After recovering in the North American afternoon for the second consecutive session yesterday, the dollar has been sold again in Asia and Europe today. The market has mostly shrugged off news of new hostilities in the Middle East. As is often the case, the ceasefire has been frayed but appears to remain intact. Ostensibly, it runs until May 17. Late yesterday, a federal trade court issued a narrow ruling on 2-1 vote to grant a request by a group of small businesses and Washington state to stop the US from collecting the Section 122 tariffs.
The focus shifts to the US jobs report. Ahead of the report, the Fed funds futures have about two basis points of tightening discounted for this year, down from nearly eight at the beginning of the week. Given the uncertainties surrounding the Middle East, the market may pare risk exposure before the weekend. The dollar is mostly softer and the drubbing of the UK’s Labour Party and the surprising drop in in German industrial output failed to have much market impact.
Prices
G10
• The euro traded firmly yesterday but was unable to extend Wednesday’s rally, which took it to almost $1.1800. For the second consecutive session, the euro was sold in the North American afternoon. Disappointed longs appeared to move to the sidelines and sent the euro back to around $1.1735. Despite new hostilities in the Middle East and an unexpected decline in German industrial output, the euro has risen steadily and is challenging the $1.1775 area in Europe. There are options for 1.77 bln euros at $1.18 and 1.57 bn euros at $1.1750 that expire today.
• What appears to be two rounds of BOJ intervention (April 30 and May 6) succeeded in driving the dollar from around JPY160.70 to almost JPY155 on Wednesday. It held above JPY156 yesterday and set the session high near JPY156.65 in North America. The dollar reached almost JPY157 today, where options for $620 mln expire today. Some observers look at the Fed’s custody holdings as another place outside of the BOJ’s accounts that could show intervention. The Fed’s custody holdings of US Treasuries rose for the third consecutive week in the week ending May 6. It does not mean that there was no intervention. Rather it means that the BOJ may not have sold Treasuries from this account.
• Sterling was firm yesterday, but the market was unable to extend its recent gains. Wednesday’s high was near $1.3635 and last week’s high was closer to $1.3660. Yesterday, it briefly poked above $1.3630 but ground lower in the North American afternoon and fell to almost $1.3560. Despite Labour’s losses in the yesterday’s local elections and calls for Prime Minister Starmer to step down, the market impact looks minimal at best. Sterling is up not just against the dollar but has edged up against the euro. It has approached $1.3625 today. and UK Gilts are the best performing bond market today, with a little more than a five basis point decline in the 10-year yield. Options for GBP1.35 bln at $1.3600 expire today.
• The US dollar edged up to a new five-session high yesterday against the Canadian dollar, rising to about CAD1.3665. It held today and the greenback has retread to around CAD1.3640 in Europe. Last week’s high was near CAD1.3715. The CAD1.3650 area corresponds to the (61.8%) retracement of the greenback’s losses from last week’s high to the low on May 1 (~CAD1.3550).
• Assuming the Australian dollar closes above $0.7200 today (where options for A$880 mln expire today), it will mark the fifth weekly advance in the past six weeks. It reached almost $0.7265 yesterday, its best level since July 2022. Yet it trended lower in the North American session and set the session low in late dealings near $0.7215. It held above $0.7200 and is near session highs (~$0.7240) in late European morning activity.
EM
• After rallying about 1.5% on Tuesday and Wednesday, the Mexican peso consolidated in Wednesday’s range ahead of the central bank's rate decision. As expected, it announced a quarter-point rate cut (to 6.50%). The governor suggested that she expected a debate at the next month’s meeting about one last cut in the cycle. The dollar was near session highs (~MXN17.2765) before the rate cut and it slipped below MXN17.24 shortly after the move, but it recovered to new session highs near MXN17.3125 in late dealings. It made a marginal new high today (~MXN17.3230) before being sold to session lows around MXN17.2250.
• The dollar extended its losses against the yuan yesterday. Against the offshore yuan, the greenback was sold to about CNH6.7960, its lowest level in three years. It settled back above CNH6.80 and remains in yesterday’s range today. The PBOC set the dollar’s fix at CNY6.8502 (vs. CNY6.8487 yesterday
• The dollar recovered against the Indian rupee today after it weakened by slightly more than 1% over the previous two sessions. The greenback’s record high was set Tuesday near INR95.4375 and yesterday returned to ~INR94.0750. Today, it reached INR94.6775 before pulling back to around INR94.4835.
Other Markets
• Asia Pacific and European equities were mostly weaker. Among the large bourses in the Asia Pacific region, South Korea’s Kospi was the notable exception. Its small gain was sufficient to lift the index by a little more than 12% this week. Europe’s Stoxx 600 is off around 0.65% to trim this week’s gain to about 0.10% after a 0.15% increase last week. The US Nasdaq futures are about 0.6% better (almost 3.7% for the week) and the S&P futures are up about 0.45% (~1.9% for the week).
• Benchmark 10-year yields rose in the Asia Pacific region and are mostly narrowly mixed in Europe, though Gilts are easily the best performer off about 5.5 bp to a little below 4.90% for a seven basis point decline on the week. The 10-year US Treasury yield is off 1-2 bp to around 4.37%. It is off about seven basis points for the week ahead of the jobs report.
• Gold is consolidating with a firmer bias today but below yesterday’s two-week high near $4765. Silver reached almost a three-week high yesterday (a little above $82) and is consolidating firmly today and is pushing back above $80 in Europe.
• June WTI rose through yesterday’s high to reach about $98.65 today but the early gains were pared, and it is nearly flat ahead of the start of the North American session (~$95.20).
Data
• The US sees the April jobs report and the preliminary University of Michigan’s consumer survey. The US labor market remains resilient. Pending today’s revisions, 204k jobs were created in Q1 26 vs. 60k in Q1 25. The private sector created 237k jobs in Q1 26 and 30k in Q1 25. The unemployment rate stood at 4.3% in March and 4.2% in March 2025. The median Fed official projection was 4.4% this year, which is where it finished last year. Average hourly earnings growth has moderated to 3.5% in March from 4.2% in March 2025. Amid the war, rising gasoline and food prices, it would be a surprise if consumer sentiment did not deteriorate further last month. The one-year inflation expectation may have ticked up from 4.7% in April. The 5–10-year inflation outlook was at 3.5% in April. The breakeven (difference between the yield of the conventional note and the inflation-protected security is 2.70% for the five-year and about 2.50% for the ten-year.
• Canada also reports April employment figures today. Its labor market is not as resilient as the US. Canada lost 94.5k jobs in Q1 26 after gaining almost 30k in Q1 25. Of those jobs, 64.5k were full-time position in Q1 26. All the jobs gained in Q1 25 were part time, as full-time posts shrank by 41.3k. Canada’s unemployment rate was at 6.7% in March 2026, down slightly from 6.8% in March 2025.
• As widely anticipated, Mexico’s central bank cut its overnight rate target to 6.50% from 6.75% yesterday. The governor suggested there will be a debate next month whether to cut rates one more time. The swaps market has about 60% chance of a cut discounted.
• Germany reported an unexpected decline in March industrial production. The 0.7% contraction compared with a median forecast of a 0.4% gain in Bloomberg’s survey. It was the first back-to-back drop in output since Sept-Oct 2024. The March trade surplus was smaller than expected as imports surged (14.3 bln euros from 19.6 bln in Feb) Through March, the trade surplus stood at about 54 bln euros, the same as in Q1 25. Exports rose by 0.5% in March. Economists in Bloomberg’s survey had anticipated a decline. Imports jumped by 5.1% in March after a 4.9% increase in February. Just like the producers of commodities may have a positive terms of trade shock, exporters of manufactured goods (like Germany and China) appear vulnerable for a negative terms of trade shock.
• Japan’s March labor compensation increase slowed in March. The year-over-year pace of the nominal measure rose 2.7 % (vs. 3.2% expected and 3.4% previously). Adjusted for inflation, labor cash earnings rose 1.0% year-over-year (1.8% expected and 2.0% in February). It is the first three-month advance in nearly five years. Still, for the economic outlook, the income must translate into consumption. Contrary to conventional wisdom, consumption is not just about income and wealth. They are necessary but not sufficient conditions. Mass consumption requires a culture to facilitate it. Household spending contracted in February for the third consecutive month. March figures are due next Tuesday. The government has responded to inflation worries but subsidizing utilities at the start of the year and put a cap on gasoline prices since the war on Iran began. Japan reinstated and updated its fuel subsidy program to cap gasoline prices at approximately JPY170 per liter. The government aimed to prevent retail prices from exceeding ¥200 by providing subsidies to oil distributors.
Reviewed by Marc Chandler
on
May 08, 2026
Rating:
