(Due to travel schedule, no commentary tomorrow. Normal schedule resumes Thursday, September 17. Thank you for your patience).
The rise in oil prices and yields is helping underpin the greenback ahead of tomorrow’s conclusion of the FOMC meeting. The Fed funds futures are discounting almost a 95% chance of a hike, and a second hike is fully priced in before the end of the year. While there was some suggestion by some administration officials that a “tapping on the brakes” may be acceptable, the market is now pricing in the likelihood of a more normal tightening cycle and has nearly discounted four hikes over the next 12 months.
While the dollar is higher against all the G10 currencies, through the Asia Pacific session and the European morning, yesterday’s ranges are mostly holding. The Japanese yen is the notable exception among the major currencies. It is the weakest. The dollar rose above JPY155 for the first time September 7 when it fell below it for the first time since February. The other currency that stands out is the Chinese yuan. While the offshore yuan is trading a little softer, the PBOC set the dollar’s reference rate at a new low since February 2023. In the face of the greenback’s broader gains, Beijing continues, through the fix to signal its acceptance of a gradually appreciating yuan.
Prices
G10
• Follow-through euro selling in the North American morning yesterday extended the single currency’s loss to slightly below $1.1525, its lowest level in a month. It overshot the (50%) retracement of its gains from the late July low (~$1.1350). The next retracement objective is around $1.1490. It has not traded below $1.15 since the end of July. It is consolidating in a about a quarter-cent range below $1.1555 so far today. Options for almost 1.75 bln euros at $1.1550 expire today.
• The dollar rose to a six-day high against the yen today near JPY155.25. Recall that was the low after the spring and summer intervention. Rising US rates help underpin the greenback against the yen, despite Japanese rates also rising. The JPY155.75 area corresponds to the (38.2%) retracement of the losses from this month’s high (~JPY160.40).
• Sterling was sold to about $1.3465 yesterday, its lowest level since August 7 and it is holding today, despite the soft employment report. Like the euro, it overshot the (50%) retracement objective of the rally from the late July low (~$1.3275). It held above the 200-day moving average, (~$1.3455) and last traded below it on July 30.
• The US dollar rose for the fourth consecutive session against the Canadian dollar yesterday. It stalled in front of the month’s high (~CAD1.3940). A move above here targets the CAD1.3990-CAD1.4000 area. It is straddling CAD1.39 today as it consolidates in the upper end of yesterday’s range. With some optimism creeping in that the ongoing trade talks can lead to a resolution may make the market more cautious.
• The Australian dollar’s losses were extended to nearly $0.7100 yesterday. It has not traded below $0.7100 for nearly a month. It overshot the (38.2%) retracement of the rally from the last July low (~$0.6920). The Aussie recovered but could not quite re-enter the range from before the weekend, when it recorded a low near $0.7150. It has held mostly below $0.7140 today but above $0.7115.
EM
• Broad gains in the dollar and the risk-off mood saw the Mexican peso slump to its weakest level since August 7. There has been a little follow-through today and the greenback reached MXN17.1920. This was a little shy of the (50%) retracement of the dollar’s lump from the late July high (~MXN17.54) which is found near MXN17.1980. A push above there could target the MXN17.28 area.
• The offshore yuan was little changed against the US dollar yesterday, making it the best performing emerging market currency. The weaker dollar fix today by the PBOC appears to help limit the offshore yuan’s weakness in the face of the firm dollar. The PBOC set the dollar’s reference rate below CNY6.70 yesterday for the first time in a few years and lowered it further today (CNY6.7670 from CNY6.7698 yesterday) in an independent move. Still, the dollar is holding above CNH6.70. The 20-day moving average is near CNH6.7170 and the dollar is not traded above it in two months.
• The Indian rupee played a little catch-up today after yesterday’s holiday. Despite intervention in the onshore and offshore markets, the dollar rose to INR95.96, its highest level since late July. Higher oil price represents a challenge for India, but the central bank’s reserves have been replenished by the overseas capital raising measures. A move above INR96.00 could target the July high near INR96.67 area.
Other Markets
• US equities pared initial losses, and the S&P 500 and Nasdaq Composite settled above opening levels. However, Asia Pacific bourses were nearly all fell today, and Europe’s Stoxx 600 is off a little more than a third of one percent. US index futures are nursing losses of a similar magnitude.
• Benchmark 10-year yields are slightly firmer today, and the US 10-year yield is pushing above 5%. The yield of the 10-year JGB rose five basis points and is now above 3%. Australia’s 10-year yield jumped 8 bp today to rise above 5.40%. European yields are mostly a couple of basis points firmer.
• Gold recovered from a one-month low yesterday (~$4254) and reclaimed the $4300-handle. However, it has come back offered today, though it is holding above yesterday’s low, so far. Similarly, silver recovered from a push below $62.35, its lowest level since early August. It reached about $63.80 before stalling. It is consolidating today between about $62.55 and $63.60.
• October WTI set a new contract high yesterday, slightly shy of $105 in early North American turnover, and spent most of the session consolidating above $102. It was the third consecutive session that it settled above $100. It is trading firmly inside yesterday’s range today.
Data
• The US Empire State manufacturing survey is not typically a market-mover, and ahead of the outcome of the FOMC meeting tomorrow, it is likely doubly true. It is expected to have softened a little after reaching 20.6 in August, its best level since the end of 2021.
• Canada reports July wholesales and August existing home sales. The data will not distract from the trade conflict with the US or what the economists expect to be a dramatic slowing of the Canadian economy this quarter (1.6% annualized from 3.3% in Q2). Nor will the data impact expectations for next month’s Bank of Canada meeting, which the swaps market is pricing in a little more than a 70% chance of a hike.
• The eurozone recorded a 5.0 bln euro trade surplus in July. In July 2025, it was 4.92 bln euros. Through July, this year’s average is about 2.2 bln euros compared with a 12.62 bln euro average in the January-July 2025 period and 14.83 bln euros in the same period in 2024. Tomorrow, the aggregate July industrial output is expected to have fallen for the first time since January.
• Germany’s September ZEW continued to gradually improve. The assessment of the current situation rose to -47.1 from -61.1. It is the third consecutive improvement and is the least negative reading since May 2023. The expectations component edged up to 34.7 from 34.2. It is the fifth consecutive monthly increase and is the highest since the war on Iran began.
• The Bank of England meets Thursday. Today’s disappointing UK employment data, however, did not change the probability that the central bank will stand pat or that the next move will be a hike. Overall, average weekly earnings slowed to 3.9% from 4.1% on the three-month year-over-year measure. The ILO measure of unemployment was steady at 4.9%. At 66k job growth over the past three months is the slowest since February. Still, the number of payrolled employees fell by 26k, the seventh consecutive month decline and the fastest rate in nine months. The claimant count accelerated to 4.4% from 4.3% and rose to 27.8k after falling 11.8k in July. Tomorrow the UK reports August CPI. The headline is projected to rise by 0.5%, which will see the year-over-year rate tick up to 3.1% from 2.9%. The core rate is expected to be flat at 2.6%.
• The 0.4% rise in Japan’s tertiary industry index (services) helps offset the impact of the 0.2% decline in July industrial production. The Japanese economy grew 1.9% annualized in Q1, 1.4% in Q2 and is expected to slow to 1.1% here in H2 26. Core CPI has been below the 2% target this year. Yet, the market is not only convinced the BOJ hikes later this week but the swaps market has about an 85% chance of a December hike as well.
Reviewed by Marc Chandler
on
September 15, 2026
Rating:
