The US dollar is mostly consolidating quietly ahead of the employment data. Seasonal factors, and the challenge economists experience in forecasting August job growth in part because of the distortions around local governments and the beginning of the new school year. While Federal Reserve Governor Waller drew attention to next week’s CPI, an unexpected loss of jobs, after July’s loss would pose a serious setback to those who expect a Fed hike later this month. The Fed funds futures have trimmed the odds of a hike this week.
Meanwhile, few are attributing the yen’s two-day surge to intervention. Most accounts attribute it to hawkish comments from the Bank of Japan, speculation of somewhat faster BOJ tightening, and perhaps some adjustment by large pools of capital. The dollar held above JPY155 as it did during the April/May intervention and again in late July. The yen is the weakest of the G10 currencies today, off a little more than 1/3 of 1%. The greenback reached almost JPY156.60 in Europe. Lastly, October WTI is a little softer after rallying for the past four sessions. It is about 9% higher on the week.
Prices
G10
• After falling to a two-week low on Wednesday near $1.1565, the euro jumped to almost $1.1645 yesterday. It was the best level since Fed Chair Warsh delivered hawkish commentary at Jackson Hole at the end of last week. It is consolidating quietly ahead of the US jobs reported in narrow range below the 200-day moving average (~$1.1635). Options for almost 2.5 bln euros expire today at $1.16.
• The dollar was under persistent pressure yesterday against the Japanese yen. The decline was orderly without the kind of spikes seen in past intervention. Still, it was a large move (~2%) and perhaps reflects a change in tactics. Most explanations involved market participants, perhaps even including Japan’s GPIF (Government Pension Investment Fund) buying back short yen positions. The dollar settled more than three standard deviations below the 20-day moving average, reflecting the extreme move. The Bollinger Band is set at two standard deviations. If it was intervention, eventually there will be evidence in the BOJ’s balance sheet and/or the US Treasury’s Exchange Stabilization Fund. The US dollar continues to hold above JPY155, where $2.6 bln in options expire today. On the top side, the JPY157.00-25 area may offer an initial test.
• On the heels of the dollar’s broad decline, sterling recovered from Wednesday’s nearly three-week low of $1.3475 and reached almost $1.3550 yesterday. It stopped a few hundredths of a cent short the (38.2%) retracement of the losses since the six-month high on August 21 (~$1.3675). It is consolidating in about a quarter-cent range below $1.3550. The $1.3575-$1.3600 area may prove more formidable resistance.
• Treasury Secretary Bessent questioned recently how Canada could seriously challenge an economy 12x the size. Yet, last week’s byelections that the Liberals won and the performance of the Canadian dollar arguably teaches the same lesson Ukraine and Iran, in their own ways. The Canadian dollar gains over the past two sessions practically retraced the losses since the US-Canada trade talks broke down. The greenback peaked on Wednesday (~CAD1.3940), its best level since August 13 and tested CAD1.3765 yesterday. The US dollar settled around CAD1.3760 before the fateful weekend that the trade talks failed. Ahead of the US and Canadian employment reports, the US dollar is trading in about a 10-tick rangetheCAD1.3795 settlement. Options for $1.2 bln at CAD1.3800 expire today.
• While the market may be somewhat less sure than it was at the end of last week that the Federal Reserve will hike rates this month, it is more convinced that the Reserve Bank of Australia will. This has helped the Aussie recover from about $0.7120 on Wednesday to a high yesterday around $0.7205. It reached $0.7225 today, its best level since the four-year high, recorded in early May (~ $0.7280). It has pulled back and is straddling the figure in late European morning turnover. There are nearly A$1.3 bln of options at $0.7200 that expire today.
EM
• Emerging market currencies, and especially many of the high yielders, (except Brazil and Türkiye) held up well yesterday as the yen’s gains may signaled unwinding of carry trades. Instead, it looks like some simply shifted the funding leg to dollars from yen. The Mexican peso reached its best level six sessions. The US dollar posted an outside down day against the peso. After setting a three-day high (almost MXN17.03), the dollar reversed lower and was sold through Wednesday’s low. It traded below MXN16.94 for the first time since August 26. Follow-through selling today saw the greenback slip below MXN16.89. The two-year low was recorded on August 24 near MXN16.8875.
• The broad dollar sell-off yesterday had little impact on the yuan. The dollar chopped between about CNH6.7165 and CNH6.7210 throughout the North American session and settled little changed on the day. Today, the dollar has been sold to about CNH6.7085, a new three-and-a-half-year low. Yet given the greenback’s losses, the PBOC had little choice but to set the dollar’s reference rate lower, breaking the sawtooth pattern of alternating directions of the fix on a daily basis. Today, it was set below CNY6.78 for the first time since February 2023 (CNY6.7787 vs. CNY6.7807 yesterday).
• The Indian rupee traded quietly today. The US dollar gapped lower yesterday and recovered to about INR94.4950. It has edged up to INR94.5050 today. It barely entered the gap that extends to Wednesday’s low near INR94.8425.
Other Markets
• The cash S&P 500 index and Nasdaq composite gapped higher yesterday and did not look back. The strong showing fanned the animal instincts and Asia Pacific and European equities rallied. In the Asia Pacific region, the large bourses but mainland China and Australia were exceptions. Europe’s Stoxx 600 is slightly firmer, while the S&P and Nasdaq futures are also a little higher.
• Benchmark 10-year yields fell mostly 3-5 bp in Europe yesterday, though the 10-year Gilt yield was off nearly 10 bp. The Swiss bond was an exception. It edged slightly higher to a little above 0.4% after reporting higher than expected August CPI and Q2 GDP. The market ignored the higher energy prices, which were worrisome earlier this week. The 10-year JGB yield fell four basis points today to settle slightly lower on the week. European yields are mostly a little firmer. The 10-year US Treasury yield is off a basis point to slightly below 4.76%.
• Gold recovered smartly yesterday. It traded above $4500 for the first time this week after having plumbed a little below $4283 on Wednesday. Gold is trading quietly below $4500 but above $4460 as it awaits clearer directional cues. It needs to overtake the $4330-$4340 area to signal a run toward late August higher near $4700. For its part, silver’s bounce stalled yesterday fractions of a penny shy of Monday’s high, which itself was slightly below $67.50. It is trading a little heavier today and has spent most of the session so far below the almost $67 settlement.
• October WTI steadied yesterday after setting a new contract high near $93.15. To put that in perspective, note that the rolling front-month contract peaked near $119.50 on March 9 and has not been above $93.50 for almost three months. It is trading inside yesterday’s range today. It held above $90 but faltered a little above $92.
Data
• The US jobs report is the key event of the day. The median forecast in Bloomberg’s survey is for a 55k increase, though the risks are on the downside. Bloomberg notes that August jobs report has tended to disappoint expectations. The potential downside risk emanates from state and local government and involves education. There is a decline in public school enrollments and, reportedly, around half the districts are cutting staff and/or budgets. In five of the last six Augusts, there has been deterioration from July, and in July 2026, the initial estimate is that the US lost 23k jobs. The US shed 70k jobs in August 2025 and gained 9k in August 2024. In the modern era, the Fed has not lifted rates following back-to-back declines in non-farm payrolls. The Fed funds futures have about a 63% chance of a hike discounted ahead of the report.
• Canada’s August jobs data also will be reported. Canada created about 69k jobs in the first seven months of the year, down from around 84k in Jan-July 2025. Last August, Canada lost 4k jobs. The unemployment rate stood at 6.4% in July, the lowest since May 2024. It has eased for the last three months. Barring a significant surprise, with the Bank of Canada standing pat on Wednesday and not meeting again until late October, the Canadian report will be overshadowed by the US data.
• Mexico’s June capex and consumption data and the July Leading Indicators typically have little market impact, and this may be especially true given the market sensitivity to the US employment data.
• The eurozone reported disappointing retail sales today. The median in Bloomberg’s survey was for a 0.2% rise, but the precipitous drop of 3.4% in Germany seemed to suggest it was exaggerated. It came in at -0.6%. However, the sting was lessened by the upward revision in the June series to 0.2% from -0.3%. Separately, Germany reported the second consecutive jump in factory orders. The 2.5% rise was more than expected and followed a 3.7% jump in June. Domestic orders rose by 9.1% (9.0% in June) month-over-month. Foreign orders fell by 2.1% (0.3% in June). Lastly, Germany’s construction PMI rose to 48.7 (from 42.1) and is the highest for the year.
• The UK’s August construction PMI unexpected soften (44.3 vs. 44.7). It stalled after two months of improvement, but it has been below the 50 boom/bust level since the end of 2024.
• Japan reported July household spending figures today. It fell 3.6% year-over-year, a much sharper decline than expected. Household spending has not risen since last November. Labor earnings will be released early next week but real earnings have risen year-over-year every month of the year. Consumption was a small drag on GDP in Q2.
Reviewed by Marc Chandler
on
September 04, 2026
Rating:
