by Marc Chandler
My articles My offerMy siteAbout meMy videosMy books
Follow on:LinkedINTwitterSeeking AlphaAmazon
There are two notable developments today. First, Japan's Q4 GDP was stronger than expected and Q3 growth was revised higher. The net impact is a stronger yen, rise in Japanese rates, and slightly greater confidence that the BOJ will hike rates again, perhaps as early as June. Second, between US and Russian talks to end the war in Ukraine and US Vice President Vance's speech at the Munich conference before the weekend, the Western Alliance has been dealt a body blow from within. The initial market response has been to rally European defense company shares and sparked a rise in long-term yields as investors anticipated increased issuance to cover a boost in spending. European benchmark 10-year bond yields ae up 3-5 bp.
The euro, which reached almost $1.0515 before the weekend after the disappointing US retail sales (-0.9% headline and -0.8% "control") and decline in manufacturing output (-0.1%, expected 0.1%), is trading quietly within Friday's range albeit mostly softer. The greenback peaked in the middle of last week near JPY154.80. It pulled back to almost JPY152.00 before the weekend, encouraged by the drop in the US 10-year yield from almost 4.66% in the middle of the week to 4.44% on Friday. The dollar was sold to nearly JPY151.40 in European turnover today. Last week's low was near JPY151.15.
Turning to tomorrow, there are several features:
The Reserve Bank of Australia is widely expected to begin its easing cycle with a quarter-point rate cut, which would bring the cash target rate to 4.10%. The monetary statement is likely to be cautious, and the futures market is not anticipating the next cut until May or the following meeting in July. The Australia dollar is trading firmly and recorded a new marginal two-month high near $0.6375.
The UK sees its labor market report. Average hourly earnings appear to have accelerated into the end of last year. With and without bonuses, the three-month year-over-year pace is expected to have risen to 5.9% from 5.6%. Still, the unemployment rate, measured by ILO, is likely to have ticked up to 4.5% from 4.4%, as the number of payrolled employees is seen falling for the third consecutive month. Sterling is trading firmly but within the pre-weekend range (~$1.2550-$1.2630) and is hovering around $1.26.
Canada reports January CPI. A small rise is expected of 0.1% after a 0.4% decline in December. The year-over-year pace may rise to 1.9% from 1.8%. The underlying core measures may also firm slightly. Anecdotal reports suggest that the US tariff threats themselves are having an economic impact. Canada is exposed to the border tariffs (25%) that could come into effect early next month. It is expected to the tariff on steel and aluminum, as the US largest supplier. It is also exposed to the tariffs on autos, which the US has threatened, possibly in early April. The swaps market has almost a 50% chance of a quarter-point cut at the next Bank of Canada meeting on March 12. The US dollar fell to CAD1.4150 before the weekend, its lowest level since December 12. It settled slightly above CAD1.4180 and steady-to-firmer today but still holding below CAD1.4200.
You Might Also Like
Fragile Consolidation for Greenback to Start the New Week
2025-03-10
Overview: The on-again off-again US tariffs have raised the level of uncertainty and lack of visibility that itself has become a market factor. The dollar has begun the new week, which could see US steel and aluminum tariffs announced Wednesday, softer, but mostly consolidating within the pre-weekend range. Most of the G10 currencies are firmer, though we note the potential downside reversal in sterling. Norway’s higher than expected CPI has dampened rate cut hopes and lifted the krone by 1%. Emerging market currencies are mostly lower. After rising 2.5% last week, the MSCI Asia Pacific Index traded heavier. Despite mainland investors buying a record amount of Hong Stocks today, the Hang Seng fell 1.8% and the index of mainland shares that trade in HK tumbled 2.1%. Among the large
USD Surrenders Most Gains Seen after Trump Threatens Steel and Aluminum Tariffs
2025-02-10
Overview: The US is continuing to brandish the tariff threat. On top of the "reciprocal tariff" threat signaled before the weekend, yesterday, President Trump indicated he would announce 25% tariffs on all US steel and aluminum imports. As is true to the pattern, the greenback jumped in early Asia Pacific turnover. However, after the initial mark-up, the greenback has come off. By late European morning turnover, the US dollar was mostly softer against the G10 currencies, but the yen and Canadian dollar. Canada is the single biggest source of US steel and aluminum imports. Emerging market currencies are not as resilient and only a few from central Europe are firmer. It is tempting to talk about "tariff fatigue" but we are reluctant to draw hard conclusions without seeing the North
Renewed US Tariff Threat Doesn’t Stop Equities from Marching Higher
2025-01-31
Overview: The renewed threat of a 25% tariff on Canada and Mexico as soon as tomorrow has lifted the US dollar broadly and has not derailed the firmer tone in global equities. There are still many unknowns and questions, and this will keep investors and businesses on tenterhooks. The greenback is mixed against the G10 currencies in Europe and is mostly +/- 0.25%. The Canadian dollar and Mexican peso are little changed now after selling off late in the North American session yesterday. Coming into North American session, all the G10 currencies but the yen are softer on the week. The Canadian dollar is off about 1%. On the other hand, the Mexican peso is off about 2.2% this week, making it the worst among the emerging market currencies. Brazil and Colombia, with 0.5%-0.6% currency gains the
US Dollar Extends Losses after North America Faded Yesterday’s Tariff-Threat Induced Gains
2025-01-22
Overview: The
US tariff threat was extended to China and the EU yesterday but after the North
American market shrugged it off yesterday, for the most part, the market seemed
to take it in stride. It is too early to say the market is becoming immune to
the rhetoric. Still, the dollar is mostly softer today. Ironically, despite
high confidence of a BOJ rate hike on Friday, the yen is the only G10 currency
is lower on the day as the North American session is about to begin. The UK
reported a larger than expected December budget deficit and although UK Gilts
are underperforming, sterling has extended yesterday’s recovery and is trading
at its best level in two weeks. All but a handful of emerging market currencies
are also pushing higher against the dollar today. China, Hong Kong, and Taiwan
Greenback Bid Ahead of CPI
2024-12-11
Overview: The dollar is on fire. Ahead of today’s US November CPI and tomorrow’s anticipated rate cuts by the European Central Bank and the Swiss National Bank, the greenback is rising against all G10 currencies and nearly all emerging market currencies (but the Hong Kong dollar and the Indian rupee, which slipped to a record-low earlier today). There is a press report claiming that Beijing is considering allowing the yuan to fall further but it is not clear what this means in a strong US dollar environment. China’s 10-year yield is uncharted waters near 1.80% and additional monetary easing is expected. The yuan is off 2.3% this year against the dollar, making it among the strongest currencies in the world. Ahead of today’s CPI, the futures market has about an 85% chance of a Fed cut next
Fall of French Government Does Not Roil the Markets and a BOJ Dove did not Rule out Rate Hike this Month
2024-12-05
Overview: The US dollar is mostly softer today. The only G10 currency that has not gained on it today is the Swedish krona, which is nursing minor losses. Still, the tone is one of consolidation and this may persist through the North American session, ahead of tomorrow US employment report. The median forecast in Bloomberg’s survey has crept up to 215k. Most emerging market currencies have also gained on greenback, but the South Korean won. The failure of the French government to survive the confidence vote yesterday has not unsettled the markets. The euro is trading near a three-day high and the French 10-year premium over Germany has narrowed for the third consecutive session. Equities were mixed in the Asia Pacific region. China, Hong Kong, and South Korea, among the large bourses
The Dollar and Gold Firm
2024-10-21
Overview: The US dollar is firm to start the new week. The Japanese yen and Australian dollar are the heaviest with in the G10 (~0.30%). The euro and sterling are trading heavier but inside the pre-weekend range. The market anticipates the Bank of Canada to deliver a 50 bp rate cut in the middle of the week, and the Canadian dollar is threatening to extend its losses for the fourth consecutive week. China’s prime lending rates were cut by 25 bp, slightly more than expected, and officials signal there is scope for further easing before year-end. All, but a few emerging market currencies weaker today. Outside of Japan and Hong Kong, the large equity markets in the Asia Pacific region were mostly firmer. Not so in Europe, where the Stoxx 600 is nursing a small loss after rising a little more
CSI 300 Drops 7%, Oil Steadies, and the US Dollar Remains Firm
2024-10-09
Overview: We suspect the market overreacted to the US jobs data, which was tainted by the lowest "establishment" response in over two decades and seasonal adjustments were likely thrown off by Hurricane Helene and the 33k strike at Boeing. We think Fed officials, and more speak today, have confirmed that it was not the game changer than many market participants think, which was likely influenced by positioning. It did help facilitate the dollar’s upside correction we had been looking for. The greenback is firm today. Sterling made a marginal new low, while the euro retested $1.0950. The Reserve Bank of New Zealand’s 50 bp cut took the New Zealand dollar down nearly 1%, though it was well anticipated. Only the Swiss franc is holding its own today among the G10 currencies. Emerging market
Tags: Currency Movement,Featured,newsletter
