but Chicago Fed's Goolsbee and Atlanta Fed's Bostic speak. We suspect both have warmed up to the idea of a cut next month.
EURO: The euro rose for the first time in three days yesterday after the US CPI was understood to be sufficiently benign to allow the Federal Reserve to turn its attention to the downside risks of the labor market. The euro reached almost $1.17, slipping slightly below $1.16 earlier in the session. Follow-through buying today as lifted it to $1.1730. Some euro demand may be related to the nearly 5.2 bln euro of options struck at $1.17 that expire today and tomorrow. The trendline connecting the July highs is near $1.1755 today and the highs from late July were in the $1.1780-90 area. Another look at Q2 GDP and more details will be published tomorrow. There is more risk that the 0.1% quarter-over-quarter GDP estimate is revised down rather than up.
CNY: The dollar held below CNH7.20 yesterday. It has not traded above there since August 1. The greenback has been sold to about CNH7.1775 today. The lower end of the range is near CNH7.1750, and the greenback has not traded below it since July 28. After setting the dollar's reference rate higher for the past three sessions, the PBOC lowered it today (CNY7.1350 vs. CNY7.1418 yesterday, a high since August 1). US data suggest 353 tons of rare earths were imported from China in June, up from 46 tons in May. Still, the shipments were lower than before Beijing launched its export controls in early April. With Beijing discouraging the use of Nvidia's H20 chip, while continuing to enjoy strong exports suggests it is easier for China to replace US demand and chips than it is for the US to replace China's rare earths: leverage. Separately, China reported weaker than expected aggregate financing in July. In the first seven months of the year, the aggregate financing was CNY23.99 trillion. It is up 27.1% from the first seven months in 2024. It had risen almost 26.2% in H1 25 from H1 24. Financial institutions offered nearly CNY50 bln new loans last month, the weakest monthly amount since December 2007. July is a weak month. Recall that in July 2024, bank credit to the real economy fell for the first time since 2005.
JPY: The dollar rose to a seven-day high against the yen yesterday, poking above JPY148.50 briefly before the US CPI. The JPY148.75 area corresponds to the (50%) retracement of the dollar's losses since the August 1 high (~JPY150.90). In choppy trading the dollar reversed lows and set the session low shortly after European markets closed yesterday, near JPY147.60. The greenback's losses were extended to almost JPY147.15 today. The dollar forged a shelf last week in the JPY146.60-70 area, which may offer the next area of support. Japan's July producer prices edged up 0.2%, but due to the base effect, the year-over-year rate moderated to 2.6% from 2.9%. This is the slowest pace since May 2024 and is the fourth consecutive monthly decline. The cyclical peak was in February and March at 4.3%. Rate expectations were unfazed by the producer prices, and the swaps market has about 14 bp of tightening this year discounted and a little less than 30 bp by the middle of next year.
GBP: Sterling's advance was extended yesterday to almost $1.3525 after the US CPI. It was firm before the US data after the better-than-expected UK employment data and the further backing up of UK rates. Sterling has been toying with the down trendline connecting the two July highs, but it closed decisively above it yesterday (~$1.3440). It also settled above the (50%) retracement of its losses from July 1 through August 1, which was found near $1.3465. Follow-through buying today lifted sterling above the next retracement target (61.8%) near $1.3540. It approached the high from late July, around $1.3585. The multiyear high July 1 was almost $1.3790.
CAD: The US dollar pushed a little above CAD1.38 before the US CPI, which overshadowed the larger than expected pullback in Canadian building permits. That was the halfway mark of the US dollar's decline from the August 1 high (~CAD1.3880) to the August 7 low (~CAD1.3725). June building permits fell 9%, more than twice the median forecast in Bloomberg's survey, and follows a revised 12.8% increase in May (initially 12.0%). The greenback was sold to session lows after the US data near CAD1.3755 and is straddling that area in the European morning. Important technical support is seen in the CAD1.3725-35 area. It houses last week's lows, the (50%) retracement of the US dollar bounce from the July 23 low (~CAD1.3575), the 20-day moving average, and options for $555 mln that expire today.
AUD: The Australian dollar recovered from the dovish cut by the Reserve Bank of Australia yesterday. It fell initially to almost $0.6480, a four-day low. It recovered and reached last week's high (~$0.6540), slightly shy of the (61.8%) retracement of the Aussie's pullback from the $0.6625 high for the year set on July 24. It settled above Monday's high (~$0.6530) to post a bullish outside day. Follow-through buying today has extended the gains to nearly $0.6565. The year's high, recorded on July 24, was $0.6625. Today's wage price index and home loan metrics are sandwiched between yesterday's central bank rate cut and tomorrow’s jobs report. The wage price index eased slightly to 3.4% year-over-year, unchanged from Q1. It averaged 3.7% last year and 3.9% in 2023. The median forecast in Bloomberg's survey is for Australia's unemployment rate to slip to 4.2% from 4.3%, while the participation rate is steady at 67.1%. Overall, Australia has created 90.6k jobs in H1 25, less than half of the 201k jobs created in H1 24. A little more than 61k full-time positions were created in the first six months of this year compared with almost 167.5k in H1 24.
MXN: The US dollar stalled after recovering from around MXN18.5250, the pre-weekend low, to almost MXN18.6950 on Monday. It held below there yesterday, and the slumped slightly below MXN18.54 yesterday. The dollar steadied in the NY afternoon but held below MXN18.5920. It is trading heavier today and recorded a marginal new low for the year near MXN18.51. On a break of MXN18.50, the next target we have suggested is aro9und MXN18.40. Brazil reported slightly softer than expected IBGE July CPI. It eased to 5.23% from 5.35% and was lower than all the forecast in Bloomberg's survey. It is the lowest since February. However, the base effect warns of an uptick in August. In August 2024, the CPI fell by 0.02%, the only time the month-over-month rate fell last year. The greenback was sold below BRL5.40 for the first time since last September. It settled near the session low near BRL5.3890. Last August's low was closer to BRL5.3770. A break of it could spur a test on the 200-day moving average (~BRL5.29), which the US dollar has not traded below since June 2024.
Reviewed by Marc Chandler
on
August 13, 2025
Rating:
