Overview: The dollar has traded heavily in recent days, and it is consolidating in narrow ranges with a slightly firmer bias today. US rates, which jumped yesterday, are sustaining higher levels through the Asia Pacific session and the European morning. We suspect the greenback has scope for additional near-term corrective gains. Despite a solid 10-year JGB auction, the yen is the weakest of the G10 currencies, and the dollar is trying to reestablish a foothold above JPY156. The Australian dollar and Swiss franc are faring best and are little changed. Most emerging market currencies are softer but for a handful of Asia Pacific currencies, including the Chinese yuan despite higher dollar fix by the PBOC.
Among the large bourses in the Asia Pacific region, only Chinese and Indian equities fell. South Korea's Kospi led the region with a 1.9% surge, as semiconductor and auto sectors rallied. Expectations that the parliament is likely to approve a lower top tax rate on dividends along with next year's budget helped lift holding companies and financial stocks. Europe's Stoxx 600 fell yesterday for the first time in six sessions but is posting a small gain today around midday. The S&P and Nasdaq futures are around 0.2%-0.3% better. Benchmark 10-year yields are slightly firmer in Europe and the 10-year US Treasury yield is flat ~4.08%-4.09%. Gold is off a little more than 1% after it was unable to sustain the early upside momentum yesterday. The pre-weekend low near $4155 in the spot market may offer support. January WTI is consolidating quietly within yesterday's range, trading roughly between $59.10 and $59.65.
USD: After falling for the past six sessions, the Dollar Index looks a bit stretched, and the backing up of US yields appear lending it support near the November low near 99.00. It has tested the 99.50 area, and the nearby resistance appears in the 99.60-70 area. The US economic data schedule is busier this week as the government data resumes. Today's highlights are the September JOLTS report and November auto sales. Auto sales likely recovered from 6.5% slump in October after the EV tax incentives lapsed. Yet, the disappointing ISM manufacturing report yesterday failed to deter the emergence of a more resilient dollar tone. The bearish steepening of the US curve (2-10-year) yesterday may have been aided by the hedging of the investment grade issuance this week (estimated ~$40 bln) and the growing belief that Hassett will nominated to succeed Chair Powell at the Federal Reserve. The curve is about 56 bp. It has not been much steeper in around three months.
EURO: The euro stalled slightly in front of the mid-November high around $1.1655 yesterday. After a six-day rally and the stabilizing of the US two-year premium over Germany, the euro is little changed in a narrow range fraying $1.1600 and holding below $1.1620. Options for around 925 mln euro at $1.1625 expire today. Initial support is seen near $1.1580. A push below $1.1550, where 4 bln euros in options expire Thursday, would be disappointing. The eurozone reported that its October unemployment rate edged up to 6.4% from 6.3%. It has bounced between 6.2% and 6.4% since the end of Q1 24. This is the lower end of where it has been since monetary union. Separately, the eurozone reported the preliminary aggregate November CPI. With the largest four members reporting their CPI figures at the end of last week, there did not seem to be much impact from the news that the year-over-year headline rate was ticked up to 2.2% from 2.1% and the core was unchanged at 2.4%. Pricing in the swaps market is consistent with the ECB having finished its easing cycle.
CNY: The dollar's recovery in North America yesterday may have encouraged the PBOC to stabilize the yuan today after setting the dollar's fix lower in six of the past seven sessions. It was set at CNY7.0794 today after the new low for the year yesterday (CNY7.0759). Although the dollar made a marginal new low against the offshore yuan yesterday near CNH7.0645, the downside momentum appeared to fade, and the greenback bounced to almost CNH7.0770 before dollar selling reemerged. It is back near CNH7.0655. We suspect there is room still for upside corrective pressures.
JPY: The dollar peaked on November 20 slightly shy of JPY157.90 and yesterday recorded a low near JPY154.65. That corresponded with the (38.2%) retracement of the dollar's leg up that began on October 17. The jump in US rates yesterday seemed to help the dollar stabilize in North America, and it managed to settle back above the 20-day moving average (~JPY155.25), which it violated for the first time since October 17. It was first back-to-back increase in the US 10-year yield in a couple of weeks and the 8 bp increase was the most since the Fed's cut in late Oct. The US two-year yield rose by almost five basis points yesterday, the highest in almost a month. The yield settled at a seven-day high near 3.54%. The dollar has recovered to probe the JPY156 area in the European morning. Nearby resistance is seen in the JPY156.30-60 area. There are options for about $885 mln at JPY156 that expire today and another set for $950 mln at JPY156.50 that also expires today.
GBP: Sterling held above $1.3200 yesterday but it looked vulnerable as the momentum from recent recovery from around $1.3040 stalled albeit after marginal new highs in over a month near $1.3275. It settled near its lows. Unable to re-establish a foothold above $1.3220, sterling has been sold to $1.3108 in the European morning. There appears to be near-term potential into the $1.3130-50 area. The news cycle has moved on from last week's favorable budget reception to the alleged scare-tactics of lowering the bar of expectations and the Office for Budget Responsibility scandal after the second preemption of the Chancellor (also preceded the March statement).
CAD: After falling by the most in six months last week (~0.90%), including in the previous four sessions, the greenback stabilized yesterday. It traded less than 25-pips around last week's settlement and was confined a range of about CAD1.3955-CAD1.4000. It is firm in European, pushing to almost CAD1.4015. We suspect the US dollar has scope to return to the CAD1.4050 area. The Bank of Canada meets next week and there is little chance of a change in policy, and that likely softens the impact the economic data. The highlight this week is the employment report on Friday. Rally that in October, overall jobs rose by 66.6k, but full-time posts shrank by 18.5, and the unemployment rate ticked down to 6.9% from 7.1%.
AUD: The Australian dollar stalled yesterday after it peaked above $0.6565. The November peak was around $0.6480. Still, the Aussie managed to match the longest rally of the year (eight sessions in April). It is trading in a narrow range, mostly between $0.6540 and $0.6560. In a corrective phase it could pull back toward $0.6475, but initial support maybe around $0.6500. Earlier today, Australia reported a slightly wider Q3 current account deficit (A$16.6 bln vs. revised A$16.2 bln in Q2--initially A$13.7 bln and that net exports were a small drag on Q3 GDP after a revised flat performance in Q2 (initially +0.1%). Tomorrow's highlight is Q3 GDP itself. Depending on which Bloomberg survey, the median forecast is for either 0.5% or 0.7% quarterly expansion. The economy expanded by 0.6% in Q2 and 0.3% in Q1.
MXN: The dollar initially extended its down draft against the Mexican peso. It reached almost MXN18.2525 to barely take out last month's low and return to its lowest level in two months. Still, like elsewhere, the dollar's downside momentum faded, and the greenback settled inside the pre-weekend range. It is trading quietly so far today between MXN18.30 and MXN18.33. Initially, potential may extend toward MXN18.36-MXN18.39. Options for $350 mln at MXN18.39 expire today. The PMI and IMEF surveys show an economy that continues to struggle, and there is a growing understanding that the central bank will cut rates when it meets on December 18. Separately, worker remittances were stronger than expected ($5.63 bln) but were down slightly from a year ago ($5.72 bln). Year-to-date, worker remittances have represented a hard currency inflow of about $51.3 bln ($54.1 bln in the year ago period). According to the central bank, the average remittance was a little over $400.
Reviewed by Marc Chandler
on
December 02, 2025
Rating:
