The US dollar is mostly narrowly mixed today. The political woes in Europe weighed on the euro, which was driven to nearly $1.1160, a 17-month low. The market does not like the developments in France and the 10-year premium over Germany is nearly 150 bp today. The two leading parties in next year’s presidential contest scare investors. The far-right wants to lower the age to qualify for pensions and the far-left has advocated for the central bank to forgive the government’s debt it holds. Meanwhile, Spain’s minority socialist government, lost a key vote on housing reform last week, and called for an election next month. Tomorrow, the local parliament of Germany’s Saxony Anhalt convenes tomorrow and Afd won a plurality of votes and could sit in a state government for the first time.
The combination of forward guidance by the Fed’s leadership, though not Chair Warsh, and softer data have prompted the market to re-consider the likelihood of a rate hike later this month. A week ago, the futures market had about a 70% chance of a hike. Now, it is slightly less than 20%. Data this week may not change that much. Still, the early call on the September CPI (due October 14) is for a rise in the year-over-year headline and core rate.
Prices
G10
• The European political morass drove the euro to almost $1.1160 in thin Asia Pacific turnover earlier today. It stabilized and reached almost $1.1220 in the European morning. In less than a 2 ½ hour window in the North American morning ahead of the weekend, the euro set the session low near $1.1220, holding a few ticks above the year’s low recorded the previous day (~$1.1215) and the session high, near $1.1280 after the disappointing US jobs report. French bonds remain under pressure today and Spain’s Sanchez who lost a key vote in parliament on housing reform, called for a snap election on November 29.
• The recovery in the US 10-year yields from a nine-basis point decline to a five-basis point increase appeared to help the greenback recover against the yen before the weekend. It was bought on the brief dip below JPY157 to almost JPY158. The gains were extended to around JPY158.15 today. Support is seen in the JPY157.50-60. The special session the Diet began today, and the Takaichi government has two significant initiatives: a reduction of the tax on food and fewer seats in the lower chamber of the Diet.
• Sterling rose by about 0.3% before the weekend, which pared the week’s decline to a little less than 0.1%. Still, it was the third consecutive weekly decline and the fifth in the past six weeks. It is trading within the pre-weekend range today and has been confined to about $1.3190-$1.3250. The oversold daily momentum indicators look poised to turn higher, and a close above $1.33 would lift the tone.
• The Canadian dollar struggles to sustain even the most modest of upticks. In the past eighteen sessions, it has risen twice. Over this stretch, the US two-year premium over Canada rose about 125 bp to around 157 bp. It is the widest US premium in nearly 30 years. The US dollar reached nearly CAD1.4295 in the Asia Pacific surge but trended lower through early European turnover and briefly slipped below CAD1.4240. It looks poised to recover toward CAD1.4260-70. US reports little progress in trade talks with Canada (and India).
• The Australian dollar, the high yielder in the G10, strengthened before the weekend when US rates were pulling back. It reached $0.6975, but as US rates recovered the Aussie’s gains were pared and it fell back to around $0.6945. It is trading inside the pre-weekend range today and reached the session high, slightly above $0.6965 in the European morning before stalling.
EM
• The dollar reached the session high before the weekend against the Mexican peso slightly above MXN18.35. The peak the day before was above MXN18.43. After the US jobs report the greenback approached MXN1811. However, as US rates rose the dollar recovered and straddled the MXN18.20 area in the waning hours of the week’s activity. Today, is drawing little benefit from what=looks like a market-friendly response to the Brazilian election results, which saw Bolsonaro and his party do considerably better than the polls had suggested. Not only is Bolsonaro favored to win the presidential run-off on October 15, but his Liberal Party did well in congressional and gubernatorial races.
• The offshore yuan was mostly firmer ahead of the weekend. The dollar spent the bulk of the European and North American session chopping between almost CNH6.70 and CNH6.71. The greenback was bid to almost CNH6.7150 today the Asia Pacific session today before returning to CNH6.7070 area in Europe, where the dollar stabilized.
• The Indian rupee traded quietly today and enjoyed slightly firmer tone. The dollar held the pre-weekend range but settled firmly, near session highs (~INR96.3075). The central bank meets in the middle of the week and quarter-point hike in the repo rate to 5.50% is widely expected.
Other Markets
• Equities in North America and Europe finished last week on an up note. Asia Pacific stocks mostly rallied today. The regional MSCI index fell 1.1% last week, its largest loss since mid-July. Europe’s Stoxx 600 fell 1.15% last week. It rose 0.75% before the weekend and is about 0.20% better in late morning turnover today. US index futures are nursing small losses.
• Benchmark 10-year yields in Europe and North America had a volatile session at the end of last week, but when the dust settled, the US 10-year yield was up four basis points and German, French, and Spanish 10-year rates were around five basis points lower. The Japanese 10-year yield was nearly flat today, while European yields are mostly firmer. The French premium over Germany is about 145 bp. Italy’s yield up four basis points and Spain’s benchmark yield is up nearly as much. The 10-year Treasury yield is up about half of a basis point to almost 5.28%. The yield of Brazil’s 10-year dollar bond is off about 8 bp to 6.65%.
• Gold posted an outside day ahead of the weekend. It first made a four-day high near $4226.50 and then proceeded to fall by $100 and but settled above the previous day’s low (~$4139.50). Last week’s low was nearly $4111. It is trading quietly but firmly between about $4125 and $4170 so far today. Silver also posted an outside day and settled within the previous day’s range. It traded down to about $59.70, its lowest level in two months. It is also trading firmer today and is a little below last week’s high, set before the weekend, near $62.
• Buyers emerged when the November WTI contract approached $88 before the weekend. It has not traded below $88 since September 4. It recovered and briefly poked above $92 in late North American dealings before it settled near $91.10. It is consolidating between about $89.30 and $91.90 today.
Data
• The US ISM September services index will likely draw more attention today than the final PMI services and composite index. The ISM services index tends to run a little lower than the PMI but after the jobs data last week, next week’s CPI appears to be the next important factor that can materially shape expectations for the FOMC meeting at the end of the month (Oct 28).
• Canada sees its September services and composite PMI today. While manufacturing is above the 50 boom/bust level, services and the composite have been below 50 since June. The swaps market is pricing in about a 45% chance of a hike at the October 28 Bank of Canada meeting.
• Mexico’s July capex and private consumption reports are unlikely to capture the market’s attention. The focus has been the dramatic unwinding of dollar carry-trades. The data highlight of the week is the September CPI on October 8. The headline rate is expected to tick up but the core rate is seen easing slightly.
• The eurozone final September services and composite PMI had little impact. The services PMI was confirmed at 53.0 and 51.6 in August. The composite PMI was confirmed at 53.1, after 52.0 in July and August. The PPI rose as expected to 1.9% from 1.6% in July. Note that Germany’s state government of Saxony Anhalt convenes tomorrow for the first time since the election that saw the AfD do unexpectedly well. The issue is can it still be blocked from entering the government for the first time, and is so, at what cost? Meanwhile, Spain’s PM Sanchez called for an election November 29, after last week’s parliament defeat. The polls suggest a center-right alliance between the People’s Party and the populist right; Vox party will likely form the next government.
• The UK’s final services and composite PMI readings were revised high. The composite was revised to 52.0 from the preliminary estimate of 51.7. That reflects a pullback from 52.5. With the data out of the way, it is a light week for UK high-frequency economic reports. While there are plenty of data points in the coming weeks, the swaps market has about an 85% chance priced in for the next BOE meeting on November 5.
• The final Australian September services and composite PMI have little bearing on the outlook for the central bank, which has delivered four hikes this year, but withheld forward guidance at its recent meeting. For the record, the services PMI is at 51.9, from the preliminary estimate of 51.4, and the second consecutive decline (53.2 in August and 53.6 in July). The composite PMI is at 51.3 (50.8 flash estimate and 53.2 in July).
• Japan’s final services and composite PMI were mixed. The composite peaked in February at 53.9. The composite averaged 52.9 in Q3 after 52.0 in Q2 and 53.3 in Q1. It is at 51.3 in September (51.6 preliminary estimate). Last week, encouraged by some details in the Tankan and record of the recent BOJ meeting, the swaps market downgraded the chances of a hike this month (October 31) to around 15% today from about 40% last Monday.
Reviewed by Marc Chandler
on
October 05, 2026
Rating:
