The foreign exchange market is quiet, and the US dollar is trading with a firmer bias. The widening Middle East war has lifted September WTI to $90 and October Brent to $93. Interest rates are firm and 10-year benchmark rates in a few European countries, and the United States are at new highs for the year. These developments overshadow today’s ECB meeting, for which there is practically no chance of a hike after last month’s move. Still, there is not reason to expect President Lagarde to push back against strong expectations of a hike in September.
The dollar’s climb to new 40-year highs against the Japanese yen met little more than the mantra about taking “decisive action” if necessary. At the same time, the PBOC set the dollar’s reference rate at a new three-year low. Lastly, the US is expected to make a new tariff announcement today or tomorrow given that the 10% Section 122 tariffs (balance-of-payments grounds) expire tomorrow.
Prices
G10
• In Europe and North America yesterday, the euro was confined to about a 1/5 of a cent above $1.1400. After recording lower highs for the past five consecutive sessions, the euro traded through yesterday’s high, slightly above $1.1420 and reached $1.1435 before stalling. The sideways to lower price action has seen the five-day moving average slip back below the 20-day after pushing above it last week for the first time since mid-May. Options for nearly 1.7 bln euro expire today at $1.1400. Another set of expiring options, for nearly 2 bln euros at $1.1450, also expires today.
• The dollar recovered against the yen from the nervous drop in late Asia yesterday (to ~JPY162.70) and remained above JPY163 for most of the North American session. The greenback held a little below the 40-year high recorded on Tuesday near JPY163.25 but reached nearly JPY163.45 today, even though Finance Minister Katayama reiterated the threat of “decisive action”. Initial support is seen near JPY163.20.
• Sterling was sold to a six-day low yesterday near $1.3355, which was the first time traded below the 20-day moving average since July 2 (before the disappointing US June job growth was reported). Sterling reached a two-month high last week (~$1.3560). Yesterday’s low is holding but the upside has been capped slightly below $1.3400, where options for GBP405 mln expire today. A band of resistance extends toward$1.3435.
• The US two-year premium over Canada narrowed slightly for the first time in three days and the Canadian dollar traded with a firmer bias. The greenback peaked near CAD1.4110 and pulled back to almost CAD1.4075 yesterday in quiet turnover. It slipped to almost CAD1.4055 today, Tuesday’s low but has bounced in the European morning to around CAD1.4085. The intraday momentum indicators are stretched, but the two-year rate differential is a little wider and risk-off mood may limit the Canadian dollar’s strength despite jump in oil prices.
• The Australian dollar traded in a narrow range as it straddled $0.7000 yesterday. Recall that it had posted a key upside reversal on June 30 after it hit a three-month low near $0.6865. It might begin looking tired if it cannot establish a foothold above $0.7220, which it retested today but is hovering around $0.7000 in late European morning turnover.
EM
• The Mexican peso traded within Tuesday’s range yesterday, leaving the greenback pinned near the lower end of its recent range. The dollar is traded narrowly on both sides of MXN17.40. There is little momentum in either direction. The dollar is posting an outside day today, trading on both sides of yesterday’s range. The close is important, especially if it is above yesterday’s high (~MXN17.4355). Brazil, which offers a significantly greater carry than the Mexico, saw the real firm to its best level since June 16, the day before the FOMC delivered its hawkish hold. The US dollar traded slightly below BRL5.05 but settled slightly above it. Moody’s played a little catch-up yesterday as it upgraded Argentina credit status to B3 from Caa1. This is in line with Fitch’s decision in May and S&P in June.
• The dollar approached a five-week low against the offshore yuan on Tuesday (~CNH6.7635) and rose to CNH6.7760 yesterday. It is trading inside that range today (~CNH6.7675-CNH6.7755). Initial resistance may be around CNH6.7815. The PBOC set the dollar’s reference rate at CNY6.7906 (CNY6.7933 yesterday), a marginal new three-year low.
• Intervention by the Reserve Bank of India helped steady the rupee today, though the dollar settled firmly near yesterday’s high. The implications of the rally in oil have seen the rupee unwind the gains made after the recently announced measures to attract foreign capital.
Other Markets
• Most of the Asia Pacific equity markets rallied today, with South Korea’s Kospi jumped 4.4% and Hong Kong’s Hang Seng rising almost 1.3% to lead the move. India and Singapore were noted exceptions. Europe’s Stoxx 600 is off about 0.6% to give back yesterday’s gain. US index futures are off around 0.3%-0.4%
• Benchmark 10-year yields in France, Spain, and Sweden are at new highs for the year today. The 10-year Treasury yield is also at new highs for the year. The US two-year yield has risen for the past five sessions. Its yield has risen by 17 bp. The implied yield of the December Fed funds futures has risen by nearly the same amount. Over the same period, the US 10-year yield rose by about 11 bp.
• Gold rose by 1.7% yesterday, roughly the same as on Tuesday. It is the largest two-day advance since July 2-3. The yellow metal reached $4166 yesterday, its best level in two weeks. However, it has been sold to nearly $4087 today and the session low does not appear in place. A close below $4070 weakens the technical tone. Silver rose 2% yesterday after a 4.2% advance on Tuesday. It is the strongest two-day rally since June 11-12. It reached almost $61, its highest level since July 7. It has come back offered today and has been sold through yesterday’s low (~$58.75). Nearby support is seen near $58.
• September WTI reached $88.60 yesterday, which it has not seen since June 11. The high was recorded shortly before the US markets opened. It trended gently lower and briefly dipped below $86 but settled near $86.85. With Hormuz and Bab-el-Mandeb nearly shut, September WTI is testing resistance is seen around $90, a two-month high. The contract high (May 18) is $95.30.
Data
• The light US economic calendar continues today, with weekly jobless claims, Chicago Fed’s June national activity index and the KC Fed’s July manufacturing survey. None are typically market movers. Still, after rising mostly in May and into early June, weekly jobless claims have fallen in four of the last five weeks. The four-week moving average stands at 214.25k, the lowest in two months.
• Canada is expected to report a 1% increase in May retail sales. The monthly average in the first four months of the year was 0.8% (compared with -0.2% average in the Jan-Apr 2025 period). The time series is flattered by higher prices. In real GDP terms, consumption is understood as having slowed in Q2 to about a 1% quarter-over-quarter from 1.5% in Q1 26.
• Mexico reports consumer prices for the first half of July. The headline and core rates have slipped back into the 2-4% target range. The headline CPI is approaching the middle of the range, while the core is just re-entering it.
• The outcome of the ECB meeting is nearly a foregone conclusion. After last month’s hike, it will remain on the sidelines today. The swaps market has around a 90% chance of a hike discounted for the September meeting, and there is no reason for ECB President Lagarde to push against expectations. She may be asked about her future amid speculation she can re-enter French politics to compete for the presidency in next year’s contest. Previously, there was speculation she could lead the World Economic Forum.
• Australia grew 76.3k jobs in June, mostly part-time posts. In the first half of the year, Australia created 161k jobs compared with about 128k in H1 25. Of those jobs, about 88k were full-time posts compared with almost 20.5k in the H1 25. The participation rate rose to 67.0 in June from 66.7% in May, but the unemployment rate was steady at 4.4%. The futures market boosted the odds of a rate hike at next month’s meeting to about a 33% chance from about 20% yesterday. It is the highest since early June.
• Shortly before the preliminary July PMI tomorrow, Japan reports June CPI. The Tokyo report, released a few weeks ago, put the market on notice that Japan’s inflation likely rose. It would be the second consecutive monthly increase, the first back-to-back rise since last September-October. The core rate is expected to rise to 1.6% from 1.4%. It has not been above the 2% target since the end of last year.
Reviewed by Marc Chandler
on
July 23, 2026
Rating:
