Overview: The US dollar begins the important week quietly but heavier against all the G10 currencies, led by sterling. It is pushing against the $1.36 cap that has blocked the upside over the past couple of months. All but a few emerging market currencies also enjoy a firmer tone today. The Mexican peso has recorded a new high for the year as the greenback slips toward MXN18.40. The appeals court ruling on President Trump's firing of Federal Reserve Governor Cook may come today ahead of the tomorrow's start of the FOMC meeting, which is widely expected to cut rates by 25 bp for the first time this year.
Equities are mostly higher. There were a few exceptions in the Asia Pacific region, including Taiwan, Australia, and India. Europe's Stoxx 600 is firmer and recouped the minor loss seen before the weekend. US index futures are narrowly mixed. European 10-year yields are mostly 2-3 bp lower. French bonds are underperforming slightly after the Fitch's downgrade before the weekend. Spanish and Portuguese yields have leading, after their rating upgrades, but Italian bond yields have fallen nearly as much. The 10-year Treasury yield, which dipped below 4% briefly last week, is little changed today near 4.06%. Gold continues to consolidate after setting the record high last Tuesday a little below $3675. After trading in a wide-range before the weekend (~$61.70-$64.00), October WTI is trading calmer today between about $62.50-$63.25.
USD: The Dollar Index is trading in a narrow 20-tick range above 97.50 so far today. With a couple of exceptions early last week, the Dollar Index largely remains within the range set on September 5 when the August jobs data were reported (~97.45-98.25). Another way to see the price action is that since Fed Chair Powell's speech at Jackson Hole on August 22, DXY has forged a down channel. The parameters are roughly 97.15 and 98.45 today, falling by about 10 ticks over the course of the week. The important week starts slowly with only the September NY State manufacturing survey today. August retail sales and industrial output figures will be released tomorrow ahead of the FOMC meeting on Wednesday. President Trump has requested a decision today by a federal appeals court on his request that the lower court decision blocking his firing of Federal Reserve Governor Cook. Today is also a personal and corporate tax day and there are pressures in parts of the money markets related to it and the settlement of last week's auctions.
EURO: The euro is trading firmly in a narrow range, and has fray the highs set last Thursday and Friday, which was a few hundredths of a cent below $1.1750. The euro has remained largely confined to the range seen on September 5, the US jobs day: ~$1.1650-$1.1760. The relatively low implied vol (less than 7% for three months and around 6.5% for one month) is what one might expect before a large move. Fitch downgraded France to A+ from AA- and lifted Portugal's rating to A from A-, while S&P raised Spain's rating a notch to A+. There has been little market reaction. The euro zone July trade surplus was reported earlier today. The seasonally adjusted surplus was 5.3 bln euros, less than half of the median in Bloomberg's survey, even if a little larger than the 3.7 bln euros reported in June. It is not a particularly market sensitive report. Still, it is interesting to note that the H125 trade surplus was about 8.5% lower than in H1 24. Tomorrow sees Germany's ZEW survey but after last week's ECB meeting, the euro area is out of the spotlight given the five G10 central banks that meet in the coming days. We continue to closely follow the US-German two-year rate differential. It is at a new low for the year and around 155 bp it is the smallest US premium since last September. It has narrowed by slightly more than 25 bp since Federal Reserve Chair Powell spoke in Jackson Hole on August 22.
CNY: From early May through late July, the dollar fell by about 1.5% against the offshore yuan. It has fallen a little less than 1.0% against the offshore yuan since August 1. The greenback recorded the low for the year last Thursday near CNH7.1120. The PBOC is guiding the dollar through lowering the dollar's daily reference rate, though it was raised a little to today. It was set at CNY7.1056 after CNY7.1019 before the weekend. China reported a slew of August data today. The bottom line is that house prices, new and used, continued to fall, and retail sales and industrial production (year-to-date, year-over-year) were softer. Investment in the property market and residential property sales remains weak. Fixed asset investment slipped to 0.5% (year-to-date, year-over-year), which is the weakest since the pandemic and that is what one would expect if the anti-involution (excess investment) campaign yielded results. Lastly, while US-Chinese officials are negotiating, Beijing not only launched two investigations into the US chips but offered a preliminary conclusion that Nvidia violated antitrust law in its 2020 acquisition of Mellanox Technologies.
JPY: Ahead of the weekend, the dollar traded within the previous session's range against the Japanese yen. Firmer US rates helped steady the greenback. It remains inside last Thursday's range (~JPY147.00-JPY148.20). Japan's data calendar is light until the middle of the week when the July tertiary industry index and the August trade balance is due. The highlight of the week is the BOJ meeting Thursday and Friday. It will not change its stance, but Governor Ueda's forward guidance will be scrutinized. Most likely he continues his observation that provided the economy evolves as expected, rates can be lifted.
GBP: Sterling is knocking on the $1.3600 cap. It has not been above there for a little more than two months and has been turned back from approaching it three times. A push above could see $1.3635 next. It found support last Thursday a little below $1.3500 and the 20-day moving average. The UK employment report is due tomorrow followed by the CPI on Wednesday before the Bank of England meeting on Thursday. There is little question, but the BOE is on hold, likely into Q1 26. The focus may be more scaling back its outright Gilt sales.
CAD: The dollar has risen against the Canadian dollar in eight of the past 10 sessions coming into today. The Canadian dollar's roughly 0.75% in the first two weeks of September give it the dubious honor of the worst performing G10 currency against the dollar. The lack of follow-through US dollar selling after last Thursday's technical reversal leaves the greenback consolidating above that low (~CAD1.3825), which is also where the 20-day moving average is found. Over the weekend, Prime Minister Carney launched a new agency to build affordable homes, and it will be capitalized with C$13 bln. Today's housing data and manufacturing and wholesale sales typically do not have much market impact. And even more so given that tomorrow sees August CPI and the central bank meeting on Wednesday. A few hours before the FOMC's outcome, the Bank of Canada is expected to its overnight rate target to 2.50% from 2.75%.
AUD: The Australian dollar was the strongest currency in the world last week, rising about 3.5% against the US dollar to a new high for the year. It stalled before the weekend after reaching nearly $0.6670. It is firm today, though no new progress has been achieved. There is one report this week and it is the August jobs data on Thursday. While overall growth has slowed, full-time employment has risen by about 21k on average over the three months through July compared with a little fewer than 7k average in the previous three months. The stabilization of the labor market and the firmer consumption has spurred a more cautious outlook for the Reserve Bank of Australia. The year-end rate implied by the futures market has risen by a little more than 30 bp since early July, and almost half of which has been recorded since mid-August.
MXN: It is a sparse week for Mexico's economic diary. The peso rose to a new high for the year at the end of last week, which was more a reflection of the decline in the US dollar and lower US interest rates. And that seems to explain the move to new highs for the year by the Brazilian real and Colombian peso, which also rose to new highs for the year. The peso has edged a little higher today. Even if Mexico cuts later this month, which seems even more likely after the disappointing July industrial production figure (-1.2% vs. the median forecast in Bloomberg's survey of a 0.2% decline), the interest rate pickup will remain attractive for dollar-based investors. For the better part of the past month and a half, the dollar has been rangebound between MXN18.51 and MXN19.00 and mostly below MXN18.80. It broke out to the downside last week and fell to almost MXN18.4380. It edged down to almost MXN18.4150 today. We have suggested that the next technical target may be around MXN18.40, we suspect there may be potential toward MXN18.18 in Q4.
Reviewed by Marc Chandler
on
September 15, 2025
Rating:
