A new month begins, but the market dynamics are familiar. Rising oil prices and rising yields have lifted the greenback broadly. The euro and Canadian dollar have been sold to new lows for the year. Interest rate premiums over Germany within the eurozone widen as the focus is on the French and Italian budgets. The combination of the uninspiring Tankan Survey in Japan and record of the recent BOJ meeting saw the market downgrade the chances of a hike this month in Japan. The dollar is above JPY158 for the first time this week.
The dollar’s strength comes despite the futures market reducing the chances of a Fed hike later this month to about 40% from 70% at the beginning of the week. In yesterday’s update the Atlanta Fed GDP tracker estimate for Q3 GDP was cut to 3.7% to 5.0%. Still, the US is seen best able to cope with the shocks. At least seven Federal Reserve officials are expected to speak today. Tomorrow sees Tokyo’s CPI and the US employment report.
Prices
G10
• The euro reached the session high yesterday, near $1.1380, around the time of the US data were reported. As US interest rates recovered from their early decline, the euro eased back to the session low of almost $1.1320 late in the session. It has broken below $1.13 today for a new low for the year (~$1.1265). There may be some support near $1.12, but the $1.11 area represents the next important retracement (50% of the rally from last year’s low ~$1.0140).
• Poor Japanese data yesterday and the recovery of US rates helped the greenback trade higher against the yen after it reached an eight-day low near JPY156.40. The dollar’s high in the North American session was a little above JPY157.50 late in the session. It has soared to almost JPY158.50 today after the Tankan saw slightly lower inflation than previously, a slight reduction in companies planning to raise prices, and the summary of opinions from last month’s BOJ meeting did not seem sufficiently hawkish as to signal back-to-back rate hikes. The odds of a hike late this month were scaled back. The next nearby target for the dollar is the last week’s high (JPY158.95-JPY159.05). Options for almost $1.60 bln at JPY158.25 expire today.
• Sterling traded above $1.33 in the North American session yesterday for the first time in five sessions. However, it faltered there and retreated to almost $1.3250. Still, it settled above Tuesday’s high (~$1.3260) and posted its highest close since September 22. Yet, it has come back offered today and briefly slipped below $1.3200, where options for GBP840 mln expire today. The year’s low was recorded in late June, near $1.3140.
• The recovery of US rates yesterday saw the greenback recorded an outside up day against the Canadian dollar. It traded on both sides of Tuesday range and settled above its high. In fact, the US dollar rose slightly above CAD1.4235, its highest level since July 6. It was the eighth consecutive gain for the US dollar. It reached a marginal new high for the year today, near CAD1.4260. The CAD1.4290-CAD1.4300 area holds the (61.8%) retracement of the US dollar’s losses from last year’s high (~CAD1.4795). Still, given the move, implied volatility is restrained. Benchmark three-month implied vol is slightly above 4.65%. It was at 4.2% early last week, which was near the year’s low. It was 4.5% at the end of the week. The month’s high was near 4.75%.
• The Australian dollar traded below $0.6950 yesterday for the first time in two months. It continues to trade heavy today, and the smaller than expected trade surplus did not help its cause. The Australian dollar has been sold to almost $0.6930 in European turnover. Options for A$475 mln at $0.6940 expire today. The next technical area of support may be in the $0.6900-15 band. A break could target the $0.6830-50 area.
EM
• The Mexican peso could not sustain upticks for the third consecutive session yesterday. The dollar made a marginal new high for the move (~MXN18.1530 yesterday), and the forward momentum stalled. It settled within the upper Bollinger Band (found ~MXN18.2360 today) for the first time in six sessions. Pressure continues today and the greenback reached almost MXN18.28 today. Colombia unexpectedly hiked rates this afternoon to 12.25% from 12%. CPI is running around 6.2%-6.3%. In Bloomberg survey only 2 of 29 economists expected a hike. COP trading for the day was over before the announcement. This would seem to be positive for the COP today, yet the dollar is firmer against most emerging market currencies today. The swaps market has another hike discounted in the next six months.
• The offshore yuan market turned quiet after the mainland markets closed for a weeklong holiday yesterday. The broad dollar gains have seen it reached CNH6.7220 today. The week’s high was set Monday, around CNH6.7265. The PBOC set the dollar’s reference rate at new multiyear lows yesterday, seemingly signaling acceptance for further yuan strength. Its recent statement seemed to warn the market against taking it to excess. Ahead of the holiday, Beijing announced some targeted fiscal support, including mortgage subsidies, and the PBOC cut the rate on its supplementary lending facility for policy banks to fund investment by 25 bp to 1.5%.
• The dollar jumped to INR96.32 today, its best level since July 24. Firmer oil prices, and a broadly stronger US dollar weighed on the rupee, despite the intervention. Some reports suggest importer demand ahead of tomorrow’s holiday.
Other Markets
• US equity indices finished poorly yesterday. Still, the resilience of the S&P 500 and Nasdaq Composite in the face of the jump in US yields in September was remarkable. The S&P held its own and was slightly better than flat. The Nasdaq rose almost 2.5%. In contrast, Europe’s Stoxx 600 was off about 2.5% in September, and the MSCI Asia Pacific equity index lost a little more than 0.5%. Most of the large bourses in the Asia Pacific region rose today, lift by a 3.3% rally in the Nikkei, and a nearly 2% rally in South Korea. Australia’s ASX 200 was among the hardest hit in the region, it dropped 1%. Europe’s Stoxx 600 is off for the third consecutive session. It is down a little more than 1% today. While the Nasdaq futures are firmer, the Dow and S&P 500 are weaker.
• Benchmark 10-year yields are mostly higher today after the six-basis point jump in the yield of the 10-year Treasury yesterday. The 10-year JGB yield rose 6 bp (to nearly 3.10%). European yields are mostly 2-4 bp higher. The French premium over Germany has widened to around 130 bp, though Italian bonds are under more pressure today than French bonds. The 10-year Treasury yield is up couple of basis points to poke above 5.30%. The US Treasury says it will buy back as much as $6 bln of long-dated Treasury bonds today. Its actual operations have been closer to a third of the maximum as many offers have been rejected. At the same time, the market reassesses the odds of a rate hike late this month. The odds of a 25 bp hike have been reduced to a little less 40% from about 70% on Monday.
• Gold’s push above $4200 was rejected and it was sent back to a little below $4150. This week’s lows were around $4111-13. It is practically flat today. Silver traded on both sides of Tuesday’s range but settled barely inside its range. Indeed, silver recorded its lowest close since August 4. It frayed $60 today for the first time in two months. A convincing break of $60 could signal the next leg down, which could be in the $56.50-$57 area.
• November WTI recovered yesterday after slipping marginally through last week’s lows (~$88.65-70) and reached the session high near midday in NY of almost $92, before settling near $90.40. It has come back bid today and reached almost $93. If the lows seen are the lower end of the range, then the upper end of the range may be around $96.50.
Data
• In today’s slate of US data, the markets will be most sensitive to the ISM manufacturing. The initial manufacturing PMI jumped to 57.0 from 53.9, the best since 2022. The ISM runs a little lower and it is expected to edge up to 54.9 from 54.6 in October. It peaked in July at 55.6. August construction spending is due, and after a 0.5% decline in July, it is expected to be flat. The AI datacenter build-out is not quite enough to offset the weakness elsewhere. Through July, construction spending has fallen by an average of 0.4% a month this year, compared with an average decline of 0.1% a month in the Jan-July 2025 period. September auto sales will trickle in over the course of the session. On a seasonally adjusted annual basis, US vehicle sales averaged 16.07 mln a month through August. In the first eight months of 2025, US vehicles sales averaged 16.26 mln.
• Canada sees the September manufacturing PMI today. It stood at 53.0 in August. It peaked in July at 53.5.
• The eurozone September final manufacturing PMI was revised to 52.9 from 52.7 preliminary reading where it also was August. It is the strongest since before Russia’s invasion of Ukraine. August unemployment for the euro area was stead at 6.4%. It has been mostly at 6.4% this year after spending 2025 at 6.3% and Q4 24 at an EMU-era low of 6.2%. Tomorrow, the September aggregate eurozone CPI is due. It is seen rising 0.5% for a 3.7% year-over-year rise (from 3.2%). The core rate is expected to edge up to 2.5% from 2.4%.
• The UK’s final September manufacturing PMI is at 51.9. The flash estimate was 52.0. Still, it was the first increase since May, when it peaked at 53.9. It was at 46.2 in September 2025.
• The Reserve Bank of Australia delivered its fourth hike of the year earlier this week, while the manufacturing PMI stand at 49.6 (49.3 preliminary estimate and 52.0 in July and August). It is the weakest since the end of 2024. Meanwhile, Australia’s trade balance deteriorated. It fell to A$495 mln in August from a revised A$1.35 bln in July (from A$1.92 bln initially) and well below the median forecast in Bloomberg’s survey for A$2 bln. The average monthly surplus through August this year is about A$990 mln compared with an average of a little over A$4 bln in the first eight months of 2025.
• Japan’s Tankan survey showed small to modest improvement in most categories, but the capex plans were reduced to 11.3% from 11.5%. The pullback was led by smaller businesses. Inflation expectations eased to 2.5% on a five-year view from 2.6% in Q2. Among large non-manufacturers, the percentage planning to lift prices exceeded those planning on cutting prices by 38%, down from 40% previously. The final September manufacturing PMI was confirmed at 54.1. It peaked in August at 54.9 and was at 48.5 in September 2025. More importantly, tomorrow the Tokyo CPI is due. It is expected to jump as last year’s childcare-fee waiver creates an important base-effect. The median forecast in Bloomberg’s survey sees a rise to 2.5% from 1.9%. The core rate is expected to rise to 2.3% from 1.8%.
Reviewed by Marc Chandler
on
October 01, 2026
Rating:
