The US has rejected Iran’s latest offer and appears to be moving more force into the region. Oil prices have jumped, which is also serving to push up yields. The dollar is firmer against most of the G10 currencies. New verbal intervention by Japanese officials, clinging on to the cooperation of the US, to warn against yen weakness.
Yet, with rising US yields, it will be difficult to suppress the greenback. Perhaps, one of the most interesting developments today has been the PBOC’s sharply lower dollar fix. Last week, the PBOC had cautioned against one-way moves in the yuan. The dollar’s fix was lowered by the most since April. Ironically, it does not appear that the currency was discussed by Trump and Xi, but the yen was reportedly discussed during Trump-Takaichi talks. Trump and Xi will meet two more times this year (November APEC ins Shenzhen and December G20 at Trump’s golf club in Florida). The US and China agreed to reduce tariffs on $60 bln of goods imported from each other.
Prices
G10
• We suspect the euro is trying to bottom with oversold momentum indicators after it approached the low from late July, it is consolidating quietly within the pre-weekend range and has been confined to about a third-of-a cent above $1.1365. Last week’s low was about $1.1360, and the July low was slightly below $1.1355. Options for about 1.75 bln euros at $1.1350 expire today. Large options remain struck at $1.14 that expire today and tomorrow.
• After the yen declined for five consecutive sessions, Japanese officials returned to the intervention escalation ladder ahead of the weekend to play up the ongoing coordination with the US Treasury. This coupled with the pullback in US rates sent the yen nearly 1% higher, its largest gain in nearly three weeks. As the dollar recovered today toward JPY158, Japan’s finance official Mimura, who is responsible for fx policy, underscoring that US and Japanese officials have sent a “vey clear message” about the yen’s depreciation. The verbal intervention sent the dollar to JPY156.50 in early European activity, a six-day low. It has steadied and returned to around JPY157.15. Options for $1.2 bln at JPY156.75 expire today.
• After testing $1.34 last Monday, sterling fell to nearly $1.32 last week before it steadied ahead of the weekend. Sterling is a little firmer today. It reached a four-day high in early European turnover, near $1.3275. $1.3280-$1.3300 must be overcome to lift the tone. Options for GBP840 mln at $1.33 expire today. The euro reached above GBP0.8630, its best level since late June, but has subsequently reversed sharply lows and a reached a four-day low near GBP0.8570, setting up a potential key reversal. Initial support is seen near GBP0.8550.
• The US dollar reached CAD1.4155 before the weekend and CAD1.4165 today. It is the highest it has been against the Canadian dollar since mid-July. Options for nearly $530 mln at CAD1.4180 expire today. The US two-year premium over Canada crept up to almost 154 bp before the weekend, a new high since February 2025. A narrowing of the premium would seem needed to fuel a recovery in the Canadian dollar. Initial US dollar support is seen near CAD1.41.
• The market is convinced that the Reserve Bank of Australia will hike rates early on September 29. It will be the fourth hike this year. Another hike is fully discounted by the end of February 2027. The Aussie remains pinned near $0.7000, which it has not traded below since early August. On the other hand, it has been capped in recent sessions in front of $0.7050.
EM
• Last week, the Mexican peso fell by almost 3%. It was the largest decline in six months. Latam currencies accounted for the three weakest emerging market currencies last week. The unwinding of dollar-funded carry trades seemed like the main culprit. The greenback approached MXN17.78 before the weekend, its strongest level since April. It has been bid to almost MXN17.82 today. The momentum indicators are stretched by the dramatic peso liquidation but the firmer US rates and drop in equities maintain the pressure on the peso.
• China’s markets were closed before the weekend for the mid-Autumn holiday. The market reopened today but starting Thursday and running through next Wednesday, another holiday will shut the mainland markets. The dollar rose to nearly CNH6.7265 against the offshore yuan today, marginally taking out the pre-weekend high, before reversing lower and falling to about CNH6.7125. The PBOC appeared to have signaled the desire for some consolidation in the exchange rate. The dollar fix continues to be an important way the PBOC signals its desires. The PBOC set the dollar’s reference rate lower for ten consecutive sessions through last Tuesday. Yet, today, the PBOC set the dollar’s fix sharply lower. It was set at CNY6.7399 today, a new cyclical low (CNY6.7489 last Thursday). It is the biggest decline in the dollar’s fix since April.
• Rising oil prices and the broadly stronger greenback was no match for the Indian rupee today. The dollar rose to a seven-day high (INR95.99). This month’s high was recorded on September 17 near INR96.10.
Other Markets
• The combination of lower US rates and oil prices seemed to help US equity indices extend last week’s gains ahead of the weekend. However, stocks are mixed today. Most of the large bourses in the Asia Pacific region fell but Hong Kong, Australia, and Singapore. South Korea’s Kospi was the weakest with a 2.7% drop. Europe’s Stoxx 600 is marginally higher, while US index futures are off 0.4% (Dow Industrials) to -1.0% (Nasdaq Composite).
• Benchmark 10-year yields rose sharply last week with the JGB yield rising almost 10 bp, Germany near 15 bp, and the US a little more than 22 bp. Higher oil prices have sent yields higher today. The JGB yield edged up a little more than one basis point, while European yields are 4-7 bp higher. The 10-year US Treasury yields are up nearly seven basis points to 5.23%.
• For a little more than two weeks, gold has chopped in $4200-$4400 range. It has been sold to almost $4140 today, its lowest level since August 5. Nearby support may be around $4120. Recall that silver was turned back from $70 in late August and has been confined to roughly $62.30-$68.30 this month. It was sold slightly through $61 today. Initial support now may be near $60.
• November WTI pulled back from the first time in three days ahead of the weekend, though the market remains tight. A record premium was paid late last week to secure prompt barrels at the main crude storage hub in Cushing, Oklahoma. The US rejected Iran’s cease-fire proposal and is moving more forces into the region. Nov WTI is near session highs before the US open, around $96. Last week’s high was a little above $97.20.
Data
• The week that features the August US PCE deflator and September jobs report begins slowly. On tap today is the Dallas Fed’s September manufacturing survey, which typically does not spur much of a market reaction. Tomorrow sees house prices, the Conference Board’s measure of consumer confidence, the JOLTS report, and the Dallas Fed’s service activity survey.
• Mexico reports August trade figures today. Its trade surplus has widened to $9.25 bln through July this year compared with $1.18 bln in the first seven months of 2025. US-Mexican trade talks continue, and both sides have expressed optimism, though details have not been revealed. At the start of the week, President Sheinbaum revealed that the US has expanded the list of concerns it wants Mexico to address from an initial 54 items to almost 90. The only one she revealed was the US wanted to lower its bilateral deficit, and Sheinbaum say that Mexico would look to buy more goods from the US and less from other countries.
• Japan reported that August producer services prices accelerated to a new two-year high of 3.7% year-over-year (from 3.6%). Producer service prices have not risen faster since H1 1990.
• China reported August industrial profits rose 4.2% year-over-year from 11.2% in July. Last August, Beijing reported that industrial profits rose 20.4% year-over-year. For the first eight months of the year, profits rose 15.7%. The electronics sector appears to have contributed about 2/3 of the overall profit growth so far this year.
Reviewed by Marc Chandler
on
September 28, 2026
Rating:
