Many observers seem confused. They express disappointment that the so-called "Trump trade", a rally in the dollar has not materialized. Yet, in some ways, isn’t that what happened from late last September, ironically around the Federal Reserve’s 50 bp rate cut, around the time investors began taking US election polls more seriously? In Q4 24, the Federal Reserve’s real broad trade weighted dollar index rose by 4.9%, the best quarterly performance since Q4 2016. From late last September through a week before President Trump’s second inauguration, the Dollar Index rose by about 10%. Since January 10-13, the "Trump trade" in the foreign exchange has been unwinding. With momentum indicators stretched and the US tariff threat about to enter a new phase next month, a key question is how much

Overview:  The US dollar enjoys a firmer tone today after falling to new two-month lows against several of the G10 currencies. The market lacks near-term conviction as the US tariff threat looms after next week. US Secretary of State Rubio and Treasury Secretary Bessent have not attended the G20 meetings in South Africa due to tension in the bilateral relationship but adds to sense of US unilateralism, which is often mischaracterized as isolationist. Eurozone and the UK’s preliminary PMI disappointed, and British retail sales rebound masks underlying weakness. The dollar has rebounded against the Japanese yen, helped by BOJ Governor Ueda’s threat to purchases of JGBs to stabilize the market. The 10-year yield has risen by almost 25 bp over the past month. In contrast, the US 10-year

Overview:  The dollar’s gains scored in North America yesterday have been reversed today.  It is softer against all the G10 currencies, led by the Japanese yen.  The greenback was pushed below JPY150 for the first in a little over two months, ostensibly on the back of greater confidence that the BOJ will continue to hike rates, but if anything the swap market is slightly softer than yesterday. Still, the dollar does not look to have bottomed against the yen for the session. Most emerging market currencies are also enjoying a firmer tone today.  The Mexican peso is firmer after falling for the first time in seven sessions yesterday.  Rising JGB yields and yen weighed on Japanese equities today and major indices were off more than 1%.  Australia ASX 200 and the index of mainland companies

Overview: The US warned that the next phase of the tariff war could be announced in early April and three industries, auto, pharma, and chips. President Trump’s comments suggested sometime between the announcement and the implementation. He did not specify if USMCA trade would be exempt for the auto tariffs. Some auto parts reportedly cross the border four-five times. The dollar is mixed against the G10 currencies. The Reserve Bank of New Zealand delivered its third consecutive 50 bp rate cut and the Kiwi ‘s 0.25% gain puts it at the top of the G10 today. Among emerging market currencies, all but a couple Asian currencies are lower, with central European currencies, the softest. Equities are heavier. Except for China and South Korea, the large bourses in Asia Pacific were fell today.

Overview:  The US dollar enjoys a firmer tone against most of the G10 currencies in relatively quiet turnover. Ironically, the Australian dollar is the best performer and it is virtually flat, despite the beginning of the central bank’s easing cycle earlier today. Governor Bullock pulled over a hawkish cut in the sense and futures market pushed out the next cut until August. The UK report stronger wage growth and the first increase in employment in three months but it did not prevent sterling was softening. New Zealand’s central bank is widely expected to deliver its third consecutive half-point cut tomorrow, and the New Zealand dollar is the weakest among the major currencies, off nearly 0.50%. Most emerging market currencies from central Europe and Asia Pacific are softer. The Mexican

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

The US threat of aluminum and steel tariffs and reciprocal tariffs initially shook the markets, but the implementation at some future date gives the impression that the threats are negotiating ploys helped take away the sting. In his first term, Trump converted some of the tariffs to quotas, and that is one possible scenario now. Still there is great uncertainty of the US intent and strategy. For its part, the greenback finished last week lower against all the G10 currencies but the Japanese yen. It is not coincidental that US rates also fell last week. Despite the upside surprise to US CPI and PPI, many concluded that CPI was particularly noisy, and the inputs into the PCE deflator suggests the Federal Reserve’s targeted measure may slip. The Fed funds futures finished the week with

(On a business trip and attending Trade Tech FX USA in Miami.  Commentary to resume with the Week Ahead on February 15.) Overview: The US announced that the 25% steel and aluminum tariffs will not be effective for a month (March 12), and this gives the impression that they are a negotiating tactic, which may help explain why there has been a muted reaction. Some observers argue that the broader steel tariffs than in 2018 are meant to crackdown on the re-export of Chinese steel. Nevertheless, it will not set right with US allies. The most immediate threat to the stability of the G10 countries is not coming from China or Russia but the US. In his first term, Trump granted many exemptions to the steel and aluminum tariffs and Biden followed suit. It has yet to be seen what happens this time.

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

Many market participants appear to have forgotten the drama of Trump’s first term. It was driven home with the tariff threat on Canada and Mexico, which was postponed at the last minutes. The apparent fascination with his "authenticity" seemed to have overshadowed his ability to dissemble during the election but it has been underscored in the past few weeks, including apparently on what the US Navy will be charged for using the Panama Canal. Key economic officials have denied signals from Trump himself about pressuring the Fed to cut rates or the purpose of the tariff threats on Canada and Mexico. Yet, it is not clear that the power of policy lies with senior officials. It looks like it is being retained within the Oval Office. Barring more disruptive comments, the greenback will likely

Overview:  The week began with a bang with the US tariff threat, which at the last minute was postponed by the US for a month. Narrow ranges in the foreign exchange market are prevailing ahead of the US jobs data, which will likely be distorted by the poor weather in parts of the country and the California fires. Nevertheless, it is clear that the Federal Reserve is on hold until the middle of the of the year at least and today’s report is not clean enough to change that. India delivered its first rate in five years, but the neutral bias that was retained gave the cut a hawkish twist and the rupee is slightly higher on the day. Equity markets are mostly heavier today. The large markets in the Asia Pacific but China, Hong Kong, and Taiwan fell. The Stoxx 600 rose 1.2% yesterday but is

Overview:  After the tariff scare on Monday, which saw the US dollar surge, it has pulled back in the last couple of day. But it has returned bid today in what looks like position-squaring ahead of tomorrow US employment report. Despite some Fed officials recognizing that the tariffs may pose a supply shock that has to be taken into account, the odds of a June cut and two before the end of the year increased marginally yesterday, even as coupon yields fell. The greenback is heavier against all the G10 currencies but is straddling unchanged levels against the Japanese yen. Ahead of what widely expected to be a Bank of England rate cut shortly, sterling is the heaviest of the major currencies, off around 0.6%, and nearly 1.25-cents from yesterday’s high. Most emerging market currencies are

Overview: The US dollar is trading heavily as the pullback from tariff-threat extreme continues. It is weakest against all the G10 currencies and most emerging market currencies. Stronger than expected wage growth and softer US 10-year yields has driven the yen to new highs for the year, to lead the major currencies with more than a 1% gain. The weakest among the G10 currencies is the Canadian dollar, which is up about 0.35% and is approaching the year’s high. Among emerging market currencies, only the Chinese yuan and Indian rupee are lower. China’s mainland market re-opened from the extended Lunar New Year holiday. Chinese equities, including those that trade in Hong Kong, fell, though most of the other large bourses in the region rose. India was the other notable exception. Europe’s

Overview: After yesterday’s wild gyrations, the foreign exchange market is calm. US dollar losses seen as the tariffs on Mexico and Canada were postponed with what many observers see as minor concessions, though Canada is going to have a fentanyl czar have not been extended, and a consolidative tone has emerged. The 10% tariffs om China were implemented but Beijing’s response has been sufficiently restrained that it still appears to leave room for a deal down the road. Aside from the politics, the US quarterly refunding announcement is tomorrow and the market-sensitive jobs report, with the annual benchmark revisions, is Friday. The greenback is mostly firmer against the G10 currencies and more mixed against the emerging market currencies. Asia Pacific currencies are mostly firmer, while

Overview: The US made good on its threats to levy 25% tariffs on Canada and Mexico, and 10% tariffs on China. There still seems to be skepticism in the market, with many thinking the tariffs on Canada and Mexico may not last the week. Trump will reportedly talk with Trudeau and Sheinbaum today. The dollar did not trade high so much it was marked sharply higher in initial activity. That the Canadian dollar and Mexican peso was hit the hardest is not surprising, but the euro, Australian dollar, and Swedish krona drop has been nearly as greater as the Canadian dollar. The South African rand has also been targeted following the US threat to cut all funding to South Africa for a law passed month that gave the government the power to acquire land from private parties if it is in the public

There is great uncertainty for investors and policymakers. The magnitude and timing of U.S. tariffs are not clear. China unveiled DeepSeek, which appears to give other advanced language model AIs a run for their money and calls into question the effectiveness of technology curbs. While Russia’s invasion of Ukraine, the war in the Middle East, and China’s harassment of its neighbors have dominated the geopolitical story, the U.S. has entered the fray of wolf diplomacy. President Trump has indicated a desire to take back the Panama Canal and acquire Greenland, explicitly not ruling out the use of force, and telling Canada that tariffs could be avoided if it were to become part of the United States. We offer a historical framework to make sense of these developments. The post-WWII period was

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

Overview:  There is a nervous calm in the foreign exchange market. The Federal Reserve indicated that the relatively good economic performance allow is to bide its time for the economic and policy picture to clarify and policy remained "meaningfully" restrictive. The disappointing GDP figures from Germany, France, and Italy today provide a weak backdrop for the ECB, which is set to deliver a quarter-point cut. The BOJ signaled its commitment to continue to lift rates if the economy proceeds as expected. The US tariff threat for February 1 looms large, but the continued resilience of the Mexican peso suggests they may not materialize now. Indeed, the US may choose to recognize the measures Canada and Mexico have already taken to declare victory. Among the G10 currencies, only the yen and

Overview:  Tariffs and the Federal Reserve meeting are center stage today. Yesterday, the White House reiterated that tariffs on Canada and Mexico could be announced this weekend. The Canadian dollar is softer, and the Bank of Canada is widely expected deliver a quarter-point cut today and hint at a pause. There is practically no question about the Fed. It will stand pat, and we expect it to defend its independence. The Mexican peso, on the other hand, is firmer. In fact, it joins the Thai baht today as the only two emerging market currencies that higher on the day. We cannot fully explain the peso’s resilience yesterday and today. It as if there is a skepticism that the tariffs will be implemented and the carry makes it easier to express the view with the peso than the Canadian dollar,

Overview: The US dollar recorded lows for the month against many of the major currencies yesterday but has come back bid today. We had anticipated some consolidation ahead of the conclusion of the FOMC meeting tomorrow, and the dollar’s downside momentum faded. Yet, today’s gains have been fueled by new tariff threats. In particular, Bessent, the new Treasury Secretary, said to be a moderate, reportedly was advocated increasing a universal tariff by 2.5% a month until reaching the levels President Trump advocated, ostensibly allowing time for business and countries to adjust (?) and provide negotiating opportunities. However, President Trump warned 2.5% may not be sufficient and soon tariffs will be announced on semiconductor chips, pharmaceuticals, steel, copper, and aluminum. The

Overview: There have been two significant developments that are rocking US equities and sending US yields sharply lower. First, Chinese-made AI has taken the world by storm. Apparently, DeepSeek is cheaper to build, consumes less energy, and is faster than the other AIs. There seems to be innovations outside of replication. The second is a brouhaha over Colombia’s initial refusal to accept US military planes bringing back illegal immigrants. There were tariff and counter-tariff threats before the Colombia appears to have capitulated. Trump’s quick use of the tariff stick spurred a broad advance in the dollar, but as the Colombia’s challenge was resolved, the dollar surrendered most of its early gains. The Mexican peso, however, remains the weakest emerging market currency, trading almost

US President Trump’s tariff threats roiled the foreign exchange market at the start of last week, but by the end, the market seemed to have taken what many see increasingly as negotiating positions in stride. The dollar had topped out against several of the major currency pairs a week or so before the election as some participants began moving to the sidelines. We anticipated "buy the rumor, sell the fact" type of activity but thought the risk would be less waiting for after the inauguration and the initial chaos. And against most the G10 currencies, the greenback has begun to correct either the rally since the election or since last September’s lows. In the week ahead, the European Central Bank, the Bank of Canada, and probably Sweden’s Riksbank will cut interest rates by 25 bp. The

Overview: The US dollar is broadly lower. The tariff-threat inspired gains stalled and the BOJ rate hike and stronger PMI in Europe have dragged the greenback lower against all the G10 currencies and nearly all of the emerging market currencies. While the market remains vulnerable to pronouncements from Washington, and next week’s policy divergence as the ECB, Bank of Canada, and probably Sweden’s Riksbank cut interest rates while the Federal Reserve stands pat. Yet, much of the story has been discounted in recent weeks. Although Japanese equities were essentially flat, other large markets in the region rose with the exception of India. Beijing has taken steps to have corporations and financial institutions to support the equity market. Mainland shares that trade in Hong Kong have done

Overview:  After wild swings in recent days, there is a nervous calm in the foreign exchange market so far today. The US dollar is narrowly mixed against the G10 currencies and is +/- about 0.15%. The dollar bloc and Scandis are softer. Among emerging market currencies, central European currencies and the Mexican peso lead the advancers, while Asia Pacific currencies, including the Chinese yuan and Indian rupee are sporting softer profiles. It is almost as if the market is waiting for "another shoe to drop," and it could come from President Trump’s remote speech at Davos around 11:00 ET today. The large bourses in Asia Pacific were mixed, with Japanese and Taiwanese indices rising but South Korea and Australia falling. Chinese indices were mixed, and the Hang Seng fell. Europe’s Stoxx 600

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

Overview: The little emphasis on tariffs initially yesterday saw the US dollar pullback, the renewed threat of 25% tariffs on Canada and Mexico as of February 1 roiled the foreign exchange market and the dollar has come back bid. The Canadian dollar, among the G10, and the Mexican peso, among emerging market currencies have been the hardest hit, but the greenback is broadly higher. All the G10 currencies, but the yen and Swiss franc are off at least 0.5%. A few Asia Pacific currencies managed to resist the dollar’s surge, but the rest are lower. Gold reached a two-month high near $2733 before steadying. March WTI has been sold and kissed last week’s low near $75.65. The high from the middle of last week was almost $79.40. Trump’s "energy emergency" and threat of a trade war with Canada

There were four important macro developments to note in recent days. First, the recent string of US economic data was firmer than expected and GDP looks to have expanded close to 3% in Q4. With the help of guidance by Federal Reserve Waller, who is thought to be a possible successor to Chair Powell, played up the possibility of a cut in H1, and the market implemented the guidance and has next cut nearly priced in for the June FOMC meeting. Second, guidance by Bank of Japan officials makes a rate hike at the end of the coming week likely, barring fresh market turmoil. Third, the mini-meltdown in UK Gilts that saw a nearly 60 bp jump in the 10-year yield since the November subsided and the yield pulled back 20 bp last week, as real sector disappointed and inflation appeared to soften more

Overview: The US dollar is firmer against most of the G10 currencies, but the tone is one of consolidation. Trump’s inauguration on Monday, and the US markets are closed for the Martin Luther King holiday. Investors, businesses, and foreign countries have been warned of action on day one. Meanwhile, the yen is paring yesterday’s gains, though the market anticipates a BOJ rate hike at the end of next week. The UK’s retail sales cap a string of soft data. The meltdown in Gilts ended this week, but sterling remains vulnerable. China’s Q4 GDP was a little stronger than expected, but few put much credence in the data. Equities in Asia Pacific today were mixed, but the MSCI regional index posted its first weekly gain of the year. Europe’s Stoxx 600 is up for the third consecutive session, and

(Happy Holidays. Daily Commentary will resume on January 6.  January monthly will post on January 4) The Swiss National Bank and the Bank of Canada delivered 50 bp rate cuts last week, and the European central bank cut by a quarter-point. The monetary easing cycle looks set to carry into next year. The Reserve Bank of Australia remains on hold and a stronger than expected employment report dampened speculation of a cut in Q1 25. The US CPI was in line with expectations. With the headline rising for the second consecutive month, and alongside the PPI components, the PCE deflator is also expected to rise. The improvement from a year ago is minor. The UK economy, we learned, unexpectedly contracted in October. Still, the market is convinced the Federal Reserve will cut rates at the

Overview: The US dollar is mixed against the G10 and emerging market currencies to finish out the week. Among the G10, sterling and the yen are the heaviest. Japan’s Tankan survey was unimpressive and does nothing to reanimate speculation of a BOJ rate hike next week. Sterling has been dragged down by unexpected news that the economy contracted in October for the second straight month. The euro is being aided by the unwinding of cross positions against sterling, and this is helping lift the central European currencies among the emerging market complex. The Canadian dollar extended its losses to a marginal four-year low. Asia Pacific and European equities are weaker, but the index futures in the US are pointing to a firm start. Japan tumbled nearly 1%, while Hong Kong and China indices

Overview:  The US dollar is mostly softer today, but the tone is mostly one of consolidation. The Swiss National Bank surprised with a 50 bp cut and the franc is the only G10 currency that has not edged up against the greenback today. Australia reported a stronger than expected employment report. This boosted Australian yields and the Aussie, which is the strongest of the G10 currencies. Shortly, the ECB is expected to announce a quarter-point rate cut and signal additional cuts next year through the staffs updated forecast and President Lagarde’s comments at the press conference that follows the meeting. Emerging market currencies are mostly quiet +/- 0.15% but the Russian ruble and South African rand, which are stronger. Many of the large bourses in the Asia Pacific region rallied

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

Overview: The US dollar is little changed against most of the G10 currencies today. The antipodean currencies are the main exception. A modest change in tone from the Reserve Bank of Australia, boosting the chances of a rate cut early next year sent the Australian dollar back toward yesterday’s lows, and the New Zealand dollar fell in sympathy. Most of the G10 currencies sporting softer profiles within the consolidative price action. The greenback is firmer against most emerging market currencies as well. Equities are mixed. Japan and Chinese markets rallied, though the Hang Seng and mainland shares that trade in HK fell. South Korean equities, which have been battered by the political turmoil jumped today with the Kospi rising 2.4% and the KOSDAQ surging 5.5%. Europe’s Stoxx 600 is

The dollar is offered. Neither the 227k rise in nonfarm payrolls, nor the above 3% Q4 growth that the Atlanta Fed sees the economy tracking, or the uptick in November CPI expected to be reported on Wednesday has been sufficient to dampen speculation of a rate cut next week.

The US dollar advanced against all the G10 currencies last week but the Swiss franc but turned in a most mixed performance against emerging market currencies. The US 10-year yield fell for the third consecutive week and near 4.16%, it is around a dozen basis points below where it settled the night before the US election. The two-year yield fell for the second consecutive week and settled near 4.10% is about half a dozen basis points below the pre-election day level. The Dollar Index, on the other hand, is up 2%. Among the G10 currencies, the yen is the only currency that has appreciated against the dollar since the election. On the other hand, the Chinese yuan’s co-movement with the yen has broken down and the yuan has lost about 2.35% since the election. Bitcoin moving above $100k,

Overview: There are two broad developments in the G10 currencies ahead of the US jobs report. The euro, Swiss franc, sterling, Swedish krona, and the Canadian dollar are in tight ranges with a heavier bias. The others are off a 0.3%-0.7%. There have been various distortions, like storms and industrial action, which exaggerated the weakness of the US labor market, which does seem to be slowing but gradually. Today’s report should show a rebound, and next week’s headline CPI will likely rise for the second consecutive month. We expect these reports to dampen expectations for a Fed cut this month and lift the dollar. Next week, the European Central Bank, the Swiss National Bank, and the Bank of Canada are expected to reduce rates again. Bond markets are mixed ahead of the US jobs report. Of

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

Overview:  The dollar is mixed on what will start critical second half of the week. France holds its confidence vote in a few hours. Fed Chair speaks at a moderated discussion at the New York Times around 1:40 ET. The US data focus shifts to the labor market with the ADP estimate today and the nonfarm payroll report on Friday. The head of the main opposition party in Japan stepped down ostensibly until March due to a personal scandal and this has dampened speculation of a BOJ hike later this month. The yen is off 0.75%. Disappointing Australian Q3 GDP prompted the market to bring forward the first cut and took the Aussie down more than 1%. If one excludes the yen and antipodean currencies, the others are +/- 0.1%. The dispersion of changes is more pronounced among emerging market

Overview: The US dollar has extended the losses scored late yesterday when Federal Reserve Governor Waller indicated he was still leaning toward a December rate cut. The odds of a rate cut rose to around 76% from about 66% at the end of last week. The odds are slightly lower today, around 72%. A solid jobs report on Friday and another uptick in CPI may change some minds. The only G10 currency that is weaker today is the Japanese yen, and it is off about 0.25%. Emerging market currencies are mixed. Asia Pacific currencies are mostly lower, and the central European currencies are mostly higher. Of note, tit-for-tat exports controls between the US chips and fabrication equipment and Beijing’s export ban to the US of some critical minerals and metals. The yuan was sold to a new low for the

Overview: The US dollar is beginning the new week and month on a firm note. It is rising against all the G10 currencies and nearly all the emerging market currencies. US-President-elect Trump’s threat to BRICS if they abandon the dollar is symbolic than substantive, as we have argued, despite the occasional claim to the contrary, a BRICS currency is not realistic, and the China has little interest in fostering another competitor to the yuan. Still, like being told by Mexico’s President Sheinbaum that migration through the southern US border has fallen sharply and fentanyl deaths have been trending lower for many months, Trump is able to claim a victory. Meanwhile, the French government appears on the verge of collapsing, and an election cannot be called for nearly a year. The German

The trends were already entrenched before the US election and continued through most of last month. The trend toward higher rates and higher equities stalled, while the dollar remained strong. Investors and business continue to wrestle with the implications of the Republican sweep in the US elections.There are two broad issues that are the source of uncertainty. The first is the broad tariff Trump has advocated on the campaign trail: 60% on China and 10-20% on rest of the world. Several people who will have senior economic posts in the new administration downplayed a literal interpretation. Still a global tariff regime would hurt those that enjoy the closest trade ties with the US, outside of China; namely, Mexico, Canada, and parts of Europe, and Vietnam. It is as Henry Kissinger quipped

Overview: The US dollar has a softer profile today. All the G10 currencies are higher, led by 1%+ surge in the yen amid heightened speculation of a rate hike next month, while the US 10-year yield is near 4.25% today, the lowest since the election. Although the Reserve Bank of New Zealand allows for another half-point cut after delivering the second one this year earlier today, the New Zealand dollar has popped up amid sell the rumor buy the fact type of activity. The euro and sterling are firm but holding below yesterday’s highs. Emerging market currencies are mostly firmer today, but the Mexican peso continues to underperform. It is off about 0.25% and only the Russian ruble has lost more (~-3.2%). The large equity markets in Asia Pacific were mixed. China, India, Australia, and New

Overview: As some market pundits were debating about a possible grand deal between the US and China. In exchange for a lighter tariff regime, Beijing would accept yuan appreciation. As far-fetched as such scenario may be, it was predicated on ideas that people like the Bessent, the Treasury Secretary-nominee, was pragmatic. Trump’s comments hit in early Asia Pacific turnover specifically cited a 25% tariff on all product from Canada and Mexico and 10% more on China starting on January 20. Even currencies not explicitly cited, suffered but have mostly recovered. Among the G10 currencies, only the Australian dollar, Norwegian krone, and Canadian dollar are lower. The former two are off 0.20%-0.25%, while the Canadian dollar is about 0.75% lower. Emerging market currencies are mostly weaker,

Overview: The selection of Scott Bessent, the hedge fund manager as next US Treasury Secretary was greeted euphorically in the capital markets:  one of their own and, arguably, like many of new economics team could have been picked in any Republican administration. Risk appetites have been animated. Still, we suspect market positioning may have led to an exaggerated response. The dollar has been sold. Stocks have bought. The euro is leading the G10 currencies higher, with a nearly 0.75% gain. The Canadian dollar is the laggard, up about 0.15%. Central European currencies are pacing the emerging market complex. Gold has been slammed. It is off 1.6% to end last week’s five-day advance with prejudice. A close below last Friday’s low (~$2668) warns of the risk of a deeper correction. Outside

The dollar’s Q4 rally continued last week. The Dollar Index has risen in the first eight weeks of the fourth quarter, gaining a little more than 7%. Half of the G10 currencies (the euro, the Swedish krona, the Norwegian and Danish krone, and New Zealand dollar) fell to new lows for the year last week. Part of the story is the paring of Fed cut speculation. The derivatives market no longer has even 50 bp of cut discounted between now and the middle of next year. The effective Fed funds rate at the end next year is seen near 3.90%. It was below 3% at the end of September. At the same time, developments in Europe and Japan have not been inspiring. The German government is broken, and vote of confidence next month will pave the way for elections in early in 2025. The French government will

Overview: Weak preliminary PMI readings in Europe, Japan, and Australia, underscore the apparent divergence with the US, sending the dollar broadly higher. The euro is currently recovering from the sell-off that took it to $1.0335 and sent sterling below $1.25. Only the yen, among the G10 currencies, has weathered today’s dollar surge. Most emerging market currencies, especially from central Europe, are weaker. Despite the stronger dollar, gold is extending this week’s recovery and is up nearly 1.4% to resurface above $2700. It settled last week near $2563. Equities are mixed. Outside of China and Hong Kong, Asia Pacific equities rallied, led by India’s more than 2% surge. Poor earnings saw the CSI 300 tumbled more than 3%. The euro’s drop is seen as good news for European exporters, and

Escalating tensions in Europe and comments from Bank of Japan Ueda that spurred speculation of a December hike are the main drivers of the foreign exchange market today. The yen is the strongest of the G10 currencies, up about 0.65%, while the euro is the weakest, off a little more than 0.25%, and sterling is down almost as much.

US dollar and rates are firmer today. All the G10 currencies are lower, led by the Japanese yen. The UK reported firmer than expected CPI and this may have deflected some of the selling pressure away from sterling, which is off less than 0.2% to put it atop the pack ahead of the US open.

Within hours of the US giving permission to Ukraine to use US weapons to strike Russian territory, which it did, Moscow announced a change it is nuclear doctrine that allow for the use of nuclear weapons against a conventionally armed adversary that is backed by nuclear powers.

Overview: The US dollar has begun the new week consolidating in a mixed fashion against the G10 currencies. Bank of Japan Governor Ueda remains circumspect and did not provide guidance about next month’s central bank meeting. Without positive guidance, the market sold the yen, but the swaps market shows about 13 bp of tightening has been discounted, up a couple of basis points from a week ago. Leave aside the New Zealand dollar, which is also under pressure ahead of next week’s RBNZ meeting that is expected to result in another 50 bp rate cut, the other G10 currencies are mostly +/- 0.15%. Emerging market currencies are also narrowly mixed. The South African rand is on top with a 0.4% gain and the Mexican peso is on the bottom of the leaders’ board with a 0.35% loss. European benchmark

There are powerful forces in the capital markets, and they do not appear exhausted even if there is some near-term consolidation. The Dollar Index has risen for seven weeks, which is to say that it has not fallen on a weekly basis so far here in Q4. The US two-year yield has risen for the past four weeks and six of the past seven. It has surged from about 3.55% at the end of September to 4.38% last week. The US 10-year yield has fallen in only two weeks since mid-September. It reached 4.50% at the end of last week, up from 3.65% on September 13. Yet, the change in inflation expectations accounts for a small part of the rate adjustment. The 10-year breakeven accounts for only about 25 bp of that 95 increase. It looks like another 25 bp or so can be accounted for by the change in

Overview:  The dollar bounced, and US rates rose yesterday afternoon in response to comments by Fed Chair Powell. But he did little more that reiterate what he had said at the recent press conference. Powell expressed a lack of urgency to move after having led the central bank in delivering a 50 bp cut to start the easing in September while indicating that direction of travel will be to a less restrictive rate. The dollar has come back lower today against the G10 currencies and US rates are a little softer. It is also lower against most emerging market currencies, too. Japan’s Q3 GDP (0.2%) was in line with expectations, while the UK disappointed (0.1% vs 0.2% projected). The US data highlight include October retail sales and industrial output. Equities are mostly softer. In Asia Pacific,

Overview: The dollar’s surge continues. Most G10 currencies are off 0.45%-0.65%. The US dollar is trading above CAD1.40 for the first time since the pandemic, but the Canadian dollar is faring the best of the G10 today (~-0.15%). Since US election, it is the only major currency not to have fallen by at least 2%. All the emerging market currencies are lower today, as well. The greenback is being underpinned by the continued rise in US rates and ideas that trajectory of Fed policy may be tempered by the new administration. The US two-year yield is straddling the 4.30% area. Despite a 25 bp Fed cut last week, the two-year yield is 15 bp above the pre-election rate. The US 10-year yield is edging toward 4.50%. It was below 4.30% last Monday. The Fed funds futures strip imply a 3.82% effective

Overview: Surging US yields helped send the dollar higher but wobbled the stock market yesterday. A fragile consolidative tone has emerged today for the foreign currencies. The greenback remains mostly within yesterday’s ranges. All but a few emerging market currencies are trading with a firmer bias. Beijing’s weaker dollar fix may have been the first protest of the yuan’s weakness since the election. The highlight of the North American session is the US October CPI. The year-over-year headline rate is expected to rise (2.6% vs. 2.4%) for the first time since March. The core rate is anticipated to be steady at 3.3%. It last fell in July. Ahead of the release, the derivatives market has a little more than a 60% chance of a December Fed cut discounted. Outside of China, the large equity

Overview: The dollar continues to ride high. It is up 0.20%-0.50% today against the G10 currencies. Most pairs have extended last week’s moves. The Dollar Index, which was near 100 in late September is approaching 106.00. Emerging market currencies are all weaker, as well. The dollar is being helped by higher US yields. After yesterday’s holiday, the US 10-year yield is up five basis points to near 4.36%. The two-year yield also is five basis points higher to almost 4.31%. Stocks are under pressure. China, Hong Kong, Taiwan, South Korea, and India saw their main index fall by more than 1% today. Europe’s Stoxx 600 is giving back most of yesterday’s 1.15% gain, while US index futures are off around 0.20%-035%. Gold has lost its luster since the record at the end of October near $2790. It

Overview: The dollar is bid to start the new week. It has taken out last week’s high against the Swiss franc, and the euro has been sold through last week’s lows. The divided opposition allowed Ishiba to continue as Japan’s prime minister, heading up a minority government. The German government collapsed last week. Chancellor Scholz wanted to hold off holding (and losing) a vote of confidence until January, setting the stage for elections, but it seems increasingly likely sooner. Meanwhile, the widening two year-interest rate premium means one is paid more to be long dollars by the most in nearly two years. Among the G10 currencies, the Australian and New Zealand dollars posting minor upticks against the dollar. The rest are heavier. The Turkish lira is firm while the other emerging

Two of the most tumultuous weeks of the year are behind us. The sweeping GOP victory in the US cannot be considered anything but a mandate. The shock experienced in 2016 is not being repeated, but there is limited visibility  Perhaps, the stance articulated at the press conference by Fed Chair Powell that the central bank does not "guess, speculate, or assume" about the policies of the next administration and the impact on efforts to achieve the dual mandate of full employment and stable prices is a good starting point for investors and businesses. One need not accept modern monetary theory to recognize cases, for example, where large deficit coincided with falling inflation. There are other variables in addition to budget deficits and tariffs that influence changes in the general price

Overview: The capital markets have been choppy as pre-existing positioning meets new thoughts on the implications of a second Trump administration. The dollar has found better footing today after giving back a chunk of Wednesday’s gains yesterday. The yen is an exception, but it is not exception that the dollar trades heavier against the yen as the US 10-year yield drifts lower. On the week, the most G10 currencies are holding on to gains against the dollar. Here the euro is the notable exception, off about 0.6%, and is thought to be the most at risk. Equities are mostly lower today. The market did not seem impressed with the local debt swap initiative from Beijing, and the CSI 300 fell 1%. Europe’s Stoxx 600 is giving back yesterday’s 0.6% gain in full, and US index futures are slightly

Overview:  The markets are calmer after yesterday’s post-US election drama. A consolidative tone has emerged in the foreign exchange market, and the dollar is softer against all the G10 currencies, led the 1% gain in the Norwegian krone, after the central bank left rates on hold. Sweden’s Riksbank delivered the expected half-point cut and the krona is up 0.5%. Japanese officials warned against excessive moves, and the PBOC set the dollar’s reference rate almost 1% lower to limit its rise. Emerging market currencies also are mostly firmer today. Equities are higher today. All the large bourses in Asia Pacific advance, with China’s CSI300 up 3%. India is the main exception, and main index is off 1%. Europe’s Stoxx 600 is recouping most of yesterday’s 0.55% decline, and US index futures are

Overview: Shortly after the North American markets closed, before any results were known, the market jumped back into the “Trump trade,” which it had pared on Tuesday. The dollar and US interest rates soared. The euro is the hardest hit among the G10 currencies today, off about 1.6% and the Canadian dollar, the best performer …

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Overview: A nervous calm hangs over the markets as the US goes to the polls. The proximity of the presidential contest warns that the results may not been known as soon as people hope. Indeed, many fear the voting simply begins the next phase of the contest, with premature declarations of victory and disputes over votes. The dollar is in mostly narrow ranges today, but the Antipodeans and Scandis are the strongest, and the Reserve Bank of Australia kept rates on hold and signaled that inflation may not be sustainably back to target until 2026. Emerging market currencies are mostly firmer, but there are a couple from Asia Pacific and central Europe that are softer, as if the Mexican peso. Equities are firm. All the large markets in Asia Pacific, but South Korea and Australia advanced. Hong

Overview: Weekend polls in the US made it seem that the Trump victory, which many large pools of capital, had discounted, was not so inevitable after all. The most dramatic market response was taking US yields and the dollar lower. The US 10-year yield is off about nine basis points to straddle 4.30% and the two-year yield down four basis points to around 4.16%. The greenback is also against all the G10 currencies. Most emerging market currencies are also firmer, led by central Europe and the Mexican peso. Equities are mostly higher. Tokyo markets were closed for a national holiday but most of the large markets in Asia Pacific rose, with the exception of India. The MSCI Asia Pacific Index has fallen for the past five weeks. Europe’s Stoxx 600 is trying to snap a two-week decline, and it

We have all experienced how capital markets exaggerate. A few months ago, the focus was on the carry-trade, then the unwind. More recently, it was the euphoria around the numerous measures Beijing announced to support the property and stock markets and the attempt to reduce the risk of the local government debt. And now, as the US election approaches, it has become an important market driver. If the markets were fully rational, we might explain that the maximum uncertainty requires discounting the most impactful result. It is ironic that a few months ago, the dollar was sold on ideas that Donald Trump would beat Joe Biden and Trump, and later his vice president pick JD Vance, argued the dollar was overvalued and its depreciation would be part of larger plan to bring industry back to the

Overview: The first of what promises to be two tumultuous weeks is winding down. The US jobs data is the last big event. It is widely recognized that it will be skewed to the downside because of hurricanes and some mostly temporary factors. Anticipating the market’s reaction is also complicated by the weekend, and reports that Iran may strike back at Israel (through bases in Iraq?), and next Tuesday’s US election, and five G10 central bank meetings next week. The US dollar is mostly firmer but consolidating against the G10 currencies. Emerging market currencies are also mostly weaker, though the Mexican peso is up slightly. Asia Pacific equities tumbled. The Hang Seng and mainland shares that trade there were exceptions. Europe’s Stoxx 600 is up a little more than 0.5% after dropping 1.2%

Overview: The main move in the foreign exchange market today is the recovery of the yen following what was seen as hawkish comments by BOJ Governor Ueda. Otherwise, the tone is one of consolidation. The equity market sell-off today may be weighing on the Scandis and dollar-bloc currencies amid risk-off impulses. Emerging market currencies are mixed. The Mexican peso, which fell to a new low for the year yesterday, is stabilizing today and is among the stronger emerging market currencies.. Only China’s CSI 300 of the large markets in Asia Pacific rose today, and Europe’s Stoxx 600 is off around 0.75%. If sustained, it will be the third consecutive decline. US index futures are around 1% lower. The equity sell-off in Europe is not spurring a bid for bonds. Benchmark 10-year yields are 4-8

Overview:  The US 10-year yield is off around a dozen basis points off yesterday’s high and European growth in Q3 was better than expected. This appears to have encouraged some dollar liquidation today. The greenback is softer against the G10 currencies, but the Canadian dollar and sterling. The much-awaited UK Autumn budget will be announced shortly. Sterling is consolidating around $1.30. Most emerging market currencies also are enjoying a firmer tone today. Asia Pacific and European equities are trading heavier. The Asia Pacific, all the large markets but Japan fell. The Hang Seng and mainland companies that trade there fell by more than 1.5%, to lead the region lower. The Stoxx 600 in Europe reversed early gains yesterday and fell by about 0.55%. Today, it is down around 0.7%. On the

Overview: A consolidative tone is emerging in the foreign exchange market as the week’s key events begin tomorrow:  UK budget, eurozone and US Q3 GDP, and the US ADP private sector jobs estimate, and quarterly refunding. Outside of the Norwegian krone, which is up nearly 0.5%, the other G10 currencies are largely +/- 0.1%. The yen, Swiss franc, and antipodeans are trading with a slightly heavier bias. Among emerging market currencies, most from the Asia Pacific area, but the Thai baht are lower, while central European currencies are mostly firmer. The Mexican peso’s 0.3% gain puts it on top of the emerging market currencies, after it settled softly yesterday. Stocks are firmer and bonds are softer. Most of the large bourses in the Asia Pacific region, except China and Taiwan rose today.

Overview: The next couple of weeks in the capital markets are likely to be tumultuous, and the loss of the LDP majority in Japan get it started. The yen gapped lower amid the immediate uncertainty. The yen is off about 0.5% toward the middle of today’s range. Leaving aside the Scandis, where are mixed, the other G10 currencies are little changed, +/- 0.15%. The euro has recovered above $1.08, where options for 2.3 bln euros expire tomorrow. Sterling has not been above to re-claim $1.30, where options for GBP600 mln also expire tomorrow. The greenback is straddling the CAD1.39 area, a two-and-a-half month high. Among emerging market currencies, central Europe is mostly doing best alongside the South Korean won and Philippine peso. The dollar is pushing above MXN20.00. Equities are higher.

The US dollar extended its dramatic recovery against the major currencies for the fourth consecutive week. The dollar’s rally seems to stand on two-legs. The first shift in the expected trajectory of Fed policy, which has been partly encouraged by relatively firm economic data, both surveys and real sector reports. The derivatives market has from discounting 75 bp of cuts before the end of the year to not be quite sure that 50 bp will be delivered. This leg may be questioned if as we expect that jobs growth slowed considerably this month. However, given the storms and strikes, it will not be a clean report. The second leg the dollar is standing is the conclusion reached by some large pools of capital that despite Trump/Vance preference for a weaker dollar that their victory will likely

Overview: The dollar is trading quietly, with a slightly firmer today. There has been little follow-through selling after yesterday’s setback. The Canadian dollar and sterling are faring best. The yen is a little softer after Tokyo’s CPI came in lower as expected due to the government’s energy subsidy. The election for the lower house of the Diet is held Sunday. Emerging market currencies are also mostly softer. The JP Morgan Emerging Market Currency Index is poised to settle lower this week for the fourth consecutive week. Australian and New Zealand bonds played a little catch-up after the rally in Europe and the US yesterday. European 10-year rates are up 1-2 bp today. The UK’s Gilt is an exception. Its yield has come back softer after increasing by around three basis points in each of

Overview:  It is ironic that a few months ago, many wanted to sell the dollar because the Republican president and vice president candidates said they wanted a weaker dollar. With the election drawing near and the race very tight, there has been a surge in the betting markets of a Trump-Vance victory, and this has corresponded with the dollar’s dramatic rise. US rates held on the lion’s share of their gains despite the sharpest loss in the S&P 500 since early September to cap the three-day slide. Still, the greenback is consolidating today, and seeing some of its recent gains pared against all the G10 currencies. And all but a few Asia Pacific currencies and the Russian ruble are firmer, too. Corrective forces are also evident in global stock and bond markets. Asia Pacific equities were

Overview: The persistent rise in US rates continues to help fuel dollar gains. The euro has been sold through $1.08 and the greenback has jumped over 1% against the yen to JPY152.75. It finished last week closer to JPY149.55. So far, Japanese officials have been fairly quiet, but this seems likely to change. The US two-year premium over Germany has widened by around 65 bp since late September to return to levels that prevailed in June. The greenback is firmer against all the G10 currencies, but sterling, which is straddling unchanged levels. Emerging market currencies are weaker today.The US 10-year yield is up a couple of basis points to 4.23%, while European benchmark yields are mostly 1-2 bp lower. The 10-year Gilt is an exception, and its yield is up almost four basis points to almost

Overview:  US interest rates remain firm and the dollar is mostly consolidating against the G10 currencies, in a muted “Turn Around Tuesday.” The greenback is straddling the JPY151 area, its best level since the end of July. Despite bearish price action yesterday, the euro, sterling, and Australian dollar have seen limited follow-through selling and modest …

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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

The dollar rose against all the G10 currencies last week, but it was not because of higher US rates. In fact, the 10-year US Treasury yield fell for the first time in five weeks. The two-year yield did not rise for the first time in three weeks. Rather than an increase in US rates, several other countries’ rates fell. The result was that the US 2-year premium over Germany rose for the fourth consecutive week and is now the most since June. The US premium over Canada rose for the third week and the sixth week in the past seven. It is approaching 100 bp, the most since 1997. The US discount to the UK narrowed to less than five basis points, the least in nearly two months. Both the JP Morgan and the MSCI emerging market currency indices fell for the third consecutive week. The US election is

Business travel will prevent the updating of the blog in the coming days. It resumes October 19 with the Week Ahead. The lack of details from China’s fiscal briefing, the soft CPI (and deeper PPI deflation), and a smaller than expected trade surplus did not prevent Chinese equities from advancing (CSI 300 +1.9%).

The combination of the stronger-than-expected US September jobs report and the slightly firmer inflation readings lifted US interest rates and the dollar. Several Fed officials spoke, and it did not appear that the employment or price reports changed views as much as it had impacted the capital markets.

Overview: The combination of the firmer than expected US CPI and larger than expected rise in initial and continuing jobless claims saw short-term US rates fall, and the odds of a quarter-point cut by the Fed rose from about 83% to about 93%. The Fed funds futures market boosted the odds of another quarter-point cut in December (~90% vs.78%). The dollar initially weakened but recovered, though the key levels held, such as $1.09 in the euro, $1.30 in sterling, $0.6700 in the Australian dollar, and CAD1.38. The greenback is trading with a mostly heavier bias today. Among the G10 currencies, only the Canadian dollar and yen are softer. Among emerging market currencies, only the Indian rupee and Turkish lira are lower. Equities struggled in Asia Pacific. Japanese markets were mixed, while

Overview: The US dollar is mostly softer ahead of the September CPI. The euro and Canadian dollar have recorded new lows for the move. The greenback extended its gains against the yen to JPY149.55 but has fallen to new session lows in the European morning near JPY148.85. Given the pushback against Fed Chair Powell’s 50 bp cut last month revealed in the FOMC minutes, it will take more than a soft headline CPI today to renew speculation of another large move. In fact, the Fed funds futures, which a week ago was discounting about a 50% chance of another half-point cut is now pricing in about an 83% chance of a quarter-point cut. There are 44 bp of easing discounted for this year down from about 67 bp a week ago. Three Fed officials speak in the North American morning (Cook, Barkin, and

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

Overview: The US dollar is mixed but is mostly consolidating. The Australian dollar is a notable exception. The lack of new fiscal initiatives from China weighed on the Aussie, which is off for the fourth consecutive session. The other dollar-bloc currencies have also seen the recent losses extended. On the other hand, the Japanese yen and euro enjoy a firmer bias. After a dreadful drop in factory order, German industrial production surprised to the upside (2.9% vs. median forecast of a 0.8% gain in Bloomberg’s survey). China imposed levy on European brandy and initiated an investigation into European autos in retaliation for last Friday’s decision to increase tariffs on China-made EV for improper subsidies. Mainland Chinese stocks jumped as the local markets re-opened. The CSI 300 rose

The stronger than expected US jobs report triggered a 20 bp jump in the US two-year yield and sent the greenback broadly higher. The market slashed the probability that the Fed would cut by 75 bp in Q4.

There were several developments last week that shape the investment climate. First, the September US employment report was stronger than expected and this reinforces the message from Fed Chair Powell. After initiating the easing cycle with 50 bp cut, the central bank is not in a rush and two quarter-point cuts in Q4 is most likely scenario. Once again, the market has converged to the Fed rather than the other way around. Second, the new Japanese government and the Bank of Japan are cautious about near-term rate hikes. The market has pushed the next move into 2025. Third, the eurozone’s preliminary September CPI fell below 2%. This boosts the chances of an ECB rate cut when it meets on October 17. Fourth, Bank of England Governor Bailey hinted at an acceleration of BOE cuts. This weighed

Overview:  The stronger than expected ISM services, which the market has seemed particularly sensitive this year lifted the two-year yield to about 3.71%, its highest level since the last employment report. The 10-year yield, which had been toying with 3.80%, finally settled above it for the first time in a month. The Dollar Index extended its advance to four sessions, matching the longest in six months. The focus is on the US employment report. The greenback is mixed and is mostly consolidating against ahead of the US employment report. Most emerging market currencies have a heavier bias. The dollar may be more sensitive to a downside surprise than upside given the recent price action and short-term market positioning. That said, the Fed will see another jobs report before its November

Overview: The dollar enjoys a firmer tone today. The escalating conflict in the Middle East is keeping the market on edge. And then there is tomorrow’s US employment report. Among the G10 currencies, sterling has been the hardest hit. It is off around 1% after Bank of England Governor Bailey seemed to signal that after pausing last month, the central bank may turn more aggressive here in Q4. Nearly all the emerging market currencies are lower. Global equities and bonds are struggling. Several markets in the Asia Pacific were closed for holidays. Tokyo rose on the back of the weaker yen, while Hong Kong saw some profit-taking after its recent surge. Europe’s Stoxx 600 is off for the third session this week. It is down about 0.7% after edging up 0.05% yesterday. US index futures also are

Overview:  The US dollar is mostly little changed today. Comments from the new Japanese government and BOJ Governor Ueda reinforce the sense driven by the softness in the September Tokyo CPI and larger-than-expected decline in August industrial output that there is no urgency for another rate hike. The yen is the weakest of the G10 currencies today. The Norwegian krone leads the major currencies higher after underperforming yesterday. Outside of the yen and krone, the other G10 currencies are l +/- ~0.15% and inside yesterday’s ranges. Emerging market currencies are mostly softer. The Mexican peso is firm after the new president had comforting words for investors at her inauguration yesterday. While US auto sales were stronger than expected (15.77 mln unit pace), the Atlanta Fed GDP

Overview:   Japan will go to polls a little ahead of the US. And the US election still looks too close to call. Canada may be forced into snap elections if the Bloc Quebecois abandon’s negotiating with the minority Liberal government as it has threatened to do at the end of the month. The UK’s new Labour government is putting together its first budget to be delivered at the end of the month. Among the first tasks of the new French prime minister is submission of next year’s budget to the EU. The German government is unpopular, and the Bundesbank has warned of a possible contraction in Q3 after the economy shrank in Q2. Fed Chair Powell showed little sense of urgency and seemed to endorse the recent dot plot that implied two quarter-point rate cuts this year if the economy evolved as

Overview: The US dollar is narrowly mixed on the last trading day of Q3 24. The Australian dollar, the G10 proxy for China, is leading the major currencies higher and reached its best level since February 2023 (~$0.6940). The yen and Swiss franc continue to trade heavily and are off 0.2%-0.25%. The euro firm and traded above $1.12 for the fifth time since late August but has failed to settle above there once. The soft inflation readings have boosted the chances of an ECB rate cut in October. In the US, the focus is on the labor market, with the monthly employment report on Friday and an East Coast and Gulf dockworkers strike set to start tomorrow. Most emerging market currencies are trading firmer, but South Africa, India, Indonesia, and South Korea softer. The LDP have called for a snap

With the Federal Reserve’s 50 bp rate cut, seven of the G10 central banks have begun an easing cycle that will extend, broaden, and may accelerate going forward. Australia and Norway will likely join the party next year, while some, like Canada and Sweden may increase the pace of its cuts in Q4.

Overview:  Japan’s LDP leadership selection has not been the dragged-out affair that many thought likely with a record nine candidate vying for the post. It turns out that the economy may have been less important than foreign affairs and the threat posed by China. Shigeru Ishiba is strong nationalist, who reports indicate own shares in Nippon Steel, whose bid for US steel has faced domestic opposition in the US on seemingly nationalist, rather than economic grounds. The yen reversed its initial weakness and reached a new high for the week. More broadly, the dollar is trading firmer against the G10 currencies, but the yen and Swiss franc. Emerging market currencies are mixed. The Chinese yuan is up about 0.5% this week. Here in Q3, the yuan has risen in all but three weeks. It has only

Overview: After its recent losses were extended, the dollar reversed higher in North America yesterday. Technically, this looks to have ended the sharp drop over the last couple of weeks, but there has been no follow-through gains today and a consolidative tone emerged. G10 currencies are firmer today, led by the recovery in the Antipodeans. The Swiss National Bank delivered the expected 25 bp rate cut, but the Swiss franc is up about 0.25%. Emerging market currencies are mixed, though central European currencies are mostly firmer. China’s Politburo threw its weight behind the new measures and seemed to signal more to come. This helped extend the CSI 300 gains by 4.3%, which was sufficient to turn it positive for the year. The Hang Seng and the index of mainland stocks that trade there

Overview: Weak US consumer confidence, especially regarding the labor market boosted speculation of another half-point Fed cut in November when the central bank meets again. This weighed on the dollar. Sterling and the Australian dollar rose to new 2 1/2-year highs. The PBOC followed up yesterday’s package with a 30 bp cut in the one-year Medium-Term Lending rate. After extending its losses earlier today, the dollar has steadied and turned higher against most of the G10 currencies. Sweden delivered the expected quarter-point rate cut, and the Riksbank signaled it may deliver 75 bp in cuts in the last two meetings of the year. Recently, the Bank of Canada Governor Macklem suggested that it too could accelerate the pace of cuts. Emerging market currencies are mixed. Asian currencies did

Overview: News of China’s multifaceted support measures have bolstered risk appetites today. The dollar is mostly softer and only the yen and Swiss franc among the G10 currencies have been unable to find traction against the greenback. Most emerging market currencies are also trading with a firmer bias. China’s measures include measures to support the stock and housing markets. The seven-day repo rate was cut by 20 bp (to 1.50%) and reserve requirements were cut by 0.5%. China’s CSI 300 rallied 4.3% and an index of mainland companies that trade in Hong Kong jumped over 5%. It helped spur an equity rally not only in the region, but Europe’s Stoxx 600 is up almost 0.6% and US index futures are trading higher. Yields in the Asia Pacific were softer, and the Reserve Bank of Australia’s hold

European currencies are trading with a softer bias to begin the new week. Soft preliminary PMIs appeared to be the main culprit but Australia’s PMI disappointed ahead of tomorrow central bank meeting, and the Australian dollar’s small gain leads the G10 currencies today.

The Federal Reserve kicked off its easing cycle with a 50 bp rate cut on September 18. It is the seventh G10 central bank to cut rates this year. Japan is going in the other direction, albeit slowly. Norway’s central bank says do not cut on a rate cut this year but be more confident of rate cuts next year. That leaves the Reserve Bank of Australia, which meets this week. It has been pushing against market speculation of a rate cut this year, and the market has gradually pared its aggressiveness. The Swiss and Swedish central bank also meet in the coming week. Both will most likely deliver their third quarter-point cut this year. Among a few emerging market central bank meetings, Mexico’s stands out. It seems like a close call, but the swaps market has nearly 75 bp of cuts discounted with

Overview: The week is winding down and the US dollar is mostly consolidating against the G10 currencies. Two exceptions stand out. First, sterling is the only G10 currency higher on the day. It follows the BOE’s cautious hold yesterday and stronger than expected retail sales today. The other exception is the Japanese yen, where the BOJ stood pat and did not seem to have the urgency after a move next month, even though the national CPI ticked up. Japanese investors bought the most foreign bonds last weeks in four months. The greenback is mixed against emerging market currencies today. Here, the highlights include a new low for the week for the Mexican peso, and the biggest decline in the dollar’s reference rate by the PBOC this year (~0.48%). The surge in US equities yesterday helped lift

Overview: The Federal Reserve’s 50 bp rate cut has made for a volatile 15 hours or so in the foreign exchange market. As North American traders return to their posts, the greenback is heavy. They will find that only the yen and Russian ruble are softer. Norway delivered a hawkish hold, and the krone leads the G10 currencies with more than a 1% gain. Australia’s employment data was sufficiently strong that the Reserve Bank of Australia will likely reiterate its hawkish hold stance and the Aussie is up 1% to be flirting with the year’s high. Although US equities settled lower yesterday, the Fed’s move sent global equities higher, and the US index futures are trading sharply higher. In the Asia Pacific region, Japanese and Hong Kong indices rose by more than 2% to lead the region. Europe’s

The dollar remains offered ahead of the FOMC meeting outcome. That no official has pushed back against the press story that some suspect was planted by the Fed Chair (will a reporter specifically ask him about it today?) during a quiet period should not be taken as evidence one way or the other. And many understand that it is not unprecedented.

With heightened expectations of a 50 bp cut by the Federal Reserve tomorrow, the dollar has not gotten a reprieve and is softer against nearly all the currencies. Japan’s long holiday weekend ended, and the greenback has held above JPY140 today.

Overview: The markets are continuing to be impacted by the possibility that Fed officials planted a press report to put 50 bp cut back on the table after the market had moved away from it after the recent jobs data and CPI. In the Fed funds futures, there is around an 80% of a half-point move on Wednesday discounted and about an 80% chance of a second 50 bp cut this year. This has taken a toll on the greenback and cut short the technical correction to last month’s slide. The US dollar is off against most of the world’s currencies and has been sold below JPY140 for the first time since July 2023, though Japan, China, and South Korean markets were closed for local holidays. It managed to resurface above JPY140 in late European morning activity. The Canadian dollar continues to lag in the

The market had been gradually scaling back from speculation of a 50 bp cut this week by the Federal Reserve. The euro and sterling tested important technical support near $1.10 and $1.30 respectively. The Dollar Index set last week’s high after the August CPI. However, the general tone of the markets changed, spurred at least initially by a Dow Jones story that many observers believe was likely planted by senior Fed official to put a 50 bp cut back on the table. That set the proverbial cat among the pigeons. The odds of a 50 bp cut went up to nearly 50% fat the end of the week from less than 20% at Wednesday’s settlement after the August CPI. Several former Fed officials were quoted on the news wires, sympathetic to a larger move. The dollar fell against nearly all the world’s currencies

Overview: The US dollar is falling against nearly all the world’s currencies today amid heightened speculation that a 50 bp cut is still on the table for next week’s FOMC meeting. In the derivatives market, the odds are the highest in several weeks. The ostensible trigger was apparently a news wire story by a reporter thought to be used by some Fed officials to foster communication. A few former Fed officials also seemed to endorse a half-point move. The yen is among the most sensitive to US rates, and it has reached a new high for the year. with the dollar sold through JPY140.40. The euro is knocking on $1.11 in Europe. The US two-year yield is off six basis points (to ~3.57%). It was nearly flat for the week coming into today. The 10-year yield is off almost three basis points to 3.64%.

Overview:  The US dollar is narrowly mixed against the G10 currencies. The dollar bloc, Japanese yen, and Swiss franc are sporting slightly softer profiles, while the European currencies enjoy a firmer today. There is more than 3 bln euro in options struck at $1.10 that expire today that still seem to be in play. And there is a large option at GBP1.30 that expires Monday. The ECB’s rate decision and President Lagarde’s press conference are the highlights from the remainder of the session. Meanwhile, the US PPI will help economists finalize forecast for the PCE deflator, and the US Treasury will sell $22 bln of 30-year bonds after strong demand yesterday’s 10-year note sale and Tuesday’s three-year note offering. The market has continued to pare speculation of a 50 bp Fed cut next

Overview: The US 10-year yield is lower for the eighth consecutive session. The yield was near 3.90% at the end of August. It is now flirting with 3.60%. The two-year yield has fallen 35 bp since the end last month to about 3.55%. Although Vice-President Harris was seen winning last night’s debate, it is not clear if it was a more important driver than the continued decline in US rates, despite the budget deficit not the discussed much in the debate. The dollar is trading heavily against nearly all the world’s currencies today. Lower US rates and another BOJ official affirming the desire to continue to normalize monetary policy helped lift the yen. The dollar tested the early August low near JPY140.70. Disappointing UK July GDP has not pressured sterling, though it is a laggard today,

Overview: The US dollar is mostly consolidating so far today with a slightly heavier bias against the G10 currencies and most emerging market currencies. The larger than expected Chinese trade surplus did not lift the yuan. The greenback is trading above its 20-day moving average against the Chinese yuan for the first time since late July. Sterling is rising for the first time in three sessions after a strong jobs report. The Canadian dollar is the laggard among the major currencies. Asia Pacific equities were mixed, with Japan, South Korea, and Taiwan, among the larger bourses unable to find traction. Europe’s Stoxx 600 snapped a five-day drop yesterday but is trading with a heavier bias today. US index futures are trading around 0.25%-0.40% lower, paring yesterday’s gains. Benchmark

Overview:  After falling following the US jobs report before the weekend, US interest rates have come back firmer, helping the give the dollar a boost. A downward revision to Japan’s Q2 GDP, reflecting weaker consumption, business investment, and a little more inflation, have heled the greenback retrace the pre-weekend losses against the yen. Softer than expected price gauges, the setback of the yen, and the rise in US rates has seen the offshore yuan fall by the most in three weeks. The US dollar is firmer against all the G10 currencies but the Canadian dollar. Most emerging market currencies are also softer but the Mexican peso. After falling by 2.4% last week, the MSCI Asia Pacific has begun the new week on the defensive. All the large markets in the region fell except India. China,

After the US jobs report and Fed speak, the market scaled back the odds of a 50 bp cut at the September 17-18 FOMC meeting. It settled last week slightly below a 30% chance. The odds were shaved for the second consecutive week. Fed officials have indicated that the full employment mandate is now of greater significance given its growing confidence that inflation is heading back toward its 2% target. Next week’s August CPI and PPI are likely to be consistent with that narrative. Ahead of the weekend, the two-year yield posted its lowest settlement since September 2022 (~3.65%). The 10-year yield settled near 3.71%, its lowest level since mid-2023. And, yes, for the first time since July 2022, the 2-10-year yield curve settled with a positive slope. Major equity indices (MSCI Asia Pacific

Overview: The US jobs report is front and center. The market is going into the report with about a 40% chance of a 50 bp Fed rate cut later this month. The Dollar Index is trading lower for the third consecutive session. Helped by the fifth consecutive decline in US 10-year yields, the yen approached last month’s high but without the turmoil seen in July and August. Still, equity markets are under pressure. Most large markets in the Asia Pacific region fell. Taiwan and Australia were exceptions. Europe’s Stoxx 600 is off for the fifth consecutive session, the longest drop in a couple of months. The US index futures are trading below yesterday’s lows. The bond markets continue to draw the safe haven flows. European benchmark 10-year yields are mostly around four basis points lower, and the

Overview: The one-two punch of the disappointing US job opening report and the downbeat Beige Book weighs on the US dollar, which is softer against all the G10 currencies. The Canadian dollar is a notable exception. Prime Minister Trudeau’s minority Liberal Party lost key support and the Bank of Canada affirmed expectations for more rate cuts. Japan’s wage growth was stronger than expected, underscoring the divergence of policy and the dollar was sold to almost JPY143, the lowest since the market chaos on August 5 that saw JPY141.70. German factory orders unexpectedly rose for the second consecutive month, and this saw the euro rise slightly through yesterday’s high to $1.1100. Helped by the strongest fix since May, the yuan has followed the yen higher. The market is pricing in a more

Overview: The sharp losses in global equities are dominating today’s market developments. Yesterday’s 2.1% loss of the S&P 500 and 3.25% drop in the Nasdaq were the largest since carry-trade unwind climaxed on August 5. They have fallen more today and are poised to gap lower at the opening. Asia Pacific shares tumbled, led by Taiwan’s 4.5% tumble and the Nikkei’s 4.25% loss. It delivered Indian stocks its first loss in nearly three weeks. Europe’s Stoxx 600 is off 1.1%, its third day of losses and the most since August 5. The equity drop is giving bonds a haven bid, and benchmark 10-year yields are 2-3 bp lower in Europe. The 10-year Treasury yield is softer, a little below 3.82%. The lowest closing yield this year was slightly below 3.79% on August 5. Gold is heavy and looks as if sales

The dollar is bid as the upside correction that began last week continues today. The greenback is trading above last week’s highs against most of the G10 currencies. The yen is the notable exception.

As the summer in the Northern Hemisphere gives way to the fall, monetary policy and politics will shape the investment and business climate. Even if history does not repeat itself, there are still insights to be gleaned. In the last few months of 2023, the market expected aggressive interest rate cuts this year.

Business travel prevents the commentary for the next two days.  It will return with the September monthly on August 31.  Overview: Corrective forces are helping lift the dollar against all the G10 currencies. The euro’s 0.5% pullback is the largest in nearly two months. Sterling’s 0.3% loss is the most in nearly three weeks. The dollar-bloc currencies are the most resilient and are off less than 0.2% today. Emerging market currencies are more mixed. Central European currencies have been dragged lower by the euro. The Chinese yuan is a little softer, consistent with the yen’s pullback. The Mexican peso, which lead the way lower yesterday is on the top of the EM leader board today. Equities are mostly firmer today. China and Hong Kong were exceptions among the large bourses in Asia Pacific.

Overview: The US dollar is softer against all the G10 currencies but the Japanese yen. Sterling is leading the advance and is at new two-year highs, knocking on $1.3250. More generally, the dollar’s consolidative tone remains intact, but it looks like a pause rather than a reversal, especially against the dollar-bloc currencies. The weaker yen is a headwind for most of the regional currencies, including the yuan. Most central European currencies are firmer, helped by the euro. Equities were mixed in the Asia Pacific region, but Europe’s Stoxx 600 is firmer near its best level for a month and US index futures are slightly higher. Benchmark 10-year yields are rising. Even China’s 10-year bond yield is up a couple of basis points (to 2.17%). European 10-year yield 3-5 bp higher, with Italian

Overview: The US dollar is mostly firmer, though consolidating against most of the G10 currencies. The Japanese yen and Swiss franc are the strongest, while the Scandis and Antipodean currencies are the heaviest. Among emerging market currencies, a handful of Asian currencies, including the Chinese yuan are higher, but central European currencies, the South African rand, and the Mexican peso are softer.The news stream is light but the threat of the escalation of the Middle East war has extended the rally in crude oil. October WTI traded below $72 in the middle of last week and is now pushing near $76. Global equities are mixed. Japan and South Korea fell in the Asia Pacific session, but most large markets advanced. Europe’s Stoxx 600 is flat after advancing in 12 of the past 15 sessions.

In the middle of last week, the Fed funds futures discounted 103 bp of cuts this year. There was some movement but after Fed Chair Powell’s, but the market finished the week with 104 bp of cuts priced into the Fed funds futures curve. The two-year note yield settled at a three-week low and the dollar slumped. The Dollar Index’s 1.7% lost last week, its fifth consecutive drop and the largest weekly decline of the year. Although the euro rose to $1.12, its best level since July 2023, and sterling appreciated to $1.3230, its best level since March 2022, they did not lead the assault on the greenback. Rather, the New Zealand dollar (~2.85%) and the Swedish krona (~2.6%) took charge. The swaps market has three cuts fully discounted for the remainder of the year for their respective central

Overview: The US is consolidating with a softer profile against most G10 and emerging market currencies today, ahead of Fed Chair Powell’s speech at Jackson Hole (10 AM ET). He is unlikely to go much beyond confirming what the market already thinks it knows: namely, that the first rate cut will be delivered next month. By acknowledging that the economy has evolved broadly along the lines the central bank expected, it would be a gently push against speculation of a 50 bp move. In the current context, a rate cut will not usher in easy policy, but simply make the current stance less restrictive. The Dollar Index fell to the low for the year in the middle of the week and remains in the trough. The BOJ’s Ueda explained last month’s rate hike and did not back off the forward guidance for

The US dollar’s decline continued yesterday after the steep jobs’ revision and an unusual solid auction of the Treasury’s 20-year bond. The minutes from the recent meeting confirmed that the FOMC will begin its easing cycle next month.

Overview: The preliminary annual revision to US jobs growth is front and center today. It has gotten more play that usual, amid speculation of a historically large revision. Yet, the direct impact on policy may be minimal. Federal Reserve officials, including Chair Powell, acknowledged that the payroll growth may have been overstated. Moreover, the Fed’s judgment of the labor market is not based on one element of the multidimensional labor market. Indeed, given the extent of the dollar’s slump in recent days, "sell the rumor, buy the fact" type of activity could unfold. The dollar is trading with a firmer bias against most of the G10 currencies today. The Canadian dollar is the only one posting upticks, albeit minor. Among emerging market currencies, the Mexican peso, which has been among

Overview: The US dollar’s recent retreat has been marginally extended today but it seems to be moderating. Still, the greenback is on the defensive, arguably ahead of tomorrow’s BLS annual revisions of nonfarm payrolls, where there is talk that April 2023-March 2024 job growth could be slashed from 2.9 mln to 1.9 mln. And that is ahead of Friday’s Jackson Hole address by Fed Chief Powell that is expected to be the strongest confirmation of a rate cut next month. As widely expected, Sweden’s Riksbank cut its policy rate by 25 bp and the krona has strengthened. Emerging market currencies are mixed. Most of the Asian emerging market currencies advanced, except the Chinese yuan, while central European currencies are softer along with the South African rand and Mexican peso. The eighth

Overview: The dollar settled last week on a soft note, and follow-through selling today pushed it lower against nearly all the G10 and emerging market currencies today. Just as some observers were talking about a resumption of the yen carry-trades, the yen has popped up. The yen has a little more than 2.2% against the dollar Friday and today. Unlike previous yen surge, the Antipodeans (candidates for the long leg of the carry trades) have traded well. Both the Australian and New Zealand dollars are up more than 1% over these two sessions. The Canadian dollar is weakest performer over this period, up a little more than a third of one percent. It often lags on the crosses in a softer US dollar environment. The yen’s surge seemed to weigh on Japanese stocks, where the Nikkei fell nearly

Overview: The US dollar is weaker against all the G10 currencies today. The New Zealand dollar is the strongest, which might fit into the narrative that the carry trades are making a comeback, but the yen and Swiss franc are the next strongest in the G10. And for the second consecutive week, Japanese investors were net buyers of foreign bonds. Rather than new carry trades, we suspect that it is a dollar move. The euro is trading near $1.10, and sterling reached a new three-week high above $1.29. Most greenback is also trading with a heavier bias against most emerging market currencies. The Mexican peso is an exception, and it is slightly softer in a narrow range inside yesterday’s price action. Asia Pacific and European shares traded higher while US index futures are little changed. Most

Overview: An eerie calm hangs over the foreign exchange market on this the anniversary of the end of the Bretton Woods agreement 53 years ago today. Narrow ranges are dominating. Strong Australian jobs data and a cautious Norwegian central bank have underpinned their respective currencies today. A firm Q2 UK GDP appears to have given sterling a boost. The euro and the Swiss franc are struggling, while the yen is recording its narrowest range in several weeks. Emerging market currencies are mixed, with the Chinese yuan trading heavier following uninspiring data. Equities are mostly higher. The MSCI Asia Pacific Index rose for its fifth consecutive session, though Hong Kong and Taiwan were exceptions today. Europe’s Stoxx 600 is edging higher for the third consecutive session, and US index

Overview: Today’s US CPI is the focus but the bar to a Fed cut next month is low, and it could prove anti-climactic. The more moderate inflation reading creates more space for the central bank to respond to signs of a continued slowing of the US labor market and adopt less restrictive policy. The dollar is mixed as the North American session gets under way. The rate cut by the Reserve Bank of New Zealand, not a total surprise, but has seen fall 1%. A softer than expected UK CPI report is threatening to snap sterling’s five-day advance. Firmer than expected Swedish inflation dampens talk of a 50 bp cut next week. This lifted the krona to the top of the G10 performers today. The euro set a new high since early January near $1.1030. A large set of options expire today slightly higher.

Overview: The Antipodeans and sterling lead the G10 currencies today. The New Zealand dollar is the strongest, though the central bank is likely to deliver its first rate cut tomorrow. The Australian dollar rose to a three-week near $0.6610. Sterling was lifted by a stronger than expected employment report (though wage growth slowed) ahead of tomorrow’s CPI. The yen and Swiss franc nursing modest losses. Emerging market currencies are mostly stronger, with a few central European currencies (not the Polish zloty), and the South Korean won and Taiwanese dollar nursing small losses. Risk appetites appear to be healing. Outside of India, Asia Pacific stocks rallied, led by the return of Japan from a holiday-long weekend. Europe’s Stoxx 600 snapped a four-day advance yesterday but is trading

Overview: The capital markets have begun the week in subdued fashion. Japanese markets were closed for the Mountain Day celebration, and this week’s key events, which include US and UK CPI, and the Reserve Bank of New Zealand meeting and potentially its first rate cut. The uncertainty about the market positioning and the extent of the carry-trade may also be dampening activity. The yen and Swiss franc are the weakest of the G10 currencies today, off around 0.4%. The Antipodeans are the strongest, gaining 0.3%-0.45%. Emerging market currencies are mixed. Asian currencies are mostly lower, while central European currencies are a little firmer.  The MSCI Asia Pacific equity index has fallen for the last four weeks but has begun the new week on a firm tone. Chinese equities were the notable

There is no need to debate whether it was tightening by the Bank of Japan or the fourth consecutive rise in the US unemployment rate that spurred the dramatic market reaction at the start of last week. It seems reasonable that both played a role. And the dramatic unwinding of short yen positions, which appeared to help fuel a recovery of the Swiss franc, Chinese yuan began before the Bank of Japan meeting and the US employment report. Moreover, on the eve of the July 31 BOJ and FOMC meetings, the derivatives market had two Fed rate cuts fully discounted and a little more than a 70% chance of a third cut this year. The lack of transparency around the size of carry trades makes many skeptical of estimates that suggest a greater knowledge that seems reasonable. The price action itself will

Overview: The most recent data showed that Japanese investors took advantage of the yen’s strength last week to buy foreign bonds and stocks. The US weekly jobs claims to their lowest level in four weeks, suggesting that the slowdown in the labor market remains gradual. The sky is not falling. There is no emergency. With a 28% drop in Japanese bank shares in the first three sessions of the month, stress in Japan was acute, but Japanese official actions seemed to have been limited to a deputy governor of the central bank, talking in the first person. Moreover, the market continues to lean toward a hike before the end of the year. Calls for a 50 bp cut by the Fed next month seem exaggerated. The elevated volatility is already calming, the VIX has been nearly halved since Monday’s high, and

Overview:  Yesterday’s poor 10-year note US Treasury auction helped turn the equity market lower and this carried over into Asia Pacific and European activity today. Today, Treasury completes its quarterly refunding with the sale of $25 bln 30-year bonds. The general tone in the foreign exchange market is one of consolidation. Japanese investors were buyers of foreign stocks on bonds last week, according to the latest portfolio flow report, which is not what one would expect if Japanese investors were repatriating assets and unwinding their natural carry trade. Foreign investors were sellers of Japanese bonds and stocks. India’s central bank stood pat as expected. Several hours after Mexico’s CPI is reported, the central bank meets, and the market seems split over the outlook. We expect

Overview:  The calls earlier this week for an emergency rate cut seemed to be a call for the Fed put, which, we argue is misunderstood. It is not about the stock market per se but financial stability, which did not seem threatened in the US. Japan is a different story, and the Bank of Japan offered a verbal put today, with an indication that it wants to maintain low (accommodative) rates. The markets reacted accordingly. The yen was sold (and dragged down the Swiss franc as well). The dollar-bloc currencies and Scandis are trading higher, while the euro and sterling are consolidating. The Mexican peso, which has been beaten down, is the stronger emerging market currency today, gaining about 1.8%. Equities are mostly higher. The Nikkei gained 1.2%, but Taiwan led the charge with a nearly

Calmer markets are prevailing today, but an unease remains, and market moves continue to be sharp even if less dramatic. Still, it is in these somewhat less volatile conditions that the US dollar is doing better. It is firmer against all the G10 currencies today.

Overview: The Black Monday talked about over the weekend has materialized. Japanese equity indices more than 12% today. The Nikkei is off around 26.5% form the high set on July 11. Taiwan and South Korean equities were tagged for more than 8% in a sea of red that spared no one. Europe’s Stoxx 600 is off 2.4%, nearly matching its pre-weekend loss. It is back at levels last seen in February. The S&P 500 futures are off almost 3% and the Nasdaq futures are down about 4.5%. Haven flows into fixed income saw the 10-year JGB yield tumbled nearly 16 bp to 0.77%. European benchmark 10-year yields are down mostly 2-4 bp, with the 10-year German Bund yield off more than five basis points. The 10-year US Treasury yield is off 5 bp near 3.74% and the two-year yield is down 11 bp to almost 3.76%.

We
suspect the long-anticipated turn of the US dollar is at hand. The policy mix
of tight monetary policy and loose fiscal policy is coming to an end. The
moderation of price pressures for the past three months has boosted the
confidence of Federal Reserve officials that inflation is headed back toward
its 2% target. At the conclusion of the July FOMC meeting, Federal Reserve
Chair Powell gave his strongest signal yet that a rate cut at the next meeting
is likely. Further validation of market expectations may be delivered at the
Jackson Hole symposium at the end of August. The jump in the US unemployment
rate, following a series of poor labor market data, emboldened expectations for
a 50 bp cut to start the cycle. The easing of monetary policy among the
high-income countries is poised to

Overview: Federal Reserve Chair Powell said that although confidence has risen that inflation is on course back to 2%, the Fed is not quite confident enough to cut rates. The market effectively eased for it. Since the FOMC meeting began on Tuesday, the two-year US yield tumbled from 4.40% to 4.10%. The US 10-year yield settled below 4% for the first time in six months. The risk-off spurred by the weaker than expected US manufacturing ISM helped lift the greenback against most foreign currencies despite the drop in US rates. The dollar is mostly softer today, the Canadian dollar and Mexican peso have fallen to new lows for the year. On the other hand, the risk-off mood and unwinding of carry trades are helping the Chinese yuan to have its best week of the year (onshore yuan

Overview: Neither the FOMC statement nor Fed Chair Powell’s press conference dented the markets confidence that the Federal Reserve will begin an easing cycle at its next meeting in September. Yet, the dollar is bid against most of the G10 currencies, but the yen and Swiss franc. The Norwegian krone, apparently helped by a stronger PMI and the recovery in oil prices, is the strongest with a 0.25% gain. Most Asian emerging market currencies, but the Chinese yuan, are slightly firmer, while central European currencies have been dragged lower by the falling euro. The euro and sterling are at new lows for the week ahead of the BOE’s rate decision shortly. The dollar fell to about JPY148.50, a new low since mid-March and it took a toll on Japanese stocks. The Topix fell by 3.25% and the Nikkei

Overview: A 15 bp hike by the BOJ and plans to halve its bond purchases by the end of FY25 (in March 2026), coupled with a hawkish press conference by Governor Ueda sent the dollar to nearly JPY150, its lowest level in four months. A soft-core inflation reading in Australia send the Aussie lower and is the weakest of the G10 currencies. The others are little changed. The focus is now on the Federal Reserve, which is expected to signal that its confidence has grown that inflation is on its way back to the target and that it may be appropriate to reduce the restrictiveness soon. This will likely be understood as validating market expectations of a cut at the next meeting in September. A stronger endorsement by come at the Jackson Hole conference at the end of next month, when another

Overview: An unexpected decline in Japan’s unemployment did not prevent a retreat in the yen to a four-day low ahead of tomorrow’s data and conclusion of the BOJ meeting. The dollar has probed the JPY155 area where nearly $3.5 bln options expire today. An unexpected contraction Germany’s Q2 GDP was offset in the aggregate by better French, and especially Spanish figures, leaving the euro consolidating in a narrow range (~$1.0815-$1.0835). The greenback is softer against most emerging market currencies, including the Chinese yuan, which has shrugged off today’s yen weakness. Asia Pacific equities were mostly lower. The Hang Seng, and mainland shares that trade in Hong Kong, posted the largest losses (~1.4%-1.5%), while Taiwan bucked the move, and the Taiex posted a small gain. The Stoxx

Overview: The US dollar is mostly firmer today ahead of what promises to be an eventful week. Sterling is bearing the brunt today, off a little less than half-of-a-cent as expectations creep up of a rate cut this week and Chancellor of the Exchequer Reeves plays up the poor state of public finances left by the Conservative government. Sterling (and the euro’s) five- and 20-day moving averages have crossed. The yen is mostly within the pre-weekend range. Outside a of a few Asian currencies, most emerging market currencies have also begun the new week on softer footing, as well. Bond and equities are mostly firmer. China’s CSI 300, New Zealand, and the Philippine’s were the notable exceptions in the Asia Pacific region. Europe’s Stoxx 600 is extending its pre-weekend gain. US index futures

A dollar-centric narrative would note that the greenback rose against most of the G10 currencies last week. Yet, the dollar, the most actively traded currency, was arguably not the prime mover in recent days. Rather, the unwinding of carry trades seems to be the driver of much of the price action. The low yielding yen and Swiss franc were the only G10 currencies to rise against the US dollar. The Australian and New Zealand dollars were the worst performers, losing almost 2% against the US dollar last week. Among emerging market currencies, the Mexican peso was easily largest loser, and was thought to have been a beneficiary of the carry trades. The peso tumbled more than 2% against the greenback. Brazil’s real was the second worst emerging market performer, off slightly less than 1%. It

Overview:  The powerful yen short squeeze that has roiled the capital market this week has stalled today. It is the first day this week that the dollar has not fallen below the previous day’s low and has risen, though slightly, above previous session’s high. The Antipodeans and Scandis are trading with a firmer bias. The yen and Swiss franc are the only two G10 currencies that are not stronger today. The stability of the yen appears to have removed some of the pressure on some emerging market currencies. The Mexican peso is still heaviest currency this week, but on the day, it is the best of the emerging market complex, with the South African rand slightly behind it. Modest losses in Tokyo extended the Topix loss this week to 5.6% and the Nikkei’s decline to nearly 6%. Other large bourses

Overview: The capital markets are in flux. The powerful short-covering rally of the yen and unwinding of carry trades continues. For the second time this week, the PBOC has surprised by cutting interest rates. The dramatic sell-off of equities continues. The unexpected contraction of South Korea’s Q2 GSP (-0.2%) is seen as confirmation of broader economic weakness Speculation of a more aggressive Federal Reserve is gaining ground. It is not that the odds of a cut next week have improved much (~10%), but the derivative markets are pricing in about 25% chance of a 50 bp cut in September. The US 2-10-year yield curve is the least inverted in two years (~-13 bp), while 2-30-year curve is positive sloped by the most in two years (+14 bp). The dollar-bloc currencies and Scandis are bearing the

Overview: The dollar’s gains have been extended today, but in the risk-off mode, and unwinding of carry positions, the Japanese yen and Swiss franc are firmer.  the dollar has stabilized in late European morning turnover. The Bank of Canada is widely expected to cut rates today and the greenback is pushing against CAD1.38, which it has not traded above for three-months. The US dollar gains, which we anticipated, are coming despite interest rates remaining soft. The US 10-year yield is a little lower around 4.23%, it remains within the range set on Monday. A disappointing Eurozone PMI and the risk-off has seen peripheral premiums widen over core rates in Europe. Leaving aside the Russian ruble and the South African rand, most other emerging market currencies, mostly from central Europe and

The US dollar is firmer against all the G10 currencies but the Japanese yen. Local reports and the price action are consistent with short covering of the previously sold yen positions ostensibly ahead of next week’s BOJ and FOMC meetings. Still, the greenback is holding above last week’s low, slightly below JPY155.40.

Overview: News that President Biden will not seek re-election has left investors unsure of the next step, but PredictIt.org still points to a Trump advantage of slightly better than 60-40. It is not clear yet whether Vice-President Harris will be challenged for the nomination. The dollar is mixed against the G10 currencies, with the dollar bloc and Norway weaker. The yen is up around 0.45% to lead the others higher. The Swiss franc, euro and sterling are slightly firmer. Most of the emerging market currencies are higher, led by the Mexican peso’s 0.40% gain. China cuts its seven-day repo rate, which has been upgraded as a policy tool, and Chinese banks responded by cutting the loan prime rates by 10 bp. The yuan, and a few Asia Pacific currencies are trading with a heavier bias. The

The consolidative phase for the dollar, we anticipated last week, after its recent drop, is evolving into a proper upside correction. We expect the dollar to trade broadly firmer over the next week or so. It is also part of a larger picture, where US interest rates also look to have put in a near-term bottom and are set to recover. Ideas that next US administration may favor a weaker dollar has become a talking point. Yet, of all the forces that drive the $7.5 trillion a day foreign exchange market, official preferences are not among most salient. Nor is it simply a question of asymmetry, where it is thought easier to "talk down" a currency than to talk it up. That was not the case in the run-up to the Plaza Agreement in 1985 or the period before the coordinated material intervention in

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The failure of computer systems has disrupted airlines, banks, media companies, and the London Stock Exchange, ostensibly stemming from an update from a third-party software update, according to Microsoft. The dollar is trading with a firmer bias. The consolidation, we anticipated, appears to be morphing into a correction. Weaker than expected retail sales has driven sterling to new lows for the week. On the week, among the G10 currencies, only the Swiss franc and Japanese yen gained on the greenback amid what appears to be some unwinding of carry trades. Emerging market currencies are also mostly softer. Only the Czech koruna and Philippine peso, among emerging market currencies, have managed to

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The US dollar enjoys a firmer bias today, in mostly quiet turnover in narrow ranges. The Australian dollar is a noted exception, and the better than expected jobs growth may have lent it some resilience today. The greenback initially was sold to almost JPY155.35, a new low (since June 7) before recovering to nearly JPY156.60 in Europe. The UK’s employment report saw the first payroll growth in three months and softer wage pressures. Sterling is hovering in a narrow range around $1.30. The big event today is the ECB meeting. No change in policy is expected and the market seems fairly confident of a September cut ~80%), but ECB President Lagarde is unlikely to pre-commit while keeping options open.

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The dollar is broadly lower, and stocks are under pressure. Comments by a Japanese official, which did not appear to break new ground, coupled with Trump’s interview in BusinessWeek, where he was critical that Japan was benefiting from a weak yen, despite having apparently spent some $80 bln this year trying to stop it from falling, may have been the trigger. The dollar has fallen to its lowest level in a month against the Japanese yen (~JPY156.10). At the same time, slightly firmer than expected UK CPI diminished speculation of a BOE rate cut on August 1, and sterling has been lifted above $1.30 for a new 2024 high. The euro has risen to about $1.0945, its best level in four months. The dollar’s

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The US dollar is consolidating in narrow ranges against most of the G10 currencies. The Australian and New Zealand dollars, along with the Japanese yen are off by about 0.25%, but the others are +/- 0.10. The latest BOJ data appears to imply that officials intervened not only last Thursday, but Friday as well. Emerging market currencies are mixed but mostly quiet. The Turkish lira is the weakest, off about 0.25%, while the South African rand stabilizes (~+0.45%) after sliding 1.4% yesterday. Returning from yesterday’s holiday, Japanese equities enjoyed a firmer today. Mainland shares that trade in Hong Kong remain under strong selling pressure today. After yesterday’s 1.7% tumble, they fell another

Overview: The assassination attempt on former President Trump has injected a new dynamic as his chances of being re-elected appear to have risen. There are a few trades that seem to benefit from a second term:  steepening yield curve, weaker Mexican peso, and stronger crypto. The dollar initially strengthened as the market’s initially responded, while Tokyo markets were closed for Marine Day. As North American activity is about to begin, the dollar is mostly little changed. The Scandis and the New Zealand dollar are exceptions, and off around 0.4%. Among emerging market currencies, central European currencies are slightly firmer, while the Mexican peso, which had enjoyed its best week of the year last week is off more than 1.1% to be the worst performer today, though the South African

Slowing US jobs growth, the third consecutive rise in the unemployment rate, and the softer than expected CPI are a watershed. Although the Federal Reserve will not cut rates when it meets at the end of the month, Chair Powell will likely lay the groundwork for a cut in September. Indeed, the Fed funds future market has priced in slightly more than a 25 bp cut. The deteriorating economic conditions dragged US two-and 10-year yields to their lowest in around three months. This weighed on the dollar and reinforced the sense that an important top for the dollar is in place. The contrast with the UK’s better than expected May GDP that helped lift sterling to new highs for the year near $1.30, while the decline in US rates and speculation of Japanese intervention saw the greenback tumble from

Overview: The dollar is mostly consolidating yesterday’s CPI-inspired decline. The main features include the market bidding the US dollar back above JPY159 despite more speculation that the BOJ did in fact intervene yesterday and checked on the euro-yen cross in the local session today, and unexpectedly soft Swedish inflation, which the swaps market says could spur three rate cuts here in second half. A record trade surplus and strong aggregate lending figures did not prevent the offshore yuan paring yesterday’s gains. Sterling is pushing to new highs for the year above $1.2950, while the euro holds in a narrow range below $1.0890. Most emerging market currencies are firmer, with the notable exception of Taiwan, South Korea, and Türkiye. The rebound in the yen appeared to weigh on

Overview: The focus today is on the US CPI report. Another soft reading is expected, and it may strengthen ideas of a Fed cut in September, which ostensibly gives it time to cut again before the end of the year. The dollar is trading with a softer bias against most of the G10 currencies. A stronger than expected May GDP report helped sterling reach new four month high. The greenback is also holding below yesterday’s high near JPY161.80 against the Japanese yen. The euro briefly traded above $1.0850 for the first time in almost a month. The intraday momentum indicators for the dollar, warning that follow-through losses may be limited. Most emerging market currencies are firmer, including the Chinese yuan. The three notable exceptions are Türkiye, Mexico, and India, which are nursing small

Overview: The dollar is mostly softer today, but largely within the recent ranges, as the market appears to be waiting for tomorrow’s US CPI. There are a few exceptions to note. The yen is trading near its recent lows. A less hawkish Reserve Bank of New Zealand has triggered a sell-off of the local dollar. Softer than expected Norwegian inflation has knocked the krone lower. Most emerging market currencies are firmer, with several Asia Pacific currencies bucking the move, including the Chinese yuan and the South Korean and Taiwanese dollars. The Mexican peso leads the advance with a 0.6% gain, and it is trading at its best level in a little more than a month. Global equities are mostly firmer following another record high in the US S&P 500 and NASDAQ. Both of which are trading firmer in

Overview: In the absence of fresh developments, the dollar is consolidating in narrow ranges today against the G10 currencies and enjoys as slight upward bias against most emerging market currencies but for a few currencies from the Asia Pacific region. With practically an empty US data calendar, Fed Chair Powell’s testimony with be the highlight, and a soft headline CPI on Thursday anticipated. The US two-year premium over Germany has fallen from around 190 bp at the start of last week to 170 bp today, the narrowest in more than three months. This has coincided with the euro advancing every session last week, before slipping slightly yesterday. The greenback continues to hover around JPY161. Asia Pacific equities rallied but for Hong Kong, led by 1% gains by Japan and China. Europe’s

Overview: The dollar is narrowly mixed against the G10 and emerging market currencies today. The euro is little changed, holding on to last week’s gains, after the surprising French election results, where the focus shifts finding a prime minister that can carry a majority of the new and closely divided National Assembly. Despite firm underlying wage data, the Japanese yen has given back its initial gains, and the dollar is pushing back above JPY161 in the European morning. The Mexican peso’s 0.35% gain puts it atop the emerging market scoreboard today. Most central European currencies are softer. European benchmark 10-year yields are mostly 1-2 bp higher and the French premium over German has narrowed slightly. The 10-year US Treasury yield fell 11 bp last week and has come back about

Four drivers are shaping the investment climate. First, ahead of the run-off elections in France, the market feels more comfortable that Le Pen will not secure a parliamentary majority. The French premium over Germany narrowed to 65 bp, falling by about 14 bp last week, and arguable a supportive factor for the euro. Second, the British election was largely a foregone conclusion, and Labour did secure majority. It ought not be construed as a shift to the left as Labour received less than 2% more votes that in did in 2019 and the party’s manifesto has shifted to the center, which itself appears to have moved to the right. The swaps market slightly raised the likelihood of an August cut (~68% vs. 65%), a September cut (98% vs. 88%) and two cuts this year (98% vs. 80%) over the course of the

Taking the next few days off.  Will be back with week ahead commentary on  July 6.  Overview: The sharp jump in US long-term interest rates has helped lift the greenback in recent sessions and it remains firm against most of the G10 currencies today. The Canadian dollar is the best performer, and it is nearly flat. The intraday momentum indicators warn that after a mostly consolidative Asia Pacific and European morning, the greenback may probe higher in North America. The US economic calendar features the JOLTS report on job openings, while auto sale will trickle in throughout the day. Headline risk comes from the ECB gathering in Sintra, where Fed Chair Powell will speak later this morning. Equity markets are mostly lower today, though Japan’s Topix made new highs and the Nikkei reached

Overview: The market feels a bit more at ease after the first round of the French elections that extreme policies will be avoided by an effort to deny the National Rally a legislative majority. French stocks have recouped some of their recent losses and the euro reached $1.0775, its best level since June 13. The yen remains soft after the Tankan survey showed little change but an uptick in capex plans. Outside of the yen and Swiss franc, the dollar is trading with a mostly softer bias. A handful of emerging market currencies are weaker today, including the Mexican peso. Central European currencies, though, a firmer in the wake of the euro’s gains, but the South African rand is leading the emerging market currencies with nearly a 1% gain as a new government is falling into place. Asia

July is about the Olympics and reaping what was sown in June. The UK and France will have new governments. There will be a new European Commission. China will hold its Third Plenum session, out of which many expect new measures to support the economy.The Bank of Japan may announce a plan to reduce its bond purchases, which are approximately the same as the amount maturing every month and hike rates at the end of July. Reducing its JGB holdings is another step in the normalization of Japanese monetary policy. Despite the weirdly early US presidential debate at the end of last month, before either candidate was formally confirmed, the market’s focus may not turn to US politics until September. In further evidence of a closely divided Federal Reserve, last month’s Summary of Economic

Overview: The US dollar is narrowly mixed as North American participants prepare to return for the last session of the first half. Despite firmer than expected Tokyo CPI and stronger than expected industrial output, the market lifted the greenback around JPY161.25 before profit-taking pressures bought it back toward session lows near JPY160.65 in Europe. President Biden is thought to have lost last night’s debate with Trump, but it does not appear to be much of a market factor. The immediate focus is on today’s PCE deflator, which we suggest below may not have lasting impact as the signal has already been given from the CPI and PPI, and there will be another batch of inflation readings before the Fed meets again. The outcome of Sunday’s French election remains a source of investor anxiety

Overview: The dollar is sporting a softer
profile today against all the G10 currencies but the Swedish krona. The
Riksbank sounded more dovish than previously, signaling the possibility of a
cut in each of the last three meetings of the year. The dollar has sustained its
push above JPY160 against the Japanese yen. Most emerging market currencies are
also firmer, with the notable exception of Türkiye and South Africa. Türkiye is
expected to keep its one-week repo rate steady today at 50%, while the Czech
central bank is seen delivering a quarter-point cut. (to 5.0%). The central
bank of Mexico meets later today and will hold the interest rate target at
11.00%. Equities are under pressure
today. All the large bourses fell in the Asia Pacific region but India. The
losses were led by a 2%

Overview: The dollar is firm, and the market is challenging the JPY160 level, which it has traded above in Europe. Japanese officials say that they do not defend a specific level. The market is nervous though and some participants have professed intentions to sell dollars above there. The Australian dollar is the main exception to the greenback’s strength today. A strong monthly inflation print boosts the chances of a rate hike. The Aussie, though, has not broken out of its $0.6600-$0.6700 range that has dominated since mid-May. Most emerging market currencies are weaker, including the Chinese yuan, which is at new lows for the year (both on- and offshore). Equities are higher. Asia Pacific bourses advanced with Australia’s market being the outlier, on the heels of the higher CPI and an

Overview:  San Francisco Federal Reserve President Daly spoke aloud what many are thinking. The US labor market may be at an inflection point. The four-week moving average of weekly jobless claims is at the highest since last September and the early call for July nonfarm payrolls is about 185k, which if true, would be a sub-200k reading for the second time in three months. The high-flying Nvidia has fallen 13% in the past three sessions coming into today. The 10-year US Treasury yield is near its Q2 trough (~4.20%). European political uncertainty and the threat of Japanese intervention are also factors. The dollar is narrowly mixed today is +/- 0.1% against most of the G10 currencies. It is consolidating in about a 25-tick range around JPY159.45. The euro is little changed and the French

Overview: The Dollar Index reached its best level since May 1 before the weekend but has come back softer against all the G10 currencies and most emerging market currencies. There is no apparent driver, and the intraday day momentum indicators caution against expecting much in the way of follow through gains in North America. The dollar edged closed to JPY160 and triggered official intervention warnings. The market has turned cautious and is threatening to end the yen’s seven-day slide. Among emerging market currencies, the South African rand, Turkish lira, and a few East Asian currencies are softer including the Chinese yuan.Equities are mostly higher, but the Asia Pacific region struggled. Among the large markets, only Japan and India managed to rise. The Shanghai and Shenzhen

The relationship between interest rate expectations and the foreign exchange levels is more complicated than many textbooks or conventional wisdom allows. Australia’s and Norway’s central banks pushed against rate cuts this year, and their currencies were rewarded. The Reserve Bank of New Zealand said more or less the same thing, but investors are less sanguine and took the New Zealand dollar down as much as it took the Australian dollar higher. The Bank of Canada is perceived to be one of the most dovish G10 central banks. The market expects at least two more cuts to be delivered this year. Yet, the Canadian dollar was the third strongest G10 currency last week, appreciating by about 0.2% for the second consecutive week. That the Swiss franc was weak, losing 0.4%, is understandable after

Thanks for your patience. See you tomorrow. Japan:  USD reached nearly JPY159.15, highest since late April.  US Treasury added Japan to fx watchlist after recent intervention. USD up past six consecutive sessions coming into today. Japanese rhetoric about fx escalates.  National CPI headline and core ticked up primarily utilities (electricity and gas). Excluding food and energy, CPI slowed to 2.1% from 2.4%. This was largely in line with the Tokyo CPI released a few weeks ago. The flash PMI softened with the composite at 50.0 vs. 52.6.  China:  The PBOC fixed the dollar at CNY7.1196, a new high for the year.  Banks were selling dollars. The offshore yuan reached CNH7.2925, a new high for the year. Loan prime rates were left unchanged. Australia:  The PMI slowed, and the composite stands

The US dollar is trading higher against all the G10 currencies today but the Norwegian krone. Norway’s central bank left policy on hold and warned that if the economy performs as expected, it does not anticipate a rate cut until next year.

Overview: The dollar has caught a bid ahead of the US retail sales and industrial production figures. It is higher against all the G10 currencies but the Swiss franc. The SNB meets Thursday. It surprised many by cutting rates in March and the same logic (low inflation, move ahead of the ECB, stronger franc) may apply now. A hawkish hold by the Reserve Bank of Australia has not done much for the Australian dollar, which is little changed on the day. The greenback held last week’s high against the yen near JPY158.25, the highest it has been since the intervention in late April. Most emerging market currencies are firmer against the US dollar, but a few central European currencies dragged lower by the softer euro. Hungary is expected to cut rates shortly and it may be the last one for some

Overview: The US dollar is firmer against most G10
currencies to start the new week. The euro is a notable exception. It is only
slightly higher but confined to a narrow range around $1.07. On the other hand,
most emerging market currencies are firmer, but for a few Asia-Pacific
currencies, including those of China, South Korea, and Taiwan. The Mexican peso
is consolidating but it is also lower on the day. The tone is largely consolidative. Equities have begun softer. All the large
markets in Asia Pacific but India fell, led by sharp losses in Tokyo. Europe’s
Stoxx 600 is threatening to extend its losses for a third session. It lost 2.4%
last week, while the US S&P 500 rose by almost 1.6%: a significant
divergence. US index futures are narrowly mixed pre-open. Asia Pacific bonds
were firm

Under
other circumstances, the softer than expected US inflation readings and the
subsequent sharp drop in US interest rates would have weighed on the US dollar.
Instead, the greenback managed to do well, especially against the euro, sterling,
and Japanese yen. The 0.6% rise in the Dollar Index was the biggest gain in
two months. The Fed’s hawkish hold, with the median dot shifting to one cut
this year from three in March (and last December) means that some other central
banks may cuts rates one or two more times before the Fed cuts. In addition,
political anxiety stemming from the snap French election for which President
Macron’s party and allies could come in third place in the first round has seen
not only the French premium widen over Germany but others in the European
periphery saw

Overview: The dollar is bid. What makes its
performance standout is that it is taking place as US rates have fallen. The US
10-year yield is near 4.20%, the lowest in more than two months. The two-year
yield is near 4.67%. It has fallen every session this week for a cumulative
decline of more than 20 bp. It is not so much that constructive developments
took week, but that Europe and Japan are suffering from self-inflicted injury. Macron’s
call for snap elections in France undermined sentiment, and the latest
developments warn that his party and allies could come in third place in the
first round of voting. In the UK, it is possible that the Tories slip into
third place too. In Japan, the BOJ made no change in its bond purchases,
disappointing many, though Governor Ueda kept the door open

Overview: The dollar fell alongside US rates
yesterday after the softer than expected CPI. The move on both rates and the
dollar were pared after the FOMC meeting which held rates steady as widely
expected, but the median dot now anticipated one cut this year rather than
three. The dollar has recovered more ground today and is trading with a
slightly firmer bias G10 currencies. However, trading is quiet and mostly
narrow ranges have dominated. North American leadership is sought, and range
extension is likely. Most emerging market currencies, on the other hand, are
firmer with a few exceptions, mostly from central Europe, and the Chinese yuan.
Asia Pacific bonds played catch-up with
the decline in US yield yesterday. European bonds are paring yesterday’s gains
and yield are up 1-5 basis

Overview: Position adjustments ahead of today’s US CPI and FOMC
meeting are giving the dollar a modestly heavier tone today. Each of these
events are typically a source of volatility in their own right and together
they promise an eventful North American session. The yen is the only exception
among the G10 currencies, but even there, the dollar is holding below
yesterday’s highs. Even sterling’s relative resilience this week was unmarred
by the flat April GDP. Led by central Europe, most emerging market currencies
are firmer too. The beleaguered Mexican peso remains under pressures and has
taken another leg lower amid the political backdrop. The sell-off of the French bonds slowed today. Last
Wednesday, the 10-year French bond yield was a little below 3% and it is
consolidating about

Overview:  The US dollar is firm against all
the G10 currencies, except for sterling, which is straddling unchanged levels
after labor market report that showed an uptick earnings remain elevated, and
the unemployment rate ticked up to a new high since September 2021. The dollar
reached a new six-day high against the Japanese yen near JPY157.40. The Chinese
yuan (onshore) fell to new lows since last November as the mainland markets
re-opened from the holiday-long weekend. Most emerging market currencies are
lower, including the Mexican peso, which has become unhinged amid heightened
political uncertainty. The peso staged a bit of a recovery in late North
American dealings but came under pressure again as president-elect Sheinbaum
encouraged the discussion of judicial reform. European

Overview:  With mixed elements, the market took the
US jobs data as relatively strong and took the dollar and US rates higher. The
EU Parliament election has shaken up European politics, with the Belgium
government collapsing and French President Macron calling a snap legislative
election for the end of the month. Holidays in China, Hong Kong, Taiwan, and
Australia made for thinner Asia Pacific trading, but the euro was sold and has reached to
one-month lows slightly below $1.0740 in the European morning. The dollar is mostly firmer today
against the G10 currencies and emerging market currencies. Ahead of Wednesday’s
US CPI and FOMC meeting, the greenback is likely to remain firm. Japanese stocks moved higher, but
that is the notable exception. Most other markets in the region fell, and

The market got caught leaning the wrong way. The weakness in April’s high-frequency US data encouraged participants to push the US two-year yield to its recent floor near 4.70% and took the 10-year yield to two-month lows, slightly above 4.25%.

Overview: The dollar is little changed against the major currencies ahead of the US jobs report. It has been trading heavier than we expected given that two more G10 central banks cut interest rates ahead of the Federal Reserve.

Overview: The dollar is mostly softer today, ahead
of tomorrow’s employment report. The ECB meeting and President Lagarde’s press
conference are main events today. There is little doubt that it will cut rates
today and do so ahead of the Federal Reserve for the first time. The ECB’s
forward guidance may be the key to the market’s reaction. That said, the euro
is in the upper end of its recent range, near $1.09. The Mexican peso, which
was crushed at the start of the week following the election results, held
April’s flash crash low and is trading at a three-day high, with the dollar
near MXN17.45. Nearly all the emerging market currencies are also a little
firmer today, with the Polish zloty and Hungarian forint’s small losses the
exception. After falling around 36 bp in
the past five

Overview: The foreign exchange market is calmer
today than Monday and Tuesday, and the dollar is mixed. The yen, which rallied,
yesterday, has given back most of its gains and the wage data gave the market
second thoughts about next week’s BOJ meeting. The Mexican peso, which has been
sold aggressively in the face of the strong election showing of the Morena
party and allies, is the strongest currency today, though the greenback is
holding above yesterday’s lows. The Indian rupee is the second strongest and
its stock market is recouping more than half of yesterday’s steep losses. The
highlight of today’s North American session is the Bank of Canada meeting. The
swaps market has about an 80% chance of a cut discounted. A cut today would
make the Bank of Canada the third G10 central bank to

Overview: The dollar’s losses scored after yesterday’s disappointing ISM manufacturing report were extended initially in Asia Pacific turnover earlier today before it recovered. The recovery has stretched the intraday momentum indicators, warning against expected strong follow-through dollar buying in North America, without fresh impetus.

The dollar has returned from the weekend with a better bid tone. It is firmer against all the G10 currencies but the yen, Swiss franc, and Swedish krona, which are marginally firmer. The market seems reluctant to extend the euro or Canadian dollar upticks ahead of the central bank meetings this week, though, ironically, sterling’s 0.25% decline leads the major currencies. Election news is a key driver today.

There
are two forces that shape the investment climate: politics and economics, and
they are both at the fore in the coming weeks.Among the highlights will be the European
Central Bank meeting that will mostly likely begin its easing cycle. The Bank of
Canada is a close call. If it does not cut rates in June, it will probably do
so in July. The Swiss National Bank may deliver its second hike in the cycle,
while the Bank of England will likely continue to prepare the ground for a cut
in the second half.Four months ago, the market was still
pricing in two rate cuts by the Federal Reserve by the end of the first half.
While giving up on the notion, the derivatives market has one cut fully
discounted late this year and almost a 50% chance of a second
cut. In the March Summary of Economic

Overview: The dollar is mostly consolidating
yesterday’s losses ahead of month-end and the US income and consumption data. The
PCE core deflator may have risen by 0.2%, the least this, year, but the
year-over-year rate is expected to be steady at 2.8%. The dollar is recovering
from a five-day low against the yen recorded yesterday near JPY156.40 and is
near JPY157.30 in the late European morning turnover. The yen’s retreat and a
disappointing Chinese PMI have weighed on the yuan. The euro is bid after the
firm year-over-year CPI reading. Sterling is little changed, in a narrow range
above $1.2700. Emerging market currencies are mixed. The ANC looks to have lost
its majority in South Africa and the rand is slightly lower today and is off
around 2% this week. It is the weakest in the

Overview: The dollar initially extended yesterday’s
North American recovery but unwound most of the gains in the European morning. As
North American dealers return, the greenback is lower against most of the G10
currencies. After approaching levels believed to have been where the BOJ last
intervened, profit-taking pushed the dollar back to a marginal new low for the
week (~JPY156.55). The yen’s recovery arguably helped the Chinese yuan rise for
the first time since May 15. The euro held important support near $1.0785 and
sterling did the same near $1.2675. Still, the currencies’ recovery in Europe stretched
intraday momentum indicators. This suggests the risk favors selling into the
upticks rather than piling on. Jitters over yesterday’s South African election
has weighed on the rand

Overview: Stocks and bonds are lower today, and the
dollar is slightly firmer having extended yesterday’s recovery. Most of the G10
currencies are lower, though the Japanese yen has recovered from after falling
to its lowest level since May 1. Slightly softer than expected German states’
CPI did the euro no favors. It was sold to a three-day low near $1.0830 before
stabilizing. Sterling steadied after dipping briefly below $1.2750. Most
emerging market currencies are lower. The Mexican peso and South African rand
are exceptions, posting minor gains. The Chinese yuan edged lower and has not
risen against the dollar since May 15. Asia Pacific equities sold off,
and Chinese mainland indices managed to buck the regional move that saw
Australia, Hong Kong, South Korea, and several smaller

Overview: The dollar initially extended its
pre-weekend and yesterday’s heavier tone before finding a better bid in the
European morning. Still, as North American dealers return to their posts the
dollar is still mostly softer against the G10 currencies, but it is little
changed to slightly firmer against the Japanese yen. Most emerging market
currencies are firmer, but the South African rand is softer ahead of their
election, the Mexican peso is paring its recent gains, and the Chinese yuan is
softer for the ninth consecutive session. The US Treasury’s buyback program (buying
back illiquid off-the-run issues, which will later be replaced by larger sales
of new issues) begins tomorrow, while T+1 settlement for equities begins today.
The US 10-year yield Treasury yield is off a basis point

FX:  The dollar
traded mostly higher last week.  I suspect more near-term gains, but
I am less convinced than I was a week ago.  Given the FOMC minutes
and more recent commentary from Fed officials, I suspect the market is
exaggerating the chances of two cuts this year.  That had been my
leaning too, but I think the recent resilience of the labor market and
sticky inflation has shifted the views at the Fed.  The futures
market is pricing in a little more than a 37% chance of a second
cut.  That is down from 76% on May 17.   There is room for
further adjustment.  The dollar traded above JPY157 for the
first time since May 1.  The market is likely to turn more cautious
as JPY158 is approached.   The euro peaked on May 16, slightly

Stronger than expected data and hawkish FOMC minutes helped lift US
rates and the greenback last week. That market continues to also reduce the
extend of ECB easing this year is notable but did not prevent the euro from
snapping a five-week advance. The 10-year Japanese government bond yield rose
above 1% last week for the first time since 2012, but the US dollar traded above JPY157 for the first time since the BOJ is believed to have intervened
earlier this month. Sterling’s resilience in the face the pullback in May’s
flash composite PMI (52.8 vs. 54.1) and dreadful April retail sales (-2.3%) is
notable. Those reports were unable to offset the impact on rate expectations
spurred by the firmer than expected CPI. The swaps market does not have the
first rate cut fully discounted until

Overview: The dollar is paring yesterday’s advance that was
spurred by the rise in US rates following the preliminary PMI, which reached its
best level in two years. The survey also picked up higher prices. The dollar is
in narrow trading ranges but softer against nearly all the G10 currencies today. The
Swiss franc and Japanese yen are laggards. Despite a large disappointing miss
on UK retail sales, sterling has steadied after falling yesterday for the first
time in five sessions. The Dollar Index approached but did not take out the
20-day moving average (105.10), which it has held below since May 2. Emerging
market currencies are mostly firmer, but Asian currencies are underperforming
central Europe, with the notable exception of the Indian rupee, which is up
around 0.25% today. Lastly,

Overview:  The dollar was aided yesterday
by the hawkish FOMC minutes and the backing up of US rates. The greenback has
stabilized today and is softer against all the G10 currencies. The stronger eurozone PMI masks
divergence between Germany and France but keeps the recovery narrative intact. The
dollar’s broad gains pressured the yuan, and the PBOC’s dollar reference rate
was set at its highest since January. Favorable guidance by Nvidia is
helping lift US index futures today, especially the NASDAQ. Most Asia Pacific
equity market rallied today, led by Japan and India. Chinese and Hong Kong
indices over 1%, and South Korea and Australian indices eased. The Stoxx 600 in
Europe is rising for the first time since Monday. Benchmark 10-year yields are
little changed today. Of note, the

Overview: A hawkish hold by the Reserve Bank
of New Zealand and a firmer than expected UK CPI reading have allowed the New
Zealand dollar and sterling to show resilience in the face of the US dollar’s
broadly firmer tone. And even there, the Kiwi and pound have seen their early
gains pared. The Swiss franc is the weakest of the G10 currencies today and has
fallen to a new 12-month low against the euro. Emerging market currencies are
mixed. Central European currencies are mostly lower, along with the South
African rand and Chinese yuan. The Philippine peso is the strongest ~0.30%)
after the central bank threatened to intervene yesterday, and the Mexican peso
has stabilized after falling by the most in three weeks yesterday. Equities and bonds are mostly weaker
today. Despite political

Overview: The dollar is consolidating but with a somewhat
heavier bias today. The G10 currencies are firmer but for the New Zealand and
Canadian dollars, which are slightly softer. Most emerging market currencies
are also firmer, except for a handful of Asian currencies. The news steam is
light. Equities are trading off. The MSCI Asia Pacific Index
snapped a seven-day rally, and Hong Kong shares and the mainland shares that
trade there led the region lower with a 2% drop. Europe’s Stoxx 600 is giving
back yesterday’s gains plus some. It is off almost 0.4% in late European
morning turnover, led by utilities and financials. US index futures are softer.
Japan’s 10-year yield firmed slightly, while European benchmark yields are
mostly 1-3 bp lower. The 10-year US Treasury yield is off almost

Overview: The foreign exchange market is quiet. Most
of the G10 currencies are +/- 0.1% against the dollar. The crash that took the
of Iran’s president and foreign minister may have helped lift gold to new
record highs ($2450), the impact seems more muted, as poor weather rather than
foul play, seems to be main narrative. July WTI reached nearly $80, its best
level since May 1 but is hovering around unchanged levels (~$79.50). Canadian
markets are closed today for a national holiday, while no fewer than five Fed
officials speaks today, which includes three governors and two regional
presidents who vote on the FOMC this year. The MSCI Asia Pacific Index rose 2.4% last
week and it has not had weekly loss since the week ending April 19. It is off
to a firm start this week. All the large and

The
monthly cycle of central bank meetings and high-frequency data slow in the
week ahead, though the UK and Canada report on prices and demand (retail sales).
The highlight of the week may be the preliminary May PMI estimates. We play
down its significance in the US because its strength seems to be an outlier and
it is in expansion territory while the ISM not. The dollar has generally been
trending lower, with the yen being the only exception among the G10 currencies
since mid-April. The bottoming of the two-year yield near the recent 4.70% low
may reflect the end of the interest rate adjustment following the recent string
of mostly weaker than expected high-frequency data and the softer CPI reading. The
momentum indicators are getting stretched but have yet to confirm a dollar low
is in

Overview: The dollar’s recovery begun yesterday has
extended into today’s activity. The greenback is higher against all the G10
currencies and most emerging market currencies, but the Indian rupee and
Mexican peso. The BOJ did not reduce its bond buying at today’s operation and
the market sold the yen on the news. After reaching JPY153.60 yesterday, the
greenback is near JPY156 now. New initiatives to support the beleaguered
property market was not enough to offset the disappointing retail sales data
and the yuan has pared this week’s gains. On the week, the dollar has fallen
against the G10 currencies but the yen and Swiss franc. It is also softer
against most of the emerging market currencies. China’s new property initiative
may not have helped the yuan, but mainland stocks rallied,

Overview: Three of the G10 currencies rose by
more than 1% against the US dollar yesterday after the softer inflation and
weak retail sales readings. The Dollar Index lost almost 0.65% yesterday, the
most this year. Among emerging market currencies, only the Mexican and Chilean
pesos rose by at least 1%. After extending its losses against most of the major
pairs, the dollar has come back bid. Only the yen and Swiss franc are firmer on
the day. The dollar-bloc currencies and Scandis are off 0.20%-0.25%. The
Mexican peso has also come back offered and off about 0.25% is the weakest of
the emerging market complex. The strong buying that lifted the S&P
500 and NASDAQ to new record highs yesterday carried over into the Asia Pacific
session. Nearly all the regional markets gained. The Nikkei,

Overview: The
dollar is trading heavily against the G10 currencies and most of the currencies
from emerging markets. The market expects softer US CPI (and retail sales)
today. Any decline in the year-over-year core rate would put it at its lowest
level since April 2021. Still, this has been anticipated, and the market seems
vulnerable to "sell the rumor, buy the fact" type of activity. After
all, the Fed will see another employment and CPI report before the June 12
meeting. Moreover, comments by Fed officials have encouraged the market to push
out the first cut to September (~85%) and about an 80% chance of a second cut
before the end of the year. Of course, the dollar would likely rally on an
unexpected increase in CPI too. US interest rates are softer today. The
two- and 10-year

Overview: The tone in the foreign exchange market
today is mostly consolidative. The two notable exceptions are the yen and yuan.
Despite higher JGBs yields amid speculation that the BOJ will scale back bond
purchases, as it did yesterday, to support the yen, the greenback is at its
best level since the suspected intervention. The next important technical area
is near JPY157.00. The US is set to announce a new set of tariffs on a wide
range of Chinese goods later today. Expectations that policy is about to be eased,
coupled with the yen’s weakness, appears to have helped push the yuan to new
seven-day lows. Softer UK labor data weighed on sterling, but it recovered
after the $1.25 area held. There are GBP1 bln of options that expire there
today. Most emerging market currencies are firmer

Overview: The new week has begun off quietly. The
dollar is in narrow ranges against the G10 currencies, +/- 0.15% as the North
American market prepares to open. The Dollar Index is trading inside the narrow
pre-weekend range. With softer US CPI, retail sales, and industrial production
due this week, we have a downside bias for the greenback. Most emerging market
currencies are firmer. A few Asian currencies, including the Chinese yuan and
Philippine peso are among the exceptions.Equity markets are mixed. The
MSCI Asia Pacific Index was flat last week after rally more than 6% in the
previous two weeks. Japanese, Chinese, and South Korean markets traded heavier
today, while other large bourses in the region advanced. Europe’s Stoxx 600 is
threatening to snap a six-day advance and is

(On business trip over next few days. Commentary to resume Monday.  Thanks for your patience.) Overview: Sweden’s Riksbank became the second G10
central bank to cut rates this year. The Swiss National Bank cut its deposit
rate in March. A couple other large central banks, including the European
Central Bank, and possibly the Bank of Canada, may cut rates next month. The
Swedish krona is the weakest of the G10 currencies today, off by about 0.45%,
but the Australian dollar and yen are down nearly as much. The market has taken
the dollar up by about 0.5% against the in each of the past two sessions and is
up by about the same amount today. Most emerging market currencies are softer
too, with the Indonesian rupiah and Turkish lira hovering around
unchanged. Japanese, Chinese, Hong Kong,
and

Overview: The dollar is firmer against all the G10
currencies today. The market is somewhat less fearful of intervention and the
yen is extending yesterday’s losses. It is rivaling the Australian dollar for
the weakest of the major currencies after the Reserve Bank of Australia left
rates on hold and played down speculation of possibility of a rate hike. Both
currencies are off around 0.4% in late European morning turnover. Disappointing
German factory orders shows the fragility of the nascent recovery. Emerging
market currencies are mostly softer, led by the central European currencies. The
Chinese yuan is also seeing yesterday’s 0.45% gain pared. It is off about 0.15%
today. The offshore yuan is off for the second consecutive session and down
almost 0.45% this week after rising slightly

Overview: The dollar is mostly a little softer
today in thin market conditions, with Tokyo, Seoul, and London closed for
holidays. The Japanese yen is the weakest G10 currency, losing about 0.5% and
slipping through last Friday’s lows. At first, after Fed Chair Powell
did not endorse rate hike speculation, the market thought he was dovish. But after the
softer than expected jobs data and weakness in the ISM services, the market
shifted from doubting one cut to pricing in two. China’s markets re-opened for
the first time since last Tuesday. The Chinese yuan played catch-up and has
appreciated by 0.45% today, to lead the emerging market currencies. The yuan
reached its best level since late March amid speculation that Beijing may be
considering a large devaluation (of which we are

The resilience of the
US economy and stickiness of price pressures spurred a reassessment of the
trajectory of Fed policy. This sparked a sharp rise in US interest rates and
extended the dollar’s advance. The somewhat disappointing April jobs report and
a softer CPI report in the middle of May could signal that the interest rate
adjustment is over. Federal Reserve Chair Powell played down the likelihood of
the need to lift rates again, and as it was in  Q4 23, when CPI moderated to a 2%
annualized rate, the central bank is being prudent in both directions. The IMF identified US fiscal policy
as a key to fueling demand, inflation, and the stronger greenback, which has
heightened concern among several countries in the Asia Pacific region,
including Japan, South Korea, China, and Indonesia.

Overview: The greenback is trading with a
softer bias ahead of the US jobs report. Solid, even if not spectacular job
growth, is expected. However, recent survey data warns of the downside risks. Moreover,
counter-intuitively, the dollar has not often rallied this year into the
employment data, but frequently has in response. The dollar is softer against
the G10 currencies. The Norwegian krone is the strongest, up about 0.6% after
the central bank delivered a hawkish hold, by warning that rates may need to
stay restrictive longer than it has previously anticipated. Also, of note, the
greenback made a new low for the week against the yen near JPY152.75, which is
also a new three-week low. Emerging market currencies, but the Czech koruna and
South African rand are also firm against the

Overview: The US dollar is mixed, but the
spotlight is on the Japanese yen. It appears that with the market challenging
Monday’s intervention, Japanese officials entered the market shortly after the
US equity market closed yesterday, as the Asia Pacific session got underway and
sold dollars again. Initial estimates suggest the intervention amount was
two-thirds of Monday’s. The timing caught the markets wrongfooted. Tokyo
markets are closed Friday and Monday, but yesterday’s operation will likely
make the market cautious about challenging Japanese officials without good
cause. Most emerging market currencies are firm, but central European
currencies are softer. The offshore yuan is trading stronger than the onshore
yuan for the first time this year. Mainland markets re-open

Overview: Much of Asia and Europe are off for the
May Day labor holiday. The dollar is mostly softer in the thin activity. However,
the dollar has edged higher against the yen and approached JPY158. The euro
initially fell to $1.0650, a six-day low and where a billion euros in options
expire later today. It has recovered to almost $1.0675. Emerging market
currencies are subdued. Central European currencies, the South African rand,
and Mexican peso are sporting slightly firmer profiles. Asia Pacific equity markets that were open
today (e.g., Japan, Australia, New Zealand) fell after the large losses seen in
the US yesterday. European equities are closed but the UK’s FTSE is slightly
firmer. US index futures continue yesterday’s retreat. The 10-year UK Gilt
yield is near 4.38%, up three

Overview:  Stronger than expected eurozone GDP
strengthened the sense that a nascent recovery may be taking hold and has given
the euro a bid in the European morning. The dollar, though, is enjoying a
firmer tone against the other G10 currencies today. Australia’s unexpected
weakness in retail sales has weighed on the Antipodean currencies. The Aussie
and Kiwi are off slightly more than 0.5% today. Japanese data were mixed (a
recovery in industrial production but weakness in retail sales) and the market
has taken the dollar to almost JPY157. It had settled near JPY156.35 yesterday.
The market is still treading gingerly after yesterday’s drama and possible
intervention. Emerging market currencies are mixed, with Turkey and Hungary
leading the advancers and the South Korean won and South

Overview:  The FOMC meeting, the US employment report, and
eurozone CPI were to be the highlights of the week, but the Japanese yen stole
the march to start the week. The dollar soared to almost JPY160.20 before
falling sharply to JPY154.55 and then rebounding to almost JPY156.00. Intervention
has not been confirmed and BOJ data will not cover it until next month. On
balance, it appears that most think it was algo-trading in thin markets given
the Japanese holiday. The dollar weakened against the other major currencies,
and although it is still lower on the day, the downside momentum may have
stalled. Emerging market currencies are more mixed. Turkey, South Africa,
Hungary, and Mexico are leading, while Russia, Czech, and Indonesia are
laggards. Equities are off to a strong start. The

The backing up of US rates did not lift the dollar broadly as it appeared to have done previously.  The dollar-bloc currencies, led by the Australian dollar, and sterling advanced last week, while the Swiss franc and Japanese yen were unable to find traction.  The Bank of Japan had an opportunity to have protested the yen’s weakness more adamantly but did not do so.  Recognizing the role of interest rate differentials as an important driver, the Ministry of Finance threatens action but seems reluctant to intervene. Still, the market continues to probe for the official pain threshold.   This year, the greenback has generally weakened in the run-up to the employment data and recovered afterward.  It has trended lower over the last couple of weeks and that correction may be over.Still, after

I am on vacation, and then on a business trip that will interrupt the commentary until the weekly note on April 30. The May monthly analysis will be published the following week after the FOMC meeting and April employment report.

Overview:  Higher than expected US CPI for the third consecutive month drove US interest rates sharply higher and lifted the greenback broadly. The market appears to be catching its proverbial breath today, but the shallow consolidation suggests the moves are not over.

Overview: The dollar has been confined to narrow ranges ahead of the US CPI report. Given the backup of US rates and the stronger-than-expected jobs growth, the greenback’s performance has been unimpressive.

Overview: The dollar is trading with
a softer bias in mostly narrow ranges against the G10 currencies. It did not
rally much ahead of the US jobs data, and it was not able to sustain the upside
momentum afterwards, despite the jump in US yields. Former St. Louis Fed President
Bullard, who still has a strong reputation in the market, told Bloomberg TV
yesterday that three cuts were his base case this year. The Scandis and
Antipodeans are the strongest today, up about 0.25%-0.33%. The dollar continues
to hold below JPY152 barely. Most emerging market currencies are also firmer
today. The dollar continues to trade just inside its band against the onshore
yuan. Most of the large Asia Pacific equity markets rallied, led
by a 1.85% gain in Taiwan and a 1.1% advance by the Nikkei. South Korea

Overview:  The jump in US rates after the employment
report failed to ignite a sustained rally in the dollar and this shaken the
market’s near-term confidence. The dollar has been mostly confined to narrow
ranges and the low yielding Swiss franc and Japanese yen are softest with the
G10 complex today. The dollar is knocking on JPY152. The Scandis and Antipodeans lead the advancers. The euro has
made little headway despite a much stronger than expected German industrial
output. Mainland China markets re-opened, and the dollar remains at the upper
end of the 2% band and above it against the offshore yuan. Most emerging market
currencies are softer, but the South African rand’s 0.5% gain stands out, which
some see as a gold play. The yellow metal reached a new record-high near $2354
today in

The March US employment data were stronger than expected and
lend support to the re-acceleration hypothesis and an extension of US
exceptionalism. In Q1 24, nonfarm payrolls rose by an average of 276k. It was
the strongest quarter in a year and compares with an average monthly job gain
of about 251k in 2023. The unemployment rate slipped as the household survey
jumped around 500k after falling in the previous two months. The workweek
increased, and the participation rate rose. Reasons to dismiss the employment
data are becoming thinner. The economy is still growing faster than what the
Fed regards as the long-term non-inflation pace (1.8%). The US two-year yield
rose 12 bp and approached the high for the year (4.75%), and the 10-year yield
set a new high (4.43%) and settled up 19 bp.

Overview: The
focus is squarely on the US employment report. At the risk of oversimplifying,
given the position adjustment in the past 48 hours, a solid report can see the
greenback recover, while a disappointing report will likely see it deepen the
correction of the rally that began with the February jobs report. The dollar
recovered in the North American afternoon yesterday and many observers
attributed it to the bevy of Fed comments. Yet, the interest rate market saw
little reaction. It seemed that it was the dramatic reversal in US equities
that helped dragged global shares down today, that forced US rates lower. 
Asia Pacific equities tumbled, led by more than 1% losses in Japan and South
Korea. Europe’s Stoxx 600 is off around 1.2%, and if sustained, could be its
biggest loss so far

Overview: The softer-than-expected ISM services report caught the market leaning the wrong way. Although interest rates had a muted reaction, the dollar was sold. In fact, the Dollar Index saw its second-biggest loss of the year, falling by about 0.50%. ISM services prices paid increases moderated to their slowest since March 2020. Supplier deliveries improved to their best since 2009, suggesting a supply chain improvement. Still, the Fed funds futures shaved the odds of a June hike to about 61% from 66%, but the market feels more comfortable about a July cut, which once again is fully discounted. No fewer than seven Fed officials speak today, but the general message is the same. The official confidence is not yet sufficient for a near-term rate cut.  Still, the position adjusting

Overview: The adjustment to US interest rates
continues and this helps underpin the US dollar. The 10-year yield rose to
4.40% yesterday, the highest it has been since last November. It is trading
4.34%-4.38% today. The two-year yield is firm though holding below the Q1 high
set last month near 4.75%. This week, for the first time since last October,
the Fed funds futures do not have at least a quarter point cut discounted for
July. As recently as February 12, the market had two cuts discounted. The
dollar is firmer against all the G10 currencies today. Emerging market currencies are mixed. A rise in
Turkish inflation is spurring speculation of another rate hike and this is
helping underpin the lira today. The Hungarian forint is firm. Including today,
it has risen in seven of the last

Overview:  The market put more weight on the rise in
the US ISM manufacturing survey than the downward revision to the manufacturing
PMI and the unexpected back-to-back decline in construction spending. US rates
shot up and lifted the greenback. The Dollar Index made a new high for the
year, a little above 105, which had been anticipated by the new lows recorded
by the Bannockburn
World Currency Index (a GDP-weighted basket of the currencies of the
12 largest economies) last week. The two-year Treasury yield surged almost 9
basis points to settle above 4.7%, its highest in two weeks. It is slightly
lower now. 10-year yield jumped 11 basis points, the most since January CPI was
reported on February 13. It is slightly firmer today to approach the Q1 24 high
(on March 18) near 4.35%. The

Overview: The dollar is trading quietly against the G10
currencies as European markets remain on holiday. Narrow ranges have prevailed.
The dollar-bloc currencies are leading with minor gains, perhaps helped on the
margins by better-than-expected Chinese PMI, but the Scandis, which also
typically do well amid a better global growth profile are the laggards. This
may speak to the light liquidity conditions. Japan may have missed a tactical
opportunity to intervene to knock the dollar back ahead of what may be a solid
US jobs report at the end of the week. Erdogan’s AK Party lost the weekend
elections. The opposition CHP won 35 mayorships against 24 for the AKP. The
early signals are that Erdogan will stick with the turn toward economic
orthodoxy and in the current context that means tight

The macroeconomic and
geopolitical developments have not changed substantially over the past month. The
resilience of the US economy allows the Federal Reserve to put more emphasis on
achieving price stability. While the market favors a June cut (66% vs. 80% at the end of February), it has
not been fully discounted for over a month. The biggest event in March may have been the
well-telegraphed exit from negative interest rate policy and Yield Curve
Control by the Bank of Japan. Yet, over the course of last month, Japan’s
two-year yield rose was virtually unchanged and the 10-year yield rose less than two basis points to 0.73%. For all practical purposes, the eurozone and UK
economies are stagnant, but the respective central banks also do not appear in
any hurry to begin easing monetary

Overview: Comments by Fed Governor Waller, urging
patience on rates and wanting more evidence that price pressures are moderating
has helped the greenback extend its recent gains. The yen is the notable
exception as the fear of intervention has restrained the dollar bulls. Poor
German data, including a sharp 1.9% drop in February retail sales, the fourth
consecutive monthly decline, underscored the euro’s negative divergence, and the
single currency was sold to new lows for the month below $1.0780. The
Antipodeans and Scandis are leading the G10 currencies lower with 0.6%-0.8%
losses. Emerging market currencies are mostly lower. The South Korean won, and
Taiwanese dollar are exceptions with miniscule gains. Equities in the Asia Pacific region are
mixed. Japan, South Korea, and Taiwan

Overview: The dollar neared JPY152, setting a new
34-year high. This appeared to spur a senior official meeting in Tokyo,
ostensibly to talk about the response. Previously, we suggested that Friday,
when most markets outside of Asia will be closed, could provide an interesting
opportunity for intervention. The implicit threat was enough to take the dollar
to JPY151.10 in the European morning. Most of the G10 currencies are softer
against the dollar but the yen. A dovish Riksbank had negligible impact on the
Swedish krona. It could be the second G10 central bank to cut rates, following
last week’s Swiss decision. It may move in May. Most emerging market currencies
are softer today. The South African rand is the strongest, up by about 0.3%
before the central bank announcement, which is

Overview: After surging at the last week, the dollar
consolidated yesterday and is continuing to do so today as slightly lower
levels. The Swiss franc is the only G10 currency unable to gain traction
against the greenback today. Still, the dollar’s pullback has barely met the
minimum retracement targets of the jump last Thursday and Friday. The PBOC
lower the dollar’s fix slightly, but the proverbial toothpaste is out of the
tube and officials are struggling to reestablish order. Against the offshore
yuan, the dollar remains outside of its 2% onshore band. The Hungarian forint
is the strongest of the emerging market currencies ahead of the central bank’s
rate decision, where a 75 bp cut is expected after the base rate was slashed by
100 bp last month. Asia Pacific equities rallied, led by

Overview: After surging at the end of last week, the
dollar is consolidating today. Stepped up verbal intervention by Japan’s
currency chief Kanda and a slightly weaker dollar fix by the PBOC seemed to
take the wind from the dollar sails. Except for the Swiss franc and Swedish
krona, the G10 currencies are showing a slightly firmer tone. Emerging market
currencies are mixed, with central European currencies leading the advancers.
The Taiwanese dollar drew support from last week’s unexpected rate hike but
most of the other Asia Pacific currencies traded with a heavier bias. With the exception of Australia
and India, the large bourses in Asia Pacific fell with the Nikkei losing almost
1.2%. Europe’s Stoxx 600 is a little softer and has a nine-week rally in tow. It
has only fallen in two

Last
week will be remembered for several things. First, the Bank of Japan lifted its
interest rate target for the first time in 17 years and formally ended its
Yield Curve Control and ceased buying ETFs. The yen sold off and the dollar
approach the 2022 and 2023 cap slightly below JPY152. Japanese officials have
used the language that has signaled heightened risk of intervention in the
past. Second, the Swiss National Bank became the first G10 central bank to cut
rates. Its low inflation and soft growth impulses provided a conducive
backdrop, and there may be some tactical advantage in cutting before others to
minimize the risk of the franc strengthening. Third, the PBOC relented and
allowed the dollar to rise above the CNY7.20 cap that has held it back this
year. The near-term risk may

Overview: The dollar’s post-FOMC sell-off has
been completely reversed and the greenback has reached new highs for the week
against most of the G10 currencies. Heightened intervention fears and softer US
yields has helped steady the yen, which near unchanged now, and is the best
performer. The Scandis and Antipodeans are the heaviest, off 0.65%-0.90%. For
the first time since last November, the US dollar has risen above CNY7.20 and
continued to rise toward CNY7.23. The dollar’s 0.4% gain is the most since
January 2. The South Korean won, Hungarian forint, and Russian ruble are all
off more than 1% today. Chinese and Hong Kong equities were hit
hard today. The Hang Seng fell nearly 2.2% and the mainland shares that trade
there were off 2.5%. The mainland CSI 300 fell 1%. Japan’s equities

Overview:  The Federal Reserve triggered a dollar
sell-off yesterday and follow-through selling was seen in Asia before
profit-taking emerged. That created a new dollar selling opportunity in early European
turnover. The FOMC revised up this year’s growth forecast, shaved the
unemployment projection, and while maintaining the PCE deflator forecast, and
the median dot remained for three cuts this year. The soft-landing scenario was
underscored and excited risk appetites. The G10 currencies are mixed ahead of
the North American open. The Swiss franc is the weakest after the Swiss
National Bank became the first G10 central bank to cut rates. A strong
employment report lifted the Australian dollar, which is the best G10 performer
today. Emerging market currencies are mixed with central

Overview: The US dollar remains bid ahead of the outcome of today’s
FOMC meeting. No change in policy is expected, but the forward guidance, partly
delivered in the updated projections, is the focus. In the last iteration
(December), the Fed "dot" was for three rate cuts this year. Japanese
markets were closed for a national holiday today but dollar’s gains against the
yen have been extended and the greenback is nearing the peak seen in the last
two years slightly ahead of JPY152. The dollar is broadly higher but is holding
below yesterday’s best levels against the other G10 currencies. Emerging market
currencies are mostly lower. The South Korean won slightly firmer and may have
bene helped by flows in the South Korean stock market amid reports Nvidia is
looking at buying Samsung’s

The US dollar is surging today against most of the G10 currencies, and although the intraday momentum is stretched ahead of start of the North American session, there may be little incentive to resist before the end of the FOMC meeting tomorrow.

Overview: The US dollar is trading with a mostly
softer bias against the G10 currencies. The notable exceptions are the Japanese
yen and Swiss franc. Ironically, speculation of a Bank of Japan rate hike
appears to have increased, while there is a risk that the Swiss National Bank
cuts rates this week. The Norwegian krone is the strongest of the major
currencies. The central bank meets later this week but is widely expected to
stand pat. The continued rise in oil prices may be buoying it. Most emerging
market currencies are softer. The MSCI Asia Pacific Index
snapped a seven-week advance last week but rebounded today. The Nikkei rallied
nearly 2.2%, its biggest rally in a month. Better industrial production data
from China may have helped the CSI 300 rally nearly 1%. Taiwan’s Taiex also

There has been a dramatic adjustment to US rates. The
two-year yield was near 4.40% before the US employment report on March 8 and it
reached near 4.73% before the weekend. The 25 bp surge is the largest weekly increase
since last May. For the first time in four months, the Fed funds futures strip
is no longer has at least three rate cuts discounted. The interest rate
adjustment underpinned the dollar, which rose against all the G10 currencies
last week.  Like
the US two-year yield, the 10-year yield also rose every day last week, and its 23 bp increase was the most since the last October. The Dollar Index’s 0.70% gain was the largest rise in eight weeks, and ended a three-week decline. Rising rates helped lift the greenback almost 1.4% against the Japanese yen, despite heightened

At the end of last week, the derivatives market was again pricing in nearly four Fed cuts this year, but this week’s data have seen expectations re-converge with the Fed’s three rate cuts signaled in December, while cutting the odds of June hike to the lowest in the more than four months.

Overview: We have put emphasis on today’s US retail sales report. A recovery from the weather-induced weakness in January should underscore the resilience of US demand after another 200k jobs were created and personal income jumped 1%.

Overview: We came into this week expecting the dollar to rise on the back of a recovery in rates. The two-year note has risen from 4.40% after the jobs report to 4.60%. The dollar’s rise has
been less impressive.

Overview: The US CPI has become one of the most important high-frequency economic reports for the capital markets. The dollar is going into the report narrowly mixed against the G10 currencies. Comments by BOJ Governor Ueda about the weakness in consumption of non-durable goods was seen by some as reducing the likelihood of a change in policy next week.

Overview: News that the Japanese economy expanded rather than contracted in Q4 23 has fanned expectations that rates could be as early as next week. This is helping keep the yen supported, though it remains in the pre-weekend range, albeit barely.

When everything was said and done last week, the market did not change its mind. There was still a better than 90% chance that the Federal Reserve delivers its first rate cut in June. Fed Chair Powell told Congress that the central bank was not far from the level of confidence needed
to cut rates.

(Business trip will interrupt the commentary over the next few days.  Check out the March monthly here.  Back with the Week Ahead on March 9. May have some comments on X @marcmakingsense.) Overview: Outside of the Australian and New Zealand
dollars, which are off by 0.20%-0.25%, the other G10 currencies are little
changed and mostly softer in narrow ranges. A firm Tokyo CPI, mostly on base
effects and softer rates helped keep the US dollar below the recent highs
against the Japanese yen. Most emerging market currencies are lower, led by the
Malaysian ringgit. Meanwhile, the Hungarian forint is stabilizing after
extending losses to new record levels against the euro. The new news among US
data today is the ISM services. It is expected to have softened, but
disappointment could weigh on US

Overview: The dollar is narrowly mixed against the G10 currencies to begin the week that features a Bank of Canada and ECB meetings, US jobs data, Federal Reserve Chair Powell’s two-day testimony before Congress, and US President Biden’s State of the Union address.

Rarely are officials able to achieve the proverbial economic soft-landing when higher interest rates help cool price pressures without triggering a significant rise in unemployment or a contraction.

Overview: The US dollar is mixed today. The dollar-bloc currencies and the Scandis are enjoying a slightly firmer tone, while the euro and sterling are edging higher in European turnover.

The dollar is mixed as the market awaits the US personal consumption expenditure deflator, which is the measure of inflation the Fed targets. While there is headline risk, we argue that the signal has already been generated by the CPI and PPI releases.

Overview: A less hawkish Reserve Bank of New Zealand and a slightly softer than expected January CPI from Australia appears to have sparked a broad US dollar rally.

Most of the G10 currencies are trading quietly in narrow ranges today. After a slightly firmer than expected national CPI reading, which still moderated, and a pullback in US yields, the Japanese yen is the strongest of the major currencies.

Overview: The dollar is beginning the new week mixed. The
dollar-bloc currencies and Japanese yen are softer while the European
currencies enjoy a firmer today. Among emerging market currencies, central
European currencies are trading with higher. The Turkish lira is the notable
exception. It is the weakest currency today, off about 0.65%. The Chinese yuan
is a little softer, but the dollar continues to be capped near CNY7.20. Last
week, more often than not, the North American session saw the dollar trade higher,
and we suspect that pattern may continue today. The euro is setting session
highs as North American traders prepare to enter the fray and the intraday
momentum indicators are extended. China’s CSI 300 snapped a nine-day advance today, falling 1%. Japanese
Taiwanese, and

The US dollar and interest rates appear to be at an inflection point. Much of the past several weeks have been about correcting the overshoot that took place in  Q4 23, when the derivatives markets were pricing in nearly seven quarter-point rate cuts by the Federal Reserve this year.

Overview: Amid a light news stream,
the dollar is mostly in narrow ranges against the G10 currencies. Leaving aside
the Norwegian krone, the others in a +/- 0.15% against the dollar today. We
note that the technical tone of the euro and sterling have improved withe the
five-day moving averages crossing above the 20-day moving averages. On the
other hand, the dollar is approaching the year’s low set last week near
JPY150.90. Emerging market currencies are mostly lower, On the week, emerging
market currencies are mixed, though central European currencies are generally
fared best. Still, the JP Morgan Emerging Market Currency Index is likely to
finish the week lower. It has fallen every week so far this year. The
dramatic equity rally in the US yesterday helped lift most Asia Pacific

Overview: The
post-close rally in US tech stocks after Nvidia’s earnings has fueled risk-on
activity today. The Nikkei closed at record highs with a 2.2% rally. China’s
CSI rose for the eighth consecutive session as official discourage sales at the
open and close, and short sales in general. Europe’s Stoxx 600 is up more than
0.5% to recoup the small losses seen in the last two sessions. US indices are
poised to gap higher at the open. Benchmark 10-year yields are mostly1-2 bp
lower in Europe and the US Treasury yield is slightly lower near 4.30%.The dollar is heavier
across the board. The euro, sterling, and the Australian dollar reached their
best levels since the February 2 US employment report. The Canadian dollar and
Swiss franc are at the best level since the US CPI on February 13.

Overview: The dollar is trading quietly
after being sold yesterday. It is still soft against the dollar bloc and the
Swiss franc but is firmer against the other G10 currencies. Narrow ranges have
dominated. Emerging market currencies are mixed, with central European
currencies and the Taiwan dollar trading softer. The offshore Chinese yuan is
firmer for the sixth consecutive session. The highlights of today’s North
American session features minutes from last month’s FOMC meeting, a $16 bln
sale of 20-year Treasuries, and Nvidia’s earnings. Most large
equity markets in the Asia Pacific region fell but Hong Kong and China. The CSI
300 rallied four consecutive sessions before the Lunar New Year holiday and is
up in each of the three sessions since returning. Disappoint earnings are
weighing

Overview: The US dollar is offered today. It is
trading softer against all the G10 currencies, with the yen the notable
exception, and it is flat. The Antipodean are leading the way, taking out last
week’s highs, as has the euro. That said, the intraday momentum indicators are
stretched as NY dealers return from the long holiday weekend. The Scandis are
also trading above last week’s highs. The yen, sterling, Canadian dollar, and
Swiss franc are still inside last week’s ranges. Most emerging market
currencies are trading with a firmer bias today, as well, led by central
European currencies. The Chinese yuan is also slightly firmer after banks cut
the five-year loan prime rate by 25 bp. A handful of Asian currencies are
softer, including the Thai baht following the Prime Minister’s call

Overview: US markets are closed for President’s Day,
while China’s markets re-opened from the long Lunar New Year holiday. Mainland
stocks advanced, while the yuan slipped slightly. The US dollar is mostly
softer but in narrow ranges. The Antipodeans and yen lead, while the Swiss
franc the only G10 currency that is slightly softer. Most emerging market
currencies are lower, led by about a 0.5% loss of the South African rand. The
Mexican peso’s and South Korean won’s small gains are the exceptions. Stocks in the Asia Pacific
region were generally higher, led by China, but foreign inflows lifted South
Korea’s Kospi by 1.2%. Japan’s markets were mixed. Europe’s Stoxx 600 is
treading water. It advanced 1.4% last week, its fourth consecutive weekly gain.
US index futures are slightly firmer

The US January CPI and PPI came in stronger than expected and this extended the recovery in US interest rates. In turn that helped underpin the dollar. We do not think the data itself changes the Fed’s stance. At least seven Fed officials speaking in the coming days will test this hypothesis. There are still several key reports before the data dependent FOMC meets again in about four weeks.

Overview:  The US dollar is winding down this week on
a quiet note. Most of the G10 currencies are trading within yesterday’s ranges.
On the week, only the Scandis are set to close with gains, though with a little
effort, the Australian dollar could too. The Japanese yen and Swiss franc are
the laggards off 0.65%-0.75% this week. Most emerging market currencies outside of
central Europe are firmer. The South African rand is the strongest this week,
followed by four Latam currencies (though not the Brazilian real ~-0.4%, in its
Carnival-holiday shortened week). The Nikkei drew closer to its record high
with modest gain that brought this week’s advance to 4.4%. Mainland shares that
trade in HK rose 2.7% today amid reports of heavy travel during the Lunar New
Year holiday, which encouraged

Overview: There has been a string of disappointing economic news today. Japan’s economy surprisingly contracted in Q4 23 and the Q3 contraction was a little deeper than initially estimates. Australia’s jobs growth was weaker than expected and unemployment rose to 4.1%, matching the highest since November 2021.

Overview: The market’s reaction to the firmer than expected
January CPI seems exaggerated. We do not think it was the game-changer for the
Federal Reserve that the market seemed to think. The dollar was driven higher,
and it is stabilizing today, though the euro and sterling extended their
losses, most of the other G10 currencies did not. After the yen’s six-week
slide did not elicit a response from Japanese officials, yesterday’s drop did,
and this may have helped steady the exchange rate today. However, the dollar’s
advance against the yen does not seem over. Emerging market currencies are
mostly heavier. The Mexican peso, which was the worst performer yesterday is
the best today with a minor gain of about 0.20%. After the sharp US
equity losses yesterday, Asia Pacific markets followed

Overview: The US dollar is enjoying a mostly firmer bias ahead
of today’s CPI report. Sterling is the strongest among the G10 currencies after
a more resilient than expected labor market report. The dollar extended its
gains against the Japanese yen to a new high since last November, but the
market seems cautious as it approaches JPY150, where large options expire today.
On the other hand, emerging market currencies are mostly faring better. The
Mexican peso and Polish zloty of notable exceptions and are nursing minor
losses. The Nikkei set new 30-year+ highs and at one point rose 3% today, the most
since November 2022 before settling up nearly 2.9%. It is about 2.5% away from a record
high. Most markets in the Asia Pacific region rose today, though Australia and
New Zealand were

Overview: The foreign exchange market is quiet. The
Lunar New Year holiday shut most Asian markets. That, coupled with the light
news in Europe, have served to keep the dollar in narrow ranges against the G10
currencies. The Swedish krona, Norwegian krone, and Japanese yen are posting
minor gains against the greenback. The New Zealand dollar, which was strongest
major currency last week (1.4%) is off by almost 0.5% today, making it the
weakest today. RBNZ Governor Orr underscored the recent message that inflation
is still too high (~4.7%). Emerging market currencies are narrowly mixed
(+/-0.2%). Of note, India reports December industrial production and January
CPI shortly.The few equity markets in the
Asia Pacific region that were not on holiday today, including Australia, India,
and New

The
markets are still correcting from the overshoot on rates and the dollar that
took place in late 2023. The first Fed rate cut has been pushed out of March
and odds of a May move have been pared to the lowest since last November. The
extent of this year’s cuts has been chopped to about 4.5 quarter-point move
(~112 bp) from more than six a month ago. The market has reduced the extent
of ECB cuts to about 114 bp (from 160 bp at the end of January and 190 in late
2023). The Bank of England is now expected to cut rates three times this year
(75 bp), which is nearly 100 bp less than was discounted at the end of last year. The extent
of Bank of Canada rate cuts this year has been halved to less than 80 bp from
160 bp in late December 2023. We suspect that the interest rate adjustment is

Overview: The foreign exchange market is
becalmed today, with most of the major pairs trading in narrow ranges. The
economic calendar is light and the North American session features benchmark
revisions in US CPI and Canada’s January employment figures. The US quarterly
refunding supply has been absorbed without much fanfare. The dollar-bloc
currencies and the Norwegian krone are firmer today. A bank forecast that the
central bank will hike rates later this month is lifting the New Zealand dollar
to new highs for the week near $0.6150. Emerging market currencies are narrowly
mixed today. Most of the freely accessible emerging market currencies are
lower, including the South African rand, Hungarian forint, and Turkish
lira. Japanese equities were mixed, and the Hang
Seng slipped in the

Overview: The dollar is narrowly mixed against most
of the G10 currencies as it continues to consolidate its recent gains. The yen is the notable exception, and
it was sold today, not in response to developments in the US Treasury market, a
frequent driver, but in response to comments by a deputy governor of the central bank,
suggesting a rate adjustment would not necessarily signal the start of a
tightening cycle, which some economists expected. Emerging market currencies
are also mostly narrowly mixed. Central European currencies are firmer, even
the Czech koruna, ahead of what is expected to be the second cut in the cycle
that began in December. More deflation readings from China did the yuan no
favors, but the yen’s weakness may have weighed on it, ahead of the long
holiday

Overview:  The dollar is trading with a
slightly heavier bias as some of its recent gains are pared. Sterling has moved
back into the $1.26-$1.28 trading range that dominated since the middle of last
December until the start of this week. The euro is also trading a little firmer
despite another large drop in German industrial output (-1.6%). The Japanese
yen, Swiss franc, and Norwegian krone are the notable exceptions with a softer profile.
Emerging market currencies are mostly firmer. Yet, the lower yielding
currencies G10 currencies are trading softer, among emerging market currencies
today, the high yielding ones are trading lower. These include the Turkish
lira, South African rand, and the Hungarian forint.Asia Pacific equities mostly
advanced, led by South Korea’s Kospi, which itself

Overview: The US dollar is consolidating its the
two-day surge since the jobs data at the end of last week. The Reserve Bank of
Australia did not rule out additional rate hikes, and although the derivatives
markets do not think it is likely, the Australian dollar is the best performer
in the G10 today with a small gain. An unexpectedly strong German factory
orders report failed to help the euro much and it languished near yesterday’s
low. Sterling finally broke out of its $1.26-$1.28 range and is also moving
sideways in a roughly $1.2530-65 range. Signs that Chinese officials are stepping
up their support for the equities saw the CSI 300 jump around 3. 5% and the
Hang Seng surged by a little more than 4%. Among the large markets, Japan,
South Korea, and Australia fell. Europe Stoxx 600 is

Overview: The US dollar and interest rates have continued to
rise after the strong employment report before the weekend helped drive home the
Fed’s message at last week’s FOMC meeting. The greenback has been bid to new
highs for the year against the G10 currencies but the Canadian dollar. The
dollar also rose to a marginal new high for the year against the Chinese yuan. Interest
rates are jumping, and the market has downgraded the chances of a May Fed cut
to about 75% from slightly more than 90% before the weekend. Before the
employment data, the Fed funds futures had almost 34 bp of cuts discounted by
the end of May and now 19 bp. The US two-year yield was at 4.13% last Thursday
and is now 4.44%. The 10-year yield is up six basis points today to bring its
three-day advance to more than

The US employment data blew away expectations, jumping by 353k,
nearly twice the median forecasts. That, coupled with the 0.6% rise in average
hourly earnings, which was also twice expectations, helped drive home the
Federal Reserve’s reluctance to endorse what had been market speculation of a
March rate cut and an aggressive rate cutting sequence. The dollar had softened
as US rates eased following the FOMC meeting and new strains among regional
banks (and some foreign banks with exposure to the US property market), but the
jobs data turned things around. US rates rose sharply, and the greenback
rebounded. US regional bank shares stabilized. 

The week ahead
is bound to be quieter. The economic highlight is the final January PMI, which
is rarely a market mover. The Reserve Bank of

Overview: The dollar is offered ahead of today’s US
jobs report, even though expectations are for solid if not spectacular jobs
growth of around 185k. The Australian and New Zealand dollars are leading
today’s move, while the euro approached $1.09, which it has not traded above
this week. Sterling neared the lower end of its $1.26-$1.28 trading range
yesterday and set a new high for the week today, slightly above $1.2770. Emerging
market currencies are mostly firmer as well, with the Turkish lira, South
African rand, and a couple central European currencies bucking the move. Gold is consolidating in a
narrow range above $2052 after approaching a one-month high near $2065
yesterday. March WTI fell by a little more than 5% of the past two sessions and
has stabilized today after slipping to

Overview:  Federal Reserve Chair push against
speculation of a March rate cut as explicitly as could be imagined at
yesterday’s press conference lifted the dollar, while weighing on stocks. US
regional banks sold off sharply yesterday, and challenges emanating from US
real estate adversely impacted a Japan’s Aozora Bank and Deutsche Bank
quadrupled its loss provisions for such exposure. The greenback remains bid. The
euro and Australian dollar have been sold through January’s lows. The yen the
best performer among the G10 currencies despite the firmer yields. The US two-
and 10-year yields are up about three basis points to about 4.24% and 3.95%
respectively. European benchmark yields are
mostly 4-6 bp higher today. A dovish message from Sweden’s Riksbank has limited
the rise in the

Overview: Ahead of the US Treasury’s quarterly
refunding announcement and the outcome of the FOMC meeting, the dollar is
trading higher against all the G10 currencies. With US high-flying tech stocks
posting steep losses after disappointing earnings reports, the currencies most
sensitive to risk-appetites, the dollar bloc and the Norwegian krone are the
weakest. Emerging market currencies are mixed. The South African rand,
Philippine peso, and Hungarian forint lead the advancers. The Czech koruna,
Taiwanese dollar, and South Korean won are the laggards, off around 0.4%-0.5%. The Nikkei recovered from
initial gap-lower losses and closed about 0.6% higher. However, Hong Kong and
mainland shares tumbled by more than 1%. Taiwan was off 0.8% and South Korea
slipped by less than 0.1%. Europe’s

Overview: The US dollar is mixed ahead of the start
of the FOMC meeting and is mostly in its recent ranges. The euro, which was
sold below $1.08 yesterday for the first time since mid-December is holding
above it today. The less-than-expected projection of US Treasury borrowing
requirements for Q1 and Q2 weighed on US rates, which, in turn, dragged the
greenback lower against the yen. It is trading near a four-day low, a
little above JPY147.00. The rally in US equities threatened to push the dollar
below CAD1.34, a two-week low. The dollar trading with a softer bias against
most emerging market currencies today, including the Hungarian forint, where
the central bank is expected to cut the base rate by 75-100 bp today (fourth
cut in the cycle). A new security law in Hong Kong
helped

Overview: Key developments today include the Hong
Kong court ordered liquidation of China’s Evergrande and the reversal of oil
prices after a sharp rally initially in Asia after separate attack in the
Middle East that killed US troops in Jordan and struck a Russian oil tank in
the Red Sea. March WTI, which settled near $78 ahead of the weekend, its best
level since the end of last November, rallied to about $79.30 before returning
to almost $77.50 and is now a little above $78. China’s CSI 300 rallied about
2% last week on the back of the cut in reserve requirements and other efforts
to support the equity market. It gave back nearly half of last week’s gains
today, even though the other large regional markets rose. Europe’s Stoxx 600 is
in a narrow range near the pre-weekend high, which

The coming weeks will
likely continue the correction of the trends that began last month. The markets
recognize that tightening cycle is over. However, they swung hard, pricing in
aggressive easing by most of the G10 central banks, including the Federal
Reserve and the European Central Bank. Official comments and some
high-frequency economic data have encouraged participants to rein in their
expectations, reducing the odds of a rate cuts in Q1 and paring back the extent
of the cuts this year. The pendulum of market expectations reached an extreme. In
the first part of January, pricing of the Fed funds futures strip implied a
rate cut at each of the remaining seven FOMC meetings. While this is possible,
it is not the most likely scenario, especially given what we know about the
national

Overview:  The US dollar is trading lower against most
currencies, but the intraday momentum indicators are stretched, suggesting the
selling pressure may not be sustained through in North America today. December
US personal income and consumption data was contained in yesterday’s Q4 23 GDP
data, but the market want to see the monthly print, which is expected to see
the core measure ease with the headline rate flat. Tokyo’s January CPI was much
softer than expected, falling to 1.6% at the headline and core rates. Still,
the market loos for the BOJ to exit its negative interest rate policy in April.Chinese stocks, which rallied almost 4% in the past
three sessions, helped by formal and informal official action, eased today with
the CSI 300 slipping around 0.3%. Disappointing Intel earnings

Overview: The US dollar is trading mostly quietly in narrow ranges
against the G10 currencies ahead of the ECB’s President Lagarde’s press
conference at the conclusion of the policy meeting and the first estimate of Q4
US GDP. With elevated price pressures, Norway’s central bank left rates steady
and reiterated its signal that rates will remain high for some time, and this
has lifted the krone by about 0.5% to leader the major currencies. Most of the
emerging market currencies are a little firmer, but not the Mexican peso or
Chinese yuan, which are a little softer today. The Turkish lira is also
slightly heavier ahead of its central bank’s decision, which is expected to be
a small rate hike. Chinese equities extended yesterday’s recovery as officials
use formal and informal mechanisms to

Overview: After a strong showing yesterday, the
dollar was sold in Asia and Europe. China announced a cut in reserve
requirements and took more informal action to support the stock market, which
encouraged risk-taking. Yet, the dollar’s decline has stretched intraday
momentum indicators, which may provide early operators in North America a new
dollar buying opportunity. The ECB and Norway’s central banks meet tomorrow,
and the US reports its first estimate of Q4 23 GDP. Led by a more than 4% rally in index of
mainland shares that trade in Hong Kong, but of the Asia Pacific equity markets
advanced today, with Japan and South Korea the notable exceptions. Europe’s
Stoxx 600 is up more than 0.8%, which, if sustained, would be the
second-largest advance of the year. US index futures are also

Overview:  The dollar remains largely confined
to its recent ranges as the consolidative phase extends. The Bank of Japan
stood pat and revised its forecasts as it is seen drawing closer another
adjustment in policy, with the market still favoring an April timeframe. A
squeeze in the Hong Kong money market and talk of a large package to support
the equity market helped lift the Chinese yuan for the third consecutive
session and lifted Chinese stocks. Most emerging market currencies, led by the
Mexican peso again, softer today. A handful of Asian currencies and the South
African rand are resisting the firmer greenback. Although Japanese stocks saw some
profit-taking, the other large markets in the region rose helped by China and
the rally in the US yesterday that saw new S&P 500 and Nasdaq

Overview: The foreign exchange market is quiet to
start the new week. As the North American session is about to begin, the dollar
is mostly +/- 0.10% against most of the G10 currencies. The Swedish krona is
the notable exception, rising about 0.25% against the US dollar amid good
demand for its bonds today. Emerging market currencies are mostly lower. The
Taiwanese dollar is the strongest in the complex so far today, rising about
0.30% against the dollar, despite a dramatic 16% drop December export orders. The
two trend moves among Asia Pacific equities continued. Japanese indices made
new 30-year highs, while Chinese stocks on the mainland and Hong Kong continued
to be pummeled. Europe’s Stoxx 600 is up about 0.4%, while US index futures are
extending their gains that carried the S&P 500

The week ahead features the first estimate of US Q4 GDP, which will be
revised for the next couple of years, and policy meetings by the Bank of Japan,
the European Central Bank, the Bank of Canada, and Norges Bank, Norway’s
central bank. Although the market anticipates the beginning of an aggressive
easing cycle by several central banks, and an exit of the BOJ’s negative
interest rate policy, the start is not expected until later in the first half. Obviously,
this is an unusual business cycle, and while US growth is expected to have
slowed, it may have still grown above what the Fed regards as the long-run pace
consistent with price stability. The preliminary University of Michigan’s
January survey showed rising consumer confidence and easing of one-year
inflation expectations. The flash

Overview: The dollar’s surge in the first part of
the week has given way to consolidation. The US dollar is sporting a softer
profile against most of the G10 currencies. The Dollar Index is threatening to
snap a three advance. Sterling is a notable exception following the weakest
retail sales report since 2021. Most emerging market currencies, including
China, Taiwan, and Mexico are slightly firmer. US President Biden is expected
to sign a bill today that avoids a partial government shutdown but only
extended the spending authorization until March 1 and March 8. The equity rally in North
America yesterday, which saw the NASDAQ 100 set a new record-high seemed to
help bourses in Asia Pacific today, led by a 2.6% jump in Taiwan. China’s
stocks were the main exception and reports suggest one

Overview: This week’s dollar surge is consolidating
today. Interest rates have steadied, but the adjustment, which involves pushing
the first rate from March toward June does not appear complete. This suggests
the dollar’s recovery from last November-December’s sell-off may not be
complete either. Today, though, it is a little firmer against all the G10
currencies but the Swiss franc. Most emerging market currencies are also
trading with a slightly higher bias, led by the South African rand, South
Korean won, and the Mexican peso. Gold has steadied too after approaching $2000
yesterday, a one-month low. It is hovering around $2010 in Europe. Chinese and Hong Kong stocks
traded higher, apparently helping to lift South Korea and Taiwan shares, but
most of the other large markets in the

Overview: The sharp dollar advance is stabilizing after
follow-through gains earlier today. A larger than expected rise in the UK’s
December CPI helped sterling recover from the push below $1.26, the lower end
of a one-month trading range. It is the only G10 currency that is firmer
against the dollar ahead of the North American session. ECB’s Lagarde pushed
back against the early rate cut speculation and this may have stemmed the
euro’s losses. The greenback approached JPY148 and remains near there now. Taiwan,
South Korea, and Mexico lead emerging market currencies lower. Equity market losses are accelerating. In the sea of
red in the Asia Pacific region, HK stood out was a 3.7% drop and the CSI 300
was off 2.2%. Europe’s Stoxx 600 is lower for the third consecutive session,
and its 1.2%

Overview: The US dollar is bid across the board and posting its best session of the month. It is up between about 0.5% (Canadian dollar) to almost 1.0% (Australian dollar) among the G10 currencies. Among the emerging market currencies, only the Russian ruble is holding its own.

Given the world’s turmoil, including the escalation, and
broadening of the conflict in the Middle East and China’s continued aerial
harassment of Taiwan ahead of the election, the capital and commodity markets
have remained firm. February WTI fell about 1.7% last week and March Brent
slipped around 0.65%. Shipping costs are rising as the Rea Sea is avoided
and supply chain disruptions are threatened. Still the MSCI index of developed
equity market rose by nearly 1.8% last week after posting snapping a nine-week
advance the previous week. The MSCI emerging market equity index is off about
3% to start the year. China alone accounts for about half of the losses. Neither the
slightly firmer than expected US December CPI, that included a 0.4% rise in the
core measure excluding housing, which

Overview:  The mostly consolidative week for the US dollar
continues. Most for the G10 currencies are +/- about 0.25% today and only a
slightly wider range for the week. The odds of a Fed rate cut in March is
virtually unchanged on the week at around 75%. The JP Morgan Emerging Market
Currency Index is practically flat on the day and week. The Russian ruble and
Mexican peso lead today’s advancers, while eastern and central European
currencies are laggards. The Chinese yuan is flat despite moderating deflation
and a larger trade surplus. Lending figures disappointed. The PBOC is likely to
cut its one-year benchmark rate at the start of next week. The US and UK strike on the Houthi in Yemen has helped lift oil and gold
prices, but otherwise the impact on the markets is minimal. Outside of

Overview: Stocks and bonds are
trading higher, and the dollar is narrowly mixed ahead of the December US CPI
report. Most of the large bourses in Asia Pacific advanced, led by Japan to new
30-year-plus highs. Hong Kong’s Hang Seng snapped seven-day slide to post its
first gain of 2024. Europe’s Stoxx 600 is up about 0.33%, to recoup most of its
losses in the past two sessions. US index futures enjoy a modest upside bias.
Benchmark 10-year yields in Europe are off 3-6 bp, with the peripheral premiums
narrowing slightly. The 10-year US Treasury yield is off four basis points to
slightly below 3.99%. The yield has remained in the range set after last
Friday’s jobs report and soft ISM services (~3.95%-4.10%). The futures market
has about a 70% chance of that the first Fed cut is delivered in

Overview: The broad consolidation in the dollar after the
gyrations at the end of last week continues, and within it the greenback is a
bit softer today. Among the G10 currencies, only the yen is failing to post
gains. Most emerging market currencies, led by central Europe, are also firmer
today. A notable exception is a handful of Asian currencies, include the South
Korean won, Taiwanese dollar, and the Philippine peso. The market’s focus is on
tomorrow’s US CPI. Meanwhile, the US 10-year yield is lower for the third
consecutive session and is below the 4% threshold ahead of today’s Treasury
auction. European benchmark 10-year yields are also 2-4 bp lower. Despite a
weak reception to its 10-year bond sales, the disappointing wage growth in
Japan helped restrain yields and the 10-year JGB

Overview: The dollar continues to consolidate
broadly after the dramatic price swings at the end of last week. For the most
part, the greenback remains inside yesterday’s ranges, which were inside last
Friday’s. The G10 currencies are a little heavier today, except the Japanese
yen and Norwegian krone, which are posting small gains. Indeed, the greenback is near session highs against most of the major currencies as we go to print. Emerging market
currencies are more mixed. Central European currencies and the Philippine peso
are modestly lower, while the South African rand and Mexican peso join the Thai
baht and Malaysian ringgit to advance. Gold is recovering from yesterday’s
slide to about $2017, the lowest level since December 18. It is approaching
$2040. European benchmark 10-year

Overview: After dramatic intraday price swings after
the US jobs data and service ISM figures before the weekend, the dollar is
consolidating today in mostly narrow ranges. The prospect for a March cut by
the Federal Reserve finished last Friday virtually unchanged (73% vs 70%) and
is about 66% chance today. There was interest in Dallas Fed’s Logan’s
suggestion that the tapering of QT be discussed, though it seems to simply
confirm what many has suspected as the use of the reverse repo facility
diminishes. We suggested it
could wind down by the middle of the year. Also, over the weekend, a tentative
deal to re-authorize the federal government spending to avoid a partial
government shutdown beginning January 19 was struck but it is not clear that
the congressional votes are there.

The terribly mixed US jobs report spurred
dramatic intraday swings in exchange and US interest rates. But at the close,
the dollar was little changed against most major currencies, and expectations
for Fed policy was nearly unchanged. The futures market has about a 70% chance
of a cut at the March meeting. The Dollar Index was off by less than 0.1%. Job
growth held up better than expected in December, the unemployment rate held
steady, and average wages rose slightly more than expected. However, there were
again downward revisions to past job growth (-71k), the participation rate fell
to 62.5% (from 62.8%), and the work week slipped (34.3 hours from 34.4 hours).
There is little doubt that the labor market is slowing. Job growth in Q4 23
averaged 165k, the lowest since the post-Covid

Overview: The dollar is bid going into the December
jobs report. After selling off into the end of last year, it has recovered this
week. The five-day moving average is crossing the 20-day moving average against
several of the currency pairs, capturing the shift in momentum. The greenback’s
gains have as interest rates have jumped. The 10-year Treasury yield finished
last year near 3.88% and is now near 4.04%. European benchmark rates have
mostly risen 15-20 bp this week, though the 10-year Gilt yield is up almost 28
bp. The market has downgraded the odds of a March cut by the Federal Reserve to
around 68% from 100% at the end of 2023. Stocks have been hit by profit-taking to
start this year. China’s CSI 300 and Hang Seng have fallen every day this week
for about a 3% drop. Europe’s Stoxx

Overview: After gaining for the past couple of
sessions to open the New Year, the dollar is mostly softer today. The yen is
the main exception. The greenback was bid above the JPY144 area where
chunky options expire today. Most emerging market currencies are also firmer
though there are a few exceptions in Asia, like the South Korean won and Thai
baht. Still, the general tone is consolidative ahead of tomorrow US jobs data
and the eurozone’s CPI. Equities, which began the year on profit-taking, are
stabilizing today, though it was not so apparent in Asia Pacific, were most of
the large bourses fell, led by China’s CSI 300 (~-0.95%). Europe’s Stoxx 600 is
up about 0.35% after falling nearly 1% in the past two sessions. US index
futures are posting minor gains. The bond market stands out

Overview: The dollar is firm. Rates are mostly
higher and equities lower. The moves scored in the holiday-thin markets are at
end of last year are being unwound. This does not appear complete yet. Geopolitical tensions remain high but do
not seem to be having a direct market influence as both gold and oil are
trading lower. Among the G10 currencies, sterling has been the most resilient
today but nearly flat. Within the emerging market complex, the Hungarian forint
and Philippine peso are bucking the trend that has seen most of the emerging
market currencies ease. Gold is down for the fourth consecutive session, which
if sustained, would be the longest losing streak in more than two months. February
WTI’s dramatic downside reversal yesterday (from nearly $73.65 to $70.05) saw

Overview: The US dollar begins the new year on a
firm note. It is recovering against nearly all the G10 and emerging market
currencies today after depreciating in the holiday-thin markets over the past
couple of weeks. Japanese markets are on holiday until Thursday. The yen and
Swiss franc are the poorest performers among the G10 currencies. Among emerging
market currencies, the Mexican peso, Hungarian forint, and South African rand
are bucking the trend to post minor gains against the greenback. The Chinese
yuan is off by about 0.5% for its biggest loss in at least six months. Equities are mixed while bonds
have sold off. In Asia Pacific, Hong Kong and mainland Chinese equities tumbled
by 1.3%-1.5% to lead the regional decline, but Korea and Australia, and a
handful of other smaller

The
only thing that can be said with high confidence about the year ahead is that it
will be different from 2023. Three broad forces will shape the business and
investment climate in the year ahead.First, the post-Covid
tightening cycle in the high-income countries, leaving aside Japan, has ended.
The question is when and how fast rate cuts will be delivered. Moderating price
pressures and weaker growth impulses have seen the pendulum of market sentiment
swing dramatically from the "higher for longer" mantra of most of
last year to pricing in aggressive easing the Federal Reserve and European
Central Bank. Several central banks from emerging markets, especially in Latam
and central Europe, have already begun cutting rates.The Federal Reserve’s
balance sheet shrank to a little less than

Commentary will resume with a 2024 outlook on December 29. Overview: The dollar is trading with a firmer bias today ahead of the outcome of the FOMC meeting. Standing pat for two
meetings was framed as a pause, but given the decline in price pressures, being
unchanged for a third meeting is understood as the end of the historically
aggressive tightening cycle. Fed Chair Powell is expected to express greater confidence
that policy is sufficiently restrictive to bring inflation back to target. Trading
after the FOMC meetings has been treacherous, with the markets often reversing
initial moves. The rally in the S&P 500 to
its best level since April 2022 failed to boost Asia Pacific equities today. Among
the large markets, Japan, Australia, and Taiwan did manage to gain slightly.
Europe’s

Overview: The US dollar is trading softer against all the
G10 currencies ahead of what is expected to be a soft November CPI report,
which paves the way for a pivot by the FOMC tomorrow. It is expected to signal
that policy may be sufficiently restrictive and anticipate being able to cut
rates next year more than it thought in September, even if not as much as is
priced into the market. Among emerging market currencies, central European
currencies are leading the way higher on the back of the euro that has moved
above $1.08 in the European morning. The softer dollar and lower interest rates
are helping gold stabilize after falling to almost $1975 yesterday (peak last
week was a record ~$2135). European benchmark 10-year bond yields are
mostly 4-6 bp lower. A larger than expected

Overview: The busy week of central bank meetings is
off to a mostly slow start. The dollar is narrowly mixed in quiet turnover,
except against the Japanese yen. Many participants seemed to exaggerate the
risks of a BOJ move next week and dollar continued its recovery that began
ahead of the weekend. Among emerging market currencies, central European
currencies appear to be aided by the firmer euro. They are resisting the
dollar’s advance seen against most other emerging market currencies, including
the Chinese yuan, which is near three-week lows. Gold, too, is unwinding last
week’s gains and near $1992 is near a two-week low. It reached a record high
slightly above $2135.50 last week. Nearly all the large equity markets in the
Asia Pacific area advanced earlier today. Hong Kong, and

There were three outsized moves
last week. Gold had a $135 range on Monday, posted a key downside reversal, and
fell below $2000 at the end of the week after setting a record high slightly
above $2135. January WTI neared $80 on December 1 and traded below $69 on
December 7, its lowest level in five months. The seven-week slide matches the
longest since July/August 2015. Third, the dollar fell by a little more than 2.1% on December 7 against the Japanese yen as the market seemed to panic into concluding that the BOJ
would lift rates in a couple of weeks. The range that day was roughly JPY141.70
to JPY147.30. The greenback briefly traded below the 200-day moving average
for the first time in seven months. Given the softening inflation, the larger
contraction in Japan’s Q3 GDP, and weak

Overview: The US dollar is a little firmer ahead of
the November employment data. It is trading mostly inside yesterday’s range. It
is in a wide range against the Japanese yen (~JPY142.50-JPY144.50) even if not
as wide as yesterday (~JPY141.70-JPY147.30). The Canadian and Australian
dollars are the strongest among the G10 currencies, while the South Korean won,
and Taiwanese dollar are the best performers among the emerging market complex.
Gold, which also traded in an extremely wide range at the start of the week has
coiled back in a narrow range and is confined to about a $2026-$2034 range
today. It is off about 2% this week, which would snap a three-week advance. Oil has also steadied. After
falling below $68 a barrel, January WTI reached about $71.30 earlier today, but
is back near

Overview: The US dollar is mixed today. The dollar-bloc currencies are firmer, while the euro and yen are softer. We had anticipated a recovery of the dollar on ideas that the market has too aggressively pushed down US rates, and pricing in more Fed easing with higher confidence than seems to be warranted by the recent data.  However, US rates have not recovered, but the dollar has.  Partly, this reflects that rates have fallen as faster if not faster elsewhere, and especially in the eurozone after last week’s preliminary CPI.  Among emerging market currencies today, the Mexican peso’s 0.20% gain is leading a few currencies higher, but most have a softer tone. Equities are firmer across the board.  Nearly all the markets in the Asia Pacific region were higher, led by a 2% rally in the

Overview: Outside of the Australian dollar, which
has fallen by around 0.6% following the RBA meeting and the softer final PMI,
which may have dragged the New Zealand dollar a lower by around 0.25%, the
other G10 currencies trading little changed ahead of the start of the North
American session. The eurozone and UK final PMIs were revised higher. Central
European currencies lead the emerging market currencies. China reported better
than expected Caixin PMI and Moody’s cut China’s sovereign outlook to negative
from stable. The yuan is little changed. Gold is quieter after
yesterday’s wild day that saw $115 range (~$2020-$2135). It is in around a $18
dollar range today centered near $2032. January WTI is largely steady. It has
fallen by about 6.2% in the past three sessions. Among the

Overview: Weekend accounts seemed to try to
understand what Fed Chair Powell said by beginning with the large drop in US rates. Yet,
most accounts miss the fact that no matter what Powell has said, the market has more often than not reacted as if he were a dove. Rates have come back firmer today, perhaps as some
recognized the overshoot. The US two-year yield is up nearly seven basis points after
falling 14 before the weekend. The 10-year yield is almost six basis points
higher around 4.25%. The dollar’s losses were initially extended but it has
recovered. Ahead of the start of the North American session, the greenback is
firmer against all the G10 currencies, except the Japanese yen. Most of the
freely accessible emerging market currencies, are also softer. Gold has been on
a wild ride.

As the
year winds down, the global economy appears to be entering a new phase. While
North American and European central bankers swear that they are prepared to
respond to new threats to price stability, the markets demur. Indicative pricing in the derivatives
markets reflects the general conclusion that the central banks have most likely
completed the post-Covid monetary tightening cycle. Central bankers are pushing
against a premature easing of financial conditions. Last year’s sporadically large jumps in
monthly CPI measures have dropped out of the 12-month comparisons. Still,
inflation remains above targets but has slowed considerably. Japan remains the
notable exception. The Bank of Japan continues to inch its
way toward the exit of its extraordinary monetary policy. Previously,

Overview: The dollar traded better into month-end but is softer
today. The Scandis and dollar-bloc currencies are leading with around 0.2%-0.5%
gains. In addition to US manufacturing PMI and ISM surveys, and construction
spending, auto sales will trickle in, but key for market participants today
will likely be Fed Chair Powell’s comments and the extent that he pushes
against the dramatic rate cuts, with more than a 50% chance of the first cut by
the end of Q1 24 and two cuts nearly fully discounted by mid-2024. The JP
Morgan Emerging Market Currency Index is slightly firmer today to narrow this
week’s loss, its first in three weeks. Hong Kong and South Korea saw equity losses
of more than 1% today. Some reports suggested that state entities were buying
Chinese equities today. The CSI 300

Overview: After being bludgeoned, the dollar
is having one of its best days of the month. It is rising against all the major
currencies. The Dollar Index is up about 0.5%, which is the most since the end
of October. The greenback is also firmer against all the emerging market currencies
but the Turkish lira and Russian ruble. Some of the demand for the dollar may
be a function of month end, but also the disappointing Chinese PMI, revisions
that show the French economy contracted in Q3, and softer than expected
eurozone CPI are also consideration. After slipping below 4.25%, the US 10-year
yield has recovered and is near 4.29%. It has fallen for the past three
sessions by slightly more than 20 bp. European benchmark yields are narrowly
mixed, though the 10-year Gilt yield is up almost

Overview: On the back of lower interest rates, the greenback’s
slide was extended in early Asia Pacific turnover, but it has recovered. As
North American trading begins, the dollar is firmer against all the G10
currencies but the New Zealand dollar, which has been aided by the hawkish hold
of the central bank, and an immaterial gain in the Swiss franc. Emerging market
currencies are mixed. Central European currencies and the Mexican peso are
softer. The Chinese yuan reached its best level since June. The greenback’s
recover is seeing gold reverse after reaching a near high a little above $2050. Many of the large equity markets in the Asia Pacific region
fell, including Japan, Hong Kong, China, and South Korea. India’s 1% gain leads
the others. Europe’s Stoxx 600 is rising for the first

Overview: The US dollar is narrowly mixed against
the G10 currencies. The Canadian and Australian dollars lead the advancers,
while the Scandis are pacing the losers off 0.1%-0.2% in quiet turnover. Most
the freely accessible emerging market currencies are sporting softer profiles
today, the Chinese yuan is among them. However, most Asia Pacific currencies,
are firmer. Benchmark 10-year yields were softer in the Asia Pacific region in
mostly a catch-up to the eight-basis point decline in 10-year US Treasury yield
yesterday. The 10-year JGB yield of about 0.74% is 10 bp off its recent high. European
and US yields are firmer today and the peripheral premium in Europe is widening
today. The US Treasury raise $143 blin in bills yesterday and $109 bln in
coupons. Today it is back for $114 bln

Overview: The dollar is beginning the week on
a soft note, despite the modest backing up of yields over the last couple of
sessions and better than expected data, including Black Friday sales and the
preliminary November PMI. It is sporting minor losses against all the G10
currencies, but the Canadian dollar, which is the weakest of the major
currencies this quarter and month. The greenback is also lower against most
emerging market currencies, but the Turkish lira and Chinese yuan. Gold is extending
its two-week rally and reached $2018, its best level since mid-May. Ahead of
the delayed OPEC+ meeting, January WTI is heavy near $74 a barrel. Last week’s
low was near $73.80 and this month’s low was around $72.40. Global equities are weaker. Shadow
banking woes weighed on Chinese shares,

The dollar fell against all the
G10 currencies last week. The dollar-bloc currencies, sterling, and the Scandis  led the move, appreciating by about 0.55%-1.40% against the US dollar.  The dollar bloc and sterling recorded new highs for the month ahead of the weekend. Against
the others, the dollar spent most of last week consolidating after its recent
losses were extended at the start of the week. Still, our review of the
technical condition warns that the US dollar’s pullback appears to be entering
its final stages, with retracement targets being met and momentum indicators
stretched. In terms of high-frequency
economic data, there are a few highlights in the week ahead. The US CPI
suggests the November PCE deflator will slow after being stuck at 3.4% since
July. The eurozone’s

Price Action:
 Since the North American markets closed Wednesday, the foreign
exchange market has been subdued.  Most of the major currencies are
+/- 0.2%.  The Antipodeans and sterling have risen a bit more. 
The euro is in the middle of this week’s range (~$1.0850-$1.0965). 
The dollar is at the upper end of this week’s range against the Japanese
yen (~JPY147.15-JPY149.75).  Sterling is trading near the high for
the week set in Europe today near $1.2565.  Recall that the $1.2590
area is the (50%) retracement of the losses since the March high
(~$1.3140). The Australian dollar is firm but holding below the week’s
high (~$0.6590) and the 200-day moving average (~$0.6585).  The US
dollar settled on Wednesday slightly above CAD1.3685.

Overview: Corrective
forces helped the dollar stabilize yesterday and it enjoys a firmer today. The
euro has slipped below $1.09, and the dollar has resurfaced above JPY149.00. The
FOMC minutes seem dated by the more than 30 bp decline in the US 10-year yield,
the 7% rally in the S&P 500 and roughly 3% drop in the Dollar Index. The
implied year-end 2024 Fed funds rate has fallen by 10 bp to 4.51% (5.33%
currently). The Japanese government downgraded its economic outlook for the
first time in ten months. While the recovery is judged to still be intact, some
parts have "paused", it said. The dollar’s gains against the are the
most in a week. The greenback is also firmer against most emerging market currencies
too. Benchmark 10-year yields are little
changed, though Gilts are underperforming

Overview: The dollar remains offered and our ideas
about it stalling as central banks push against the timing and extent of the
easing the market is anticipating are being challenged. The Governor of the
Reserve Bank of Australia and the Bank of England both warned higher rates may
still be needed. Still, the momentum may be slowing. Meanwhile, the short squeeze continues to lift the Japanese
yen, which is trading at its best level in two months. The PBOC has slashed its
dollar reference rate and the yuan is near four-month highs after the greenback
gapped lower. Interest rates are lower. The 10-year bond
yields are mostly 2-4 bp softer in Europe, and despite the anticipated EC
deficit warnings, France’s premium over Germany is slightly less today and
peripheral premiums have narrowed a

Overview:  Last week’s dollar losses have been
extended today. The yen is leading the move, encouraged by talk of a buying by
a large US real money fund. The Dollar Index is off about 0.35% after sliding
1.8% last week. It is below the 200-day moving average for the first time since
late August. As was the case last week, the Canadian dollar is the laggard. Emerging
market currencies are also mostly higher. The Chinese yuan’s 0.67% rise is the
most since late July. Notably, the greenback’s losses today come despite
slightly firmer US rates. The 10-year yield is up almost three basis points to
4.46% and the two-year yield is up about couple of basis points to 4.90%. The Nikkei reversed lower after setting a
marginal new 33-year high. Hong Kong and mainland shares that trade there led
the

The combination of
soft US price data and mostly weaker economic data lends credence to a new
economic convergence. The economic news stream from Europe, Japan, and China is
not particular inspiring. Rather the convergence is driven by the materialism
of the long-anticipated slowdown of the world’s largest economy. This new
convergence is negative for the dollar. Our conservative working hypothesis
continues to be that the US dollar’s gains from the middle of July are being
retraced. While we suspect that more than just a technical correction is
unfolding, given the high degree of uncertainty and the uniqueness of the
post-Covid business cycle, prudence dictates taking it one step at a time. The near-term risk is that the market has gotten ahead
of itself. The US data are likely to

Overview: The Japanese yen is leading the
charge against the dollar today. Short covering in the Japanese bond market,
the decline in US rates, and some reports of real money saw the dollar tumble
to around JPY149.25 to approach the low for the month near JPY149.20. All the G10
currencies are firmer today, as are all but a few emerging market currencies. The
Dollar Index finished October near 106.55 and it has been finding support near
104.00 in recent days. A break targets the 103.00-50. Benchmark 10-year yields
are lower. In Europe, yields are mostly 7-8 bp lower. Disappointing UK retail
sales has pushed 10-year Gilt yields 10 bp lower. Italian bonds are
participating fully in rally even though Moody’s rating update is due later
today. The US 10-year yield is pushing below 4.40%. The

Overview: The dollar is consolidating its
recent moves as interest rate swings continue. The US two-year yield has traded
in a nearly 28 bp range in the first two sessions this week, and near 4.88%
now, it is 18 bp lower since last Friday’s close. The 10-year yield is slipping
below 4.50%. It reached almost 4.70% on Monday and had fallen to almost 4.40%
yesterday. Part of this reflects the shift in overnight rate expectations. The
implied yield of the December 2024 Fed funds futures has traded between almost
4.70% to 4.42% and is now about 4.49%. Separately, a continuing resolution into
early next year will prevent a partial US government shutdown tomorrow. The dollar bloc currencies are the poorest
performing G10 currencies today, while the dollar has steadied above JPY151.00.
European

Overview: The capital markets’ reaction to softer
than expected CPI was too much. The implied yield of the December 2024 Fed
funds futures fell by 25 bp as if the October’s CPI was worth a full
quarter-point rate cut next year. US two- and 1-year yields are around two
basis points higher today and the dollar is mixed, with the euro and sterling
under the most pressure. China’s data were uninspiring, and more stimulus is in
the pipeline. Japan’s Q3 GDP contraction was sharper than expected, while the
UK’s CPI slowed more than projected. Biden and Xi are to meet today with Biden
speaking to the press late in the North American afternoon. US retail sales are
expected to support ideas that the Q3 shopping spree is not sustainable. Global equities have rallied on
the US coattails. Most of the

Overview: The dollar is somewhat better offered
today ahead of the October CPI report. The US House of Representatives may hold
a vote today on a continuing resolution to avoid a partial government shutdown
at the end of the week. Narrow ranges have prevailed. Most emerging market currencies
are firmer, though paradoxically, the South Korean won is the weakest, despite
a strong equity market rally (~1.2%), encouraged by the first in increase in
memory-chip exports in 16 months in October. Most of the large bourses in
the Asia Pacific rose with the notable exception of Hong Kong and India. Europe’s
Stoxx 600 is extending yesterday’s recovery and the two-day advance is
recouping most of the 1% drop seen before last weekend. US index futures are
trading with a firmer bias. Benchmark 10-year

Overview: The dollar is beginning the new week
narrowly mixed against the G10 currencies. Sterling seems largely unaffected by
the cabinet reshuffle that has seen former Prime Minister Camron return as the
foreign minister, replacing Cleverly who replaces Home Secretary Braverman. The
dollar rose to new highs for the year against the Japanese yen (~JPY151.85). The
market has shown little reaction to the pre-weekend news that Moody’s cut the
outlook for US credit to negative from stable. The 10-year US yield is off
almost three basis points to 4.62%. European benchmark yields are off mostly 2-3 basis points, but Italy’s yield is down five basis points. Most equity markets in the Asia
Pacific region traded heavier despite the outsized gains on Wall Street ahead
of the weekend. The Hang Seng

The
recent dollar gyrations seem tightly linked to US rates. The FOMC meeting and
October jobs report saw the two-year Treasury yield drop 17 bp and the dollar
was taken broadly lower. Indeed, against several currency pairs, it approached
three standard deviations below its 20-day moving average. What seemed like a
mild adjustment to the over-extended technical development turned into a rout
after a weak reception to the US 30-year bond auction to finish the quarterly
refunding and comments for Fed Chair Powell that did not seem to go beyond his
remarks at the post-FOMC press conference, when many insisted he was dovish.
The two-year yield rose nearly 17 bp last week. Against several of the major
currencies, the dollar closed higher in the first four sessions last week
before slipping a

Overview:  A poor reception to the 30-year
Treasury sale and Federal Reserve Powell pledged to raise rates again, if
necessary, not exactly a new ground, but it spooked the doves–driving rates sharply higher and fueling a strong
dollar recovery. There was a large five basis point tail on the bond sale. The
eight-day rally in the S&P 500 and nine-day advance in the NASDAQ was
snapped like dry kindling. The S&P 500 comes into today down on the week.
The 10-year yield jumped 13 bp, almost back to the week’s high near 4.66%. The
two-year yield that was 4.80% after the jobs data pushed through 5.0%
yesterday. With a light economic agenda, yesterday’s North American
developments are setting the tone for today’s developments.The dollar is in narrow ranges,
holding on to most of yesterday’s

Overview: The dollar is mostly firmer against the
G10 currencies and has been confined to tight ranges through the European
morning. Outside of the China’s deflation and Japan’s monthly portfolio flow
data that showed Japanese investors bought the most amount of US Treasuries
(~$22 bln) in six months in September, the news stream is light. Most emerging
market currencies are trading with a softer bias today. The Philippine peso is
the strongest among the emerging market currencies after Q3 GDP rose nearly
twice as much as expected (3.3% quarter-over-quarter vs. 1.8% median forecast
in Bloomberg’s survey. Benchmark 10-year yields up mostly a
couple of basis points in Europe, while the 10-year US Treasury yield has
popped up by five basis points to 4.53%. The two-year Treasury yield is

Overview: After the making marginal new highs in
early North America yesterday, the dollar pulled back, arguable dragged lower
by the softness of US rates, helped by the sharp drop in oil prices and healthy
reception to the US three-year note auction. However, the greenback has
returned better bid today as the market continues to search for direction
post-FOMC and US jobs report. The euro and sterling are the weakest of the G10 currencies
through the European morning, in a day of light macro data. They are off
0.30%-0.40%. Most of the others are 0.1%-0.2% lower. The Russian ruble and
Philippine peso are only emerging market currencies that are holding their own
against the firm US dollar. Equities are softer. Nearly all
the large markets but Taiwan, Australia, and India, moved lower in

Overview: The dollar’s sell-off last week was
extreme and it recovered yesterday and through the European session today. The
Australian dollar has been hit the hardest. It is off more than 1% today after
the RBA lifted the cash rate by 25 bp (to 4.35%). Still, the US dollar’s gains
have stretched intraday momentum indicators, suggesting the upside correction
may be nearly over. The greenback’s moves appear to have been driven by
interest rate expectations. Recall that at the end of last week, the market was
pricing in three Fed cuts next year and a strong chance of a fourth hike. Yesterday,
the implied yield of the December 2024 Fed funds futures rose by 13 bp, which
essentially unwound the chances of a fourth cut next year. The implied yield is
four basis points lower today to 4.51%. The

Overview: The US dollar, which was sold last week
after the FOMC and soft employment report, remains on the defensive today. The
Antipodean currencies and yen are struggling, but the other G10 currencies are
firm. The dollar is also lower against most emerging market currencies. Still,
given the magnitude of the dollar’s pullback, we suspect some consolidation is
likely.Asia Pacific equities rallied,
helped by the sharp gains in the US before the weekend. Note that South Korea
is banned short sales and the Kospi rallied nearly 5.7% today. The Philippine’s
allowed short selling for the first time, and its main index rallied 1.5%.
Europe’s Stoxx 600 is treading water after rallying every day last week. US
futures indices are trading with a slightly firmer bias. After falling last
week,

An inflection point may have been reached last week. Despite,
Chair Powell’s insistence that the Fed did not adopt an easing bias and
confirmed that there is still no talk of a cut, the market knows better. The
implied yield of December 2024 Fed funds futures contract is about 4.45%, which
is to say, the market is discounting not only the two cuts in the Fed’s
September projections, but a third cut, and the risk again (~60%),
of a fourth cut. The first cut is now fully discounted by the end of Q2 24. The
disappointing employment report pushed on an open door, sending US rates and
the greenback lower. It
fits into the evolving narrative of a dramatic slowing of the US economy after
the heady 4.9% annualized pace in Q3. This is regarded as a forgone conclusion.
It is still early in the data

Overview: The US dollar has been confined to narrow
ranges today as the market awaits the October employment report. Barring a
significant upside surprise, we suspect the dollar is more likely extend this
week’s losses. The Dollar Index is off about 0.5% this week. Within the narrow
ranges, it is sporting a slightly softer profile again nearly all the G10
currencies. It is also lower against most emerging market currencies, but tight
ranges dominate. Similarly, benchmark 10-year yields in Europe are narrowly
mixed. They are mostly 10-13 bp lower this week, thought the benchmark Gilt
yield is off 17 bp. The 10-year US Treasury yield that was flirting with 5.0%
recently, is near 4.65%, off 24 bp this week, ahead of the jobs report. Asia Pacific and European equities are
higher today. Hong

Overview: We suspect that if Martians read the FOMC
statement, which was nearly identical to the September statement and listened
to Chair Powell, they would conclude there was nothing new. Yet, the market
habitually hears Powell as dovish and this has weighed on rates and the dollar,
while lifting risk appetites. Follow-through selling of the greenback has
dragged it lower against all the major currencies, with the Antipodean leading
the way, and nearly all the emerging market currencies (but the Chinese yuan,
Russian ruble, and Turkish lira). Further dollar losses may be limited by the
stretched intraday momentum and the proximity of tomorrow ‘s US employment
report. Asia Pacific equity markets
except China advanced today, with several bourses up over 1%. Europe’s Stoxx
600 is rising

Overview: The FOMC meeting is today’s highlight but
the drama in Japan continues to rivet the market. The Ministry of Finance
warned of the risk of material intervention in the foreign exchange market, and
the BOJ bought bonds in an unscheduled operation a day after its downgraded the
1.0% cap to a reference rate, whatever that means. The yen is trading with a
slightly firmer bias. The Swiss franc is also trading a little firmer, but the
other G10 currencies are a bit softer. Most emerging market currencies are
lower too. Gold, which posted a bearish outside down day yesterday, extended
its losses to about $1975 before stabilizing. Japan’s equity indices jumped
2.4%-2.6% today. Most bourses in the region rose, though not Hong Kong. Note
that South Korea reported the first increase in

Overview: The Bank of Japan softened its 1.0% cap on
the 10-year, while lifting its core CPI forecast this fiscal year and next. This
disappointed many who anticipated a bolder move to exit the extraordinary
monetary policy. The yen was sold in disappointment and the dollar has returned
to the JPY150.75 area. The eurozone contracted by 0.1% in Q3, while October CPI came in below expectations at 2.9%. The greenback is softer against most of the other G10
currencies. The Chinese yuan is softer but in an exceptionally narrow range
following the softer than expected PMI. Most other emerging market currencies
are firmer. Japanese equities rose, but
most of the large bourses in the region traded heavier. European stocks are
extending yesterday’s gains. The Stoxx 600 has practically recouped

Overview: Fears that the Israel-Hamas war was going
to widen this past weekend sent gold and oil sharply higher at the end of last
week. A reportedly more restrained Israeli entrance into Gaza has seen gold
pullback back below $2000 (~-0.6%) and December WTI soften (~-1.7%). The US
dollar is mostly softer. Stronger-than-expected Australian retail sales fan the
risk of a hike next week and this appears to be helping the Australian dollar
lead the advancing G10 currencies. The greenback also remains below JPY150. Most
emerging market currencies are off to a firm start.

Outside of Japan and Australia,
Asia Pacific equity markets are mostly higher. The MSCI Asia Pacific Index fell
by about 0.5% last week after dropping 2.7% the previous week. Europe’s Stoxx
600 is beginning the week on a

November may be an in-between month. It will be a month of
limited monetary policy actions and a period of heightened geopolitical
tensions. Fiscal policy may be more interesting, with a Japanese supplemental
budget, more measures expected from China, and a debate in Europe over the
re-implementation of the Stability and Growth Agreement. In the US, the drama that played out in the House of Representatives could still leave the federal
government with insufficient spending authority.  In light of recent geopolitical developments, Ray Dalio of
Bridgewater was quoted suggesting that the odds of a world war were near 50%.
Others simply recognize that the risks are the greatest in decades. And yet,
the capital markets have been amazingly orderly. To be sure, there was some
dramatic price

Overview: The US dollar is trading with a softer
bias. Among the G10- currencies, only the euro and Swiss franc are the laggards
and are nearly flat. In shifting expectations, the market sees the Reserve Bank
of Australia as the most likely to hike rates again, while the swaps market
appears to be bringing forward cuts by the European Central Bank and the Bank
of Canada. The Australian dollar is the strongest G10 currency today and this
week. After slow initial response, the yen is recovering after a firmer than
expected Tokyo CPI. The dollar has pulled back from JPY150.40 back to dip slightly below JPY150.00.Given the US strikes on Syria, it may be
surprising the market is not shunning risk ahead of the weekend. Asia Pacific
equities rallied, with the largest bourses in the region, but

Overview: The market is on edge. Anxiety is running higher. It is
partly geopolitics, and it is partly market stresses. The dollar is holding
above JPY150 but so far, no reports or signs of intervention. Bank shares are
under pressure. An index of Japanese banks has fallen for five of the past six
sessions and are off about 8% from the year’s high set last month. An index of
European bank shares has fallen in six of the past seven sessions and will
likely close at a loss for the fourth consecutive week tomorrow. The index has
fallen more than 8.5% since the July high. US bank indices are fallen for the
past six sessions and are of 20-23% from August highs. More broadly today,
equities are lower. Chinese markets are a notable exception, but many suspect
the hand of China’s sovereign wealth

Overview: The divergence reflected in the flash PMI
readings seen yesterday underpinned the dollar, which is firmer in mostly quiet
turnover. The initial Australian dollar gains scored in response to the
slightly less decline in Q3 CPI have been unwound. The greenback also remains
within striking distance of JPY150 where there are still some large options and
some apprehension over possible BOJ intervention. Hungary’s larger than expected
rate cut yesterday keeps the forint under pressure today, but most emerging
market currencies are softer. The Canadian dollar is near the month’s low ahead
of the Bank of Canada meeting. It is widely expected to leave the policy rate
steady at 5.0%. China’s stimulative measures helped lift
mainland shares and those that trade in Hong Kong, but the early

Overview: Bonds
and stocks are higher today, and the dollar is mixed. A weak PMI reading seemed
to weigh on the euro, but the market shrugged the weak Australian PMI off and
the Australian dollar is the G10 currencies while the euro is among the weakest.
Yesterday, the North American session showed an appetite for foreign currencies
and with some of their intraday momentum stretched to the downside, the stage
is set for a possible repeat today. The MSCI Asia Pacific Index
snapped a four-day drop today as the largest markets in the region, but Hong
Kong and India rose. Europe’s Stoxx 600 is trying to end its five-day slide,
but it is struggling to maintain the early upside momentum. After gapping lower
yesterday and US S&P 500 and NASDAQ closed the opening gaps. The NASDAQ
closed slightly

Overview:  News that Israel’s ground assault
on Gaza is being delayed while hostage negotiations continue saw gold and oil ease,
but tensions continue to run high. Gold peaked near $1997 before the weekend
and pulled back to about $1964 today before steadying. December WTI peaked in
front of $90 a barrel at the end of last week, and fell to about $86.85 today,
but has also steadied. The dollar is firmer against the G10 currencies, with
the Scandis and Antipodeans the weakest (off ~0.25%-0.65%). Emerging market
currencies are also mostly softer. The Mexican peso is the heaviest, off about
0.7%. Global equities are weaker. The
MSCI Asia Pacific Index fell 2.7% last week, the most in two months, and is off
to a poor start this week. China’s CSI 300, Taiwan’s Taiex, and India’s main

The US dollar was mixed last week.
One would have thought, based on the geopolitical tensions, the stronger than
expected US economic data that resulted in upward revisions to Q3 GDP
forecasts and a more than 30 bp surge in US 10-year yields, the greenback
would have performed better. The Dollar Index fell by almomst 0.5% last week, its biggest weekly loss in three months. It is down so far this month. On the other hand, gold rallied 2.5% to
extend its gain to about 8% since the Hamas attack.
December WTI’s 2% advance brings its surge to about 8.2% in the same period,
or about $6.75 a barrel. The heightened geopolitical
uncertainty provides a fragile backdrop for the global capital markets. The market is
on guard for possible Bank of Japan intervention directly in the foreign
exchange

Overview: True to the market’s penchant, it heard a
dovish Fed Chair Powell yesterday. He seemed to suggest that the bar to another
hike was high. This helped cap the 10-year yield just in front of 5.00% and
allowed foreign currencies to recover against the dollar. The US two-year yield
reversed lower after rising above 5.25%. It is now around 5.15%. Still, Powell
appeared to cover similar ground as several other officials, including Fed
governors in recent days. The dollar is trading with a firmer bias in Europe,
and it drew ever nearer JPY150. Most of the non-restricted emerging market
currencies, including the South African rand, central European currencies, and
Mexican peso are softer. Gold is extending it surge for the fourth consecutive
session and is above $1980 having settled last

Overview:  The greenback did not strengthen yesterday
in Asian and European turnover despite the deteriorating conditions in the
Middle East, but it did rally as North American participants entered the fray. Indeed,
the Dollar Index rose from a marginal new four-day low to a marginally new
four-day high. The safe haven bid seen in gold and oil, was reflected in the
foreign exchange market by the strength of the Swiss franc, the only G10
currency to appreciate against the US dollar, and the Japanese yen, which lost the
least among the others. The dollar is mostly firmer today, though it is in a
narrow range against the Japanese yen holding slightly below JPY150. The Australian and New Zealand dollars are leading the losses, following disappointing Australian jobs data and the broad

Overview: US economic data surprised to the upside yesterday,
and although interest rates rose as one would expect, the dollar’s initial
gains were pared, and the Dollar Index finished slightly lower on the day. This
seemed, in some respects, to echo how the greenback reacted to the recent jobs
report. However, then, interest rates softened, but the inability to rally on
seemingly good news is notable. The heightened tensions in the Middle East have
spurred a dramatic rally in oil prices. December WTI is nearly 3.5% higher near
$88.50 after gapping higher. Gold has also jumped after two relatively subdued
sessions and is near $1945, up more than 1%. The safe haven buying in foreign exchange
market is limited. The dollar is heavier against most of the G10 currencies but
the euro and

Overview:  The markets remain on edge. The press
reports US President Biden is planning an imminent trip to Israel while Iran
warns of "multiple fronts" against Israel if the attacks on Gaza
continued. The dollar, which was offered yesterday, is better bid today. Still,
the capital markets are relatively quiet. Even the Swiss franc, which was the
strongest G10 currency last week (~0.9%) is slightly heavier today. Among
emerging market currencies, the Polish zloty continues to be underpinned by the
weekend election results. The Mexican peso’s 0.45% decline is the most among
the emerging market currencies, giving back almost half of yesterday’s gains. Gold
is firm but within yesterday’s ranges and holding below $1933 that was
approached at the end of last week. Asia Pacific and European

Overview: The risk that the war in Israel spreads
remains palatable, and several observers have warned of the greatest risks of a
world war in a generation. Still, the capital markets remain relatively calm. The
US dollar is softer after closing last week firmly. The only G10 currency
unable to post corrective upticks today is the Swiss franc. Among emerging
market currencies, the Polish zloty has been boosted by the pro-EU election
results, and the Mexican peso lead the complex. Gold, which rallied 3.4% at the
end of last week, is seeing its gains pared by nearly 0.9% today and the yellow
metal is straddling the $1916 area. December WTI rallied 5.5% before the
weekend to settle at $86.35. It saw a little follow-through buying today before
slipping back $85.65 today. It is near $86.20 in

The markets absorbed two shocks last week. The
war in Israel that seems to know of no restraint underpinned oil prices and
appeared to help boost gold and the Swiss franc, the only G10 currency to
appreciate against the dollar. The other was the continued deluge of US
Treasury supply, the coupon auctions that tailed and higher than expected PPI
and CPI. Nevertheless, the US 10- and 30-year yields fell nearly 20 bp last
week, snapping a six-week uninterrupted increase. In fact, it was only the
second weekly decline since the week ending July 21–a dozen weeks ago. We
suggested early last week that provided the war in Israel remains contained, the markets can focus on macroeconomic drivers. This still seems like a
fair assessment and December WTI, which gapped higher on Monday drifted

Overview: The capital markets seemed to have an
exaggerated response to the US CPI, where the headline rate, flattered by the
rise in energy, rose by 0.1% in September than forecast. Rather than decline,
the headline year-over-year rate was unchanged at 3.7%. The core rate was as
expected slowing to 4.1% from 4.3%. Next week’s US data, including retail
sales, industrial production, existing home sales, and the index of leading
economic indicators are expected to decline or weaken sequentially. There has
been no follow-through dollar buying against the G10 currencies today with the
notable exception of the New Zealand dollar, perhaps ahead this weekend’s
election. Among emerging markets, Asia Pacific currencies are mostly weaker,
including the Chinese yuan, while central European

Overview: The dollar is mixed against the G10
currencies. It is confined to narrow ranges ahead of today’s CPI report. The
Russian ruble is the strongest of the emerging market currencies following the
imposition of new capital controls, forcing many exporters to repatriate their
foreign earnings. After posting a key upside reversal at the end of last week,
gold continues to recover. It nearly $1883 so far today, the best level in more
than two weeks. November WTI is steadied after yesterday’s 2.9% drop. It
settled near $82.80 at the end of last week and traded slightly below it today,
before recovering. Reports indicate that API estimated a 12.9 mln barrel build
in US stocks. Goosed by the China’s sovereign
wealth fund boosting its stake in large banks, mainland stocks participated in

Overview: Broadly speaking, the dollar’s
recent pullback was extended today but the momentum appears to be slowing,
perhaps ahead of tomorrow’s US CPI report. The Dollar Index slipped to its
lowest level since September 25 before steadying. The greenback is mixed as the
North American market is set to open. The dollar bloc and Swedish krona are the
underperformers. The Swiss franc is the best, up about 0.2%, while the yen and euro are little changed. Most emerging market currencies but the Chinese yuan are firmer. Gold
is extending its recovery after consolidating yesterday. It is above $1870
after bottoming at the end of last week near $1810.50. The next upside target
is around $1880. 

The rally in bonds is
continuing. The 10-year US Treasury yield peaked near 4.88% last Friday and is

Overview: The market continues to monitor
developments in Israel and the Middle East. The economic calendar is light
today and the market is showing a strong appetite for risk. Except for China
and South Korea, large bourses in the Asia Pacific rallied. Japan’s indices
jumped more than 2% and Australia by 1% to lead the region. Europe’s Stoxx 600
is up 1.5% near midday, which, if sustained would be the largest in nearly a
month. US index futures are firmer. After yesterday’s partial US holiday, US
Treasury yields have fallen sharply. The 10-year yield is off 13 bp (to about
4.67%) in the European morning and the two-year is off almost nine basis points
to straddle the 5% level. Note that the heavy supply of bills and coupons
begins today. Europe’s 10-year benchmark yields are mostly 1-2

Overview: There are three main developments. First,
the market is digesting the implication of the US employment data, where the
optics were strong (336k increase in nonfarm payrolls compared with 170k median
forecast in Bloomberg and Dow Jones surveys) but some details were
disappointing (like the third consecutive decline in full-time posts,
seasonally adjusted). Second, Chinese mainland market re-opened after a six-day
holiday). Chinese stocks slipped and currency strengthened. The third, and most
significantly is Hamas’s bold and brutal thrust into Israel and the Israeli
response. There three levels of analysis that seem particularly relevant. First,
it does not seem coincidental as US-Saudi Arabia-and Israel were working toward
a new agreement that some forces (including Iran) sought

The US reports September CPI on
October 12 and the first decline in three months in the year-over-year rate is
expected. However, the price action itself may overshadow not only the CPI but
other high-frequency data in the week ahead. US grew more than twice the number
of jobs in September as economists expected. US interest rates and the dollar
jumped initially, and stocks were dumped. And then they reversed. Many
narratives will be spun to explain the price action. While we could not have
anticipated 336k increase in nonfarm payrolls or the 119k upward revision in
the previous two months, we did recognize that dollar was tired. That the
dollar and US rates were unable to sustain the upside momentum is what one would expect if the market had already discounted a strong Q3 US economy. The

Overview: One key issue for market participants is
if the dollar’s pullback is the beginning of something important or is largely
position adjusting ahead of today’s US jobs report. We suspect that the
dollar’s rally that began in mid-July is over, though a strong employment
report that boosts the chances of a Fed hike before year-end could quickly
demonstrate the folly of making claims ahead of what is still one of the most
important reports in the monthly cycle of high-frequency data. The greenback is
sporting a mostly firmer profile in quiet turnover against the major currencies.
The yen is the weakest in the G10 space, slipping about a third of one percent.
On the other hand, most emerging market currencies are trading higher,
including the South African rand and Mexican peso, which

Overview:  The markets remain unsettled. Follow-through
dollar selling has been limited today after yesterday’s pullback. Narrow ranges
are prevailing, but the Norwegian krone and Canadian dollar, the weakest G10
currencies in recent days, are heavier again today. Although it seems that the
BOJ did not intervene earlier this week, but the dollar bulls has been
chastened just the same and the greenback is holdings below yesterday’s high
(~JPY149.30). Higher than expected South Korean CPI (3.7% vs 3.5%)- is helping
the won recoup yesterday’s 1% decline to lead the emerging market complex. The
South African rand and Mexican peso are worst performing emerging market
currencies today, off 1.1% and 0.7%, respectively. Japanese stocks led the recovery in most Asia Pacific bourses today,
with a

Overview: Dramatic yen price action around the JOLTS
report yesterday after the dollar pierced the JPY150 level spurred speculation
of BOJ intervention. Although there has been no confirmation, the strategic
ambiguity is helping steady the yen and the dollar more broadly today, even
though US yields remain firm. Final PMI readings were a better than the flash
estimates and this may also be facilitating the consolidative tone. Most
promising, from a technical point of view, is the recovery in sterling, which
after taking out yesterday’s low is now trading above yesterday’s high. Among
the G10, only the yen and New Zealand dollar (RBNZ held as widely expected) are
slightly softer. Most emerging market currencies are also firmer, including the
Polish zloty, where the central bank may cut

Overview: The dollar’s gains were initially extended before a
consolidative tone emerged. The euro has been sold to $1.0460
and has returned to almost $1.05. Sterling fell to nearly $1.2060 and has
recovered though has stopped short of $1.2100. The dollar edged closed to
JPY150 but stalled near JPY149.95 and has held above JPY149.65. The Australian
dollar near $0.6300 and the greenback rose to CAD1.3725.

Benchmark 10-year yields are firm, though a
well-received 10-year JGB auction was well received and the 10-year JGB yield
slipped slightly. European yields are 1-5 bp firmer, with yields rising more in
the periphery than core. UK 10-year Gilt yield is bucking the trend nearly two
basis points lows at 4.55%. The 10-year US Treasury yield is up a couple of
basis points to push against

Overview: The US avoided a government shutdown,
barely, and this eased one of the headwinds that were anticipated. In turn,
this is spurring new gains in US interest rates and helping underpin the dollar
at the start of the new quarter. The 10-year Treasury is holding above 4.60%
and nearing last week’s high (4.68%). The two-year yield gapped higher and is
near 5.10%. The high from September 21 was almost 5.20%. The Swiss franc is the
only G10 currency holding its own against the dollar today. Among emerging
market currencies, three currencies are slightly firmer, the Hungarian forint,
Polish zloty, and the Taiwanese dollar.

European benchmark yields are
mostly 2-4 bp higher, but UK Gilts yields are six basis points higher to 4.50%.
Many bourses in the Asia Pacific area are closed for

There are four large
macro forces shape the investment and business climate here at the start of the
last quarter of the year. First, the US economic outperformance has been stark.
This has helped underpin US rates and bolsters the dollar. The divergence is
likely to narrow in coming months as US growth slows rather than stronger
growth prospects in other high-income countries. Second, Beijing has taken
numerous measures, which although stopping well shy of the fiscal bazooka (like
in 2008) many critics advocate, the cumulative effect boosts the chances that
the 5% growth objective is achieved. Third, OPEC+, and especially Saudi Arabia, are committed to
keeping world oil supplies tight. This has driven the price of oil above $90 a
barrel. In the first instance, it will elevate headline

Overview: The dollar’s surge stalled yesterday, and
follow-through selling has pressed it lower against all the G10 currencies
today. The dollar-bloc and Scandis are leading the move. Month-end, quarter-end
pressures, coupled with a likely partial shutdown of the government beginning
Monday, and after key chart levels were approached or violated earlier this week,
serving as a bit a cathartic event. The Swiss franc snapped a 12-day losing
streak yesterday, its longest since 1975, and is higher today. Still, unless
the euro rises above about $1.0655, it will extend its losing streak to 11
consecutive weeks. Emerging market currencies, save the Russian ruble and
Turkish lira are also firmer today. Although Japanese stocks traded with a
lower bias, most of the other large equity markets

Overview: The increasingly likely partial US federal
government shutdown has spurred a bout of liquidation of long dollar positions.
The psychologically important JPY150 level was approached, and the euro was
sold through $1.05 yesterday, and the greenback has come back better offered
today. It is lower against all the G10 currencies. It is mixed against the
emerging market currency complex, with central European currencies and South
African rand leading the advancers. The Chinese yuan has also stabilized ahead
of next week’s holidays. A US government shutdown is estimated to reduce GDP by
0.2% a week and will impact the data release schedule, including next week’s
jobs report. Moody’s, the last of the big three rating agencies that gives the
US a AAA rating, acknowledged that a

Overview: The S&P 500 hit three-month lows
yesterday, while the Conference Board’s measure of consumer confidence fell to
a four-month low. New home sales fell to their lowest level in five years. The
US federal government appears headed for a partial shutdown on October 1. Still,
the greenback rides high. It is extending its gains against several G10
currencies, including the euro and sterling. The Swiss franc is moving lower
for the 12th consecutive session. The beleaguered yen and yuan are
consolidating near their recent lows. Most emerging market currencies are also
softer. Gold has been sold below $1900 for the first time this month. Despite yesterday’s sharp
losses in the US, equities are trading higher today. Aside from Australia and
New Zealand, the large bourses in Asia rose, and

Overview: The US dollar is stabilizing a bit but
only after extending its gains initially It reached almost JPY149.20, while the
euro slipped to $1.0570 before recovering to straddle $1.06 in the European
morning. Sterling sank a little through $1.2170 but stabilized to return to
almost $1.2200. The Australian dollar tested last week’s low slightly below
$0.6390 before resurfacing above $0.6400. The US dollar toyed with CAD1.3500,
where there is a large option expiry today. Emerging market currencies are
mostly lower, but the Hungarian forint (overnight deposit to converge with base
rate today at 13%) and the Chinese yuan are notable exceptions. The equity rout continues. Several
large bourses in the Asia Pacific region, including the Nikkei, Hang Seng,
Taiex, and Kospi are off more than

Overview: The US dollar begins the new week on a
firm note. It is trading at new highs for the year against the Japanese yen and
is bid against nearly all the G10 currencies, though the Swedish krona and
Canadian dollar are resisting the greenback’s push. Most emerging market
currencies are heavier, with the Polish zloty and a few East Asian currencies
holding their own. Gold is trading with a heavier bias near $1922, but within
the ranges seen at the end of last week. New pressure on China’s
property developers, amid concerns over the possible liquidation of Evergrande
weighed on Chinese shares, but other large bourses in the region, except South
Korea, rose today. The MSCI Asia Pacific Index fell 2.35% last week, the most
in five weeks. Europe’s Stoxx 600 is off almost 0.65% today,

The
most important outcome of the last week’s flurry of central bank meetings was
the median forecast of Fed officials for 50 bp less in cuts next year than it
had anticipated in June as it revised up its growth forecasts for this year and
next. The prospect for higher rates for pushed equities lower. Sterling
and the Swiss franc were the weakest currencies in the G10 last week, falling
by a little more than 1.1%. Both central banks did not hike rates to the surprise of many. Norway
more than Sweden held out the possibility of another hike in Q4, while the
Riksbank’s decision hedge a quarter of its reserves, which seems like
intervention, failed to give krona much of a boost, rising about 0.25% against
the euro. The Bank of Canada stood pat earlier this month, but stronger
economic data

Overview:  The BOJ’s failure to do anything or
further ideas that an exit of the negative target rate, despite the firm CPI
report helped the dollar recover the ground lost yesterday against the yen. The
focus has returned to "intervention watch" and the market continues
to press for the official pain threshold. Sterling is the weakest of the G10
currencies, off another 0.5% today following the BOE’s decision not to hike
yesterday. The dollar-bloc currencies enjoy a firmer tone. Emerging market
currencies are mostly firmer, including the Chinese yuan. Reports that Beijing is
considering reducing some capital controls helped lift Chinese and Hong Kong
equities today. Taiwan and Australian equities also advanced, while the other
large bourses headed south. Europe’s Stoxx 600 is extending

Overview: The Federal Reserve’s hawkish hold, which
included 50 bp less of cuts next year than it had signaled in June, has lifted
the dollar against most currencies today. The notable exception is the Japanese
yen. The greenback did extend its advance to new highs for the year before the
market turned cautious ahead of the outcome of the Bank of Japan meeting
tomorrow. The Swiss franc is the weakest of the G10 currencies after the Swiss
National Bank defied economists’ expectations and left rates unchanged. The Swedish
krona and Norwegian krone are little changed after their central banks
delivered a quarter-point hike. Attention turns to the Bank of England which
will announce its decision shortly. Ahead of it, sterling has traded below
$1.23 for the first time in five months. Rising

Overview: Softer than expected UK CPI has drawn
attention ahead of the key event of the day, the FOMC meeting. The UK’s CPI has
spurred a dramatic rally in Gilts and saw sterling initially extend its recent
losses, falling to new four-month lows before stabilizing. The swaps market
sees less than a 50% chance of a hike by the Bank of England tomorrow. Meanwhile,
even though US Treasury Secretary Yellen suggested conditions in which
intervention by Japan would be understandable, the market has little fear of
intervention today ahead of the FOMC meeting and took the dollar to new highs
for the year above JPY148.00. The greenback is mixed with the dollar-bloc
currencies firmer. Among the emerging market currencies, central European
currencies and the Mexican peso are among the best

Overview: Ahead of the flurry of central bank
meetings, starting with the Federal Reserve and Brazil tomorrow, the dollar is
largely consolidating in narrow ranges. The euro, sterling, and yen are trading
slightly heavier, while the dollar bloc and Scandis enjoy a firmer bias. The
Canadian dollar stands out as is trades at its best level since mid-August
ahead of its CPI report and despite a diplomatic dispute with India and the
failure of negotiations to prevent an autoworkers strike starting today. Emerging
market currencies are mixed, but of note, the yuan is flat, and the Mexican
peso has come back better bid after yesterday’s fall. Japan’s Topix and Hong Kong’s
Hang Seng managed to post small gains, but the other large bourses in the
region traded heavily. Europe’s Stoxx 600 is

Overview:  With
many central bank meetings in the days ahead, the dollar has begun the new week
on a quietly and mostly in tight ranges, helped by a holiday in Tokyo. G10
currencies, outside of the Scandis are slightly firmer in European turnover.
Emerging market currencies are narrowly mixed, but of note the 0.25% decline
makes the Chinese yuan the weakest. The Mexican peso is extending its recovery
into the seventh consecutive session.

While mainland Chinese stocks
recovered from early weakness, the large bourses in the region fell. Europe’s
Stoxx 600 is off a little more than 0.5%, snapping a two-day advance, while US
index futures are trading with a firmer bias after the pre-weekend tumble. The
UAW strike at continues. Benchmark 10-year yields are mostly 1-2 bp higher in
Europe,

The
week ahead is dominated by central bank meetings. Six of the G10 central banks
meets. The post-Covid monetary tightening cycle is ending. The start was not
synchronized, and neither will be end. It is tempting to think that those that
began the tightening cycle early will among the first to finish. Among emerging
markets that is true for Brazil and Chile, both of whom have begun cutting
rates. And Brazil is likely to deliver the second cut in the new easing cycle,
a few hours after the Federal Reserve meeting concludes this week. No G10
central bank appears to be close to reducing rates, but the tightening cycles
seen to be over or within a quarter point of the terminal rate. The UK may be
an exception, but even then, the market is not convinced, especially after
July’s GDP

Business travel will prevent me from updating the blog for a few days.  And instead of the usual weekly, I will provide a sketch of the six G10 central banks that meet next week and a couple of interesting emerging market central banks.

Overview: The US dollar is trading with a
firmer bias against all the G10 currencies ahead today’s August US CPI report. Even
increased speculation that the ECB will hike rates tomorrow has failed to lift
the euro, while a larger than expected contraction in the UK’s July GDP pushed
sterling briefly through last week’s lows. The dollar rose to a marginal new
high for the week against the Japanese yen, as the market seemed uninspired by
the cabinet reshuffle, but is wary of intervention. Most emerging market
currencies are a bit heavier, but not the Chinese yuan, which has stabilized
amid a continued liquidity squeeze in Hong Kong.Equities and bonds are heavier.
All the large markets in the Asia Pacific region fell today, with Taiwan and
India the notable exceptions. Europe’s Stoxx 600 is

Overview: The dollar was bought after yesterday’s
pullback spurred by Japanese and Chinese comments and the tighter capital
controls from Beijing requiring permission to buy more than $50 mln. The
economic and monetary policy divergence continues to underpin the greenback. It
is firmer against all the G10 currencies and is mostly inside yesterday’s
ranges. Most emerging market currencies are lower, led by central European
currencies. The Chinese yuan is steady. Equities are mostly heavier, but Japan, Taiwan, and Australian markets rose today. Europe’s Stoxx 600 is a little lower and US index futures are off around 0.25%. The Japanese benchmark 10-year
yield edged slightly higher and rose to 0.70%. European benchmark yields
softer by as much as two basis points. Despite the rise in average

Overview: The Bank of Japan Governor Ueda hinted the
world’s third-largest economy may exit negative interest rates before the end
of the year. This sparked the strongest gain in the yen in a couple of months
and lifted the 10-year yield to nearly 0.70%. In an uncoordinated fashion,
Chinese officials stepped their rhetoric and indicated that corporate orders to
sell $50 mln or more will need authorization. This helped arrest the yuan’s
slide. The Australian dollar is up the among the G10 currencies and is often
particularly sensitive to Chinese developments. All the major currencies are
firmer against the dollar today. The same is true for emerging market
currencies, where only the Indian rupee, Philippine peso, and Turkish lira, are
nursing minor losses. Outside of Japan, Hong Kong,
and

The
diverging economic performance between the US and Europe, Japan, and China on
the other hand is stark. Yet, a greater divergence may be between widespread
discussion of de-dollarization and its incredible strength in the foreign
exchange market. The eight-week rally in the Dollar Index is the longest in
nine years. According to SWIFT, which is not comprehensive but remains by far
the largest platform, the dollar’s role in international payments (46% in July)
is a record and compares with slightly more than a third 10-year ago. The
increased share accounted for the Chinese yuan (3.06%, a five-month high) was
not at the expense of the dollar, but the euro, whose share edged low and is
now less than 25%, a record-low. It peaked in 2012 around 46%. Two events stand out in the week ahead.

Overview: The greenback is lower against most
currencies today as it consolidates ahead of the weekend. The Dollar Index’s
eight-week advance is the longest since a 12-week rally 2014. The Chinese yuan
is an exception. Its losses were extended today. Against the offshore yuan, the
dollar traded above the onshore band, which is most often respected. Equities
ae extending this week’s slump. All the large bourses in the Asia Pacific
region but India fell. Europe’s Stoxx 600 is off for the eighth consecutive
session, the longest losing streak of the year. US index futures are trading
lower and have not risen since last Friday. European benchmark 10-year
yields are mostly marginally lower. Italy is a small exception, where its yield
is up slightly, perhaps encouraged by reports of the

Overview: Despite disappointing German
industrial output, where the 0.8% decline was twice expectations, the euro is
holding above $1.07, where large options exist that are expiring over the next
few sessions. The greenback is consolidating against the Japanese yen, where
the fear of intervention has increased. Sterling remains on its back foot after
yesterday’s seemingly dovish comments by Bank of England Governor Bailey. Emerging
market currencies are mostly lower, though of note, the Mexican peso has
reversed earlier losses and is now the strongest, up 0.3% in Europe. The
slowing of the decline of both imports and exports failed to help the Chinese
yuan, which has extended its recent losses. The MSCI Asia Pacific Index
fell for the third consecutive session. All the large bourses are

Overview: Bonds and stocks are mostly heavier today
and the dollar has turned mixed. Oil prices are consolidating after soaring to
new highs since late last year on the longer than expected extension of Saudi
Arabia’s extra cut of one million barrels a day. Since July, it has been
extending it by one month at a time. Yesterday, it extended it through Q4. Russia,
who had previously indicated intentions on reducing its exports by 500k
barrels, announced it was extended a 300k barrel a day cut also through the end
of the year. October WTI’s eight-day rally is under threat today. It is
consolidating largely in a $86-$87 range today. Note that the average price of
US retail gasoline is slightly lower than where it was a month ago but is still
relatively high for this time of year (~$3.80 a

Overview:  Disappointing
data in Asia and Europe has sent the greenback broadly higher. The strong gains
posted before the weekend were mostly consolidated yesterday when the US and
Canadian markets were on holiday. The rally resumed today. The Antipodeans and
Scandis have been hit the hardest (-0.7% to -1.25%) but all the G10 currencies
are down. The Swiss franc and yen are off the least (-0.35%-0.45%), and the
euro and sterling have taken out their recent lows. Emerging market currencies
have also fallen. So far, none have been spared. Most
of the large Asia Pacific bourses were under pressure, though Japan, Taiwan,
and India posted small gains. The Hang Seng and mainland stocks that trade
there suffered the most, with more than a 2% drop. MSCI’s Asia Pacific Index
snapped a six-day

There is a sense of new
divergence. Most economists, including the staff at the Federal Reserve, no
longer think the US is recession-bound. Unprecedented in modern times,
inflation has fallen sharply, and unemployment has not risen, and the economy
appears to be enjoying its third consecutive quarter, and the fourth in the
past five, above what the Federal Reserve regards as the non-inflationary pace
(1.8%). At the same time, and despite being among the fastest
growing large economies, China’s officials continue to make one announcement
after another to support this or that sector, while the property market, which
was a key engine of growth and savings, remains broken. The eurozone is
struggling with two shocks, energy, and China. But unlike Beijing, there seems
to be little political

Overview: Beijing’s seemingly steady stream of
measures to support the economy and steady the yuan are beginning to produce
the desired effect. The yuan is snapping a four-week decline and the CSI 300
halted a three-week drop. Some economists estimate that the bevy of measures
may be worth as much as 1% for GDP. The dollar is narrowly mixed ahead of the
US employment data, which is expected to see the pace of job growth slow to
around 170k. Of note, the Mexican peso extended yesterday’s losses following
news that the central bank was winding down its forward hedge program. After
the peso dropped 1.75% yesterday, it is off another 0.7% today. 

The MSCI Asia Pacific Index
rose for the fifth consecutive session today and the Stoxx 600 gain (~0.4%) is
recouping the losses of the past two

Overview: Position-squaring ahead of today’s US
personal consumption data and perhaps tomorrow’s jobs report is giving the
dollar a firmer profile against most G10 and emerging market currencies. The
Scandis have been the hit hardest and are off 0.75%-0.85%. The euro and
sterling about 0.35%-0.45% lower. The yen is the only G10 currency that is
slightly firmer. The dollar-bloc is nursing small losses (0.10%-0.15%). Despite
the firmer than expected preliminary August eurozone CPI, European 10-year
yields are off 3-6 bp. The US 10-year Treasury yield is slightly below 4.10%,
shaving about two basis points from yesterday’s settlement. Two-year yields are
down 4-9 bp in Europe, with the US two-year Treasury yield a little more than
two basis points lower near 4.86%. Recall that the US

Overview:  The dollar staged a major technical
reversal yesterday, in a dramatic reaction to a considerably weaker JOLTs
report than expected, spurring a large drop in US interest rates. And this is
despite press reports that the participation rate in the survey is half of what
was three years ago. We suspect the price action said as much about market
positioning as it did about the data. The path to the US jobs data on Friday
goes through tomorrow’s personal consumption figures, which will speak to
robust demand. Follow-through selling of the dollar has been limited in Asia
and the European morning. US leadership (and data) are awaited. The euro and
sterling are firm, but the other G10 currencies are mostly softer. German
states CPI may point to smaller than expected slippage in the

Overview: The dollar was threatening to break higher
at the end of last week, and the euro and sterling closed below key supports. However,
so far this week, the greenback is consolidating and has not seen
follow-through buying. The key data this week, US consumption and jobs, and the
eurozone’s CPI still lay ahead. The Antipodeans and Norwegian krone enjoy a
firmer today. A 0.8% contraction in Sweden’s Q2 GDP was not as deep as had been
feared, but enough to keep the Swedish krona on the defensive. The G10 currencies
are mostly trading in narrow ranges. Emerging market currencies are mixed. The
South African rand and Hungarian forint lead the advancers. There is some
speculation that Hungary may cut its base rate today. Stocks in the Asia Pacific extended yesterday’s
rally, led by Hong

Overview: Many market participants sense an
inflection point is near. The dollar settled last week beyond key levels
against several major currencies, bolstered by higher short-term US rates. The
market is aware that the Bank of Japan could intervene in the foreign exchange
market with the trading near its best levels of the year, and the 10-year JGB
yield grinding higher. Beijing cut the tax on equity transactions, will
restrict IPOs, and urged some funds to buy more equities than they sold. Still,
the equity market gave back around 80% of its initial gains and the yuan
weakened after a stronger start. London markets are closed for the summer bank
holiday, which has thinned market activity in the European morning. The dollar
is a narrow range (~+/- 0.15%) against the G10 currencies. And

The
Jackson Hole symposium marks the end of summer just as much as the autumn
equinox next month. It has been a tough few months for bond markets as yields
have soared. For the US economy, which has proven more resilient than many,
including Fed officials thought, and a sharp increase in anticipated supply of
Treasuries, the rise in yields may be understandable. The rise in Japanese
government bond yields may also make sense given the rise in inflation and the
adjustment of the cap on the 10-year JGB yield from 25 bp to 100 bp in two
steps (December 2022 and July 2023). The 20-30 bp increase in eurozone
benchmark yields is arguably less understandable. Edward Yardeni, who coined the
term "bond vigilantes" in the 1980s seems to think they have
returned. It was proposed to explain how

Overview: The euro and sterling took
out important chart levels near $1.08 and $1.26, respectively. They have
steadied in the European morning but remain fragile ahead of Fed Chair Powell’s
speech at Jackson Hole. A couple of ECB officials sounded a bit hawkish and a
less hawkish comment by ECB President Lagarde could renew the pressure on the
euro. The market appears to be going into Powell’s speech with a hawkish bias
and the odds of a hike next month have crept up to slightly more than 20% from
about 10% at the end of last week. The dollar is firmer against all the G10
currencies, but the Australian dollar, which has steadied after testing
$0.6400, and the Norwegian krone. Emerging market currencies are mostly lower,
and the Turkish lira, which rally 5% yesterday on the back of the 750

Overview: Strong Nvidia’s earnings after the US
markets closed yesterday helped lift Asia Pacific markets today. All the large
bourses were higher but India. Hong Kong, South Korea, and Taiwan indices rose
more than 1%. Europe’s Stoxx 600 is higher for the fourth consecutive session
and US index futures are higher, led by the NASDAQ. European benchmark bond
yields have extended yesterday’s PMI-induced decline and are mostly 1-2 bp
lower. The 10-year Gilt yield is off nearly 6 bp after falling more than17 bp
yesterday. The yield is off a little more than 25 bp this week. The 10-year
Treasury yield is flat near 4.19%. In addition to $150 bln in bills (four- and
eight-week bills), the US Treasury will sell $8 bln 30-year TIPS, where demand
is suspect.The BRICS have invited Saudi Arabia,

Overview: Poor European flash PMI pushed on open
door, giving the market a new reason to do what it was doing and that buying the
dollar. The euro has approached important support around $1.08 and sterling is
approaching the lower end of its two-cent trading range (~$1.26-$1.28). The
greenback is consolidating against the yen and holding above JPY145. The
Chinese yuan is little changed while the Mexican peso is extending yesterday’s
gains. Despite the poor economic news,
equities and bonds are mostly higher. Chinese equities and South Korea were the
main exceptions in the Asia Pacific region, while Europe’s Stoxx 600 is
advancing for the third consecutive session. US index futures are also enjoying
a firmer bias, ahead of Nvidia earnings later today. The weak PMIs have sent
European bond

Overview: For the first time in more than a week,
North American dealers will take to their posts with the dollar softer against
all the G10 and most of the emerging market currencies. Despite stepped up
efforts by Chinese officials and a firmer yen, the yuan remains on the
defensive and is one of the handful of emerging market currencies softer on the
day. Stocks and bonds are mostly higher too. The yuan might not be benefitting
from a softer dollar, but Chinese shares, both on the mainland and in Hong Kong
rallied alongside nearly all the regional markets, though India is struggling.
Europe’s Stoxx 600 is up a little more than 1%. If it is sustained, it would be
the largest advance of the month. US index futures are also trading higher. Interest
will be on the US regional banks after

Overview:  The new week, which features the BRICS
meeting and the Jackson Hold symposium is off to a quiet start. The failure of
Chinese banks to pass through last week’s 15 bp cut fully into the lending
prime rates was a major disappointment and it is not yet clear the logic. While
the yuan and yen are softer, as are more local Asian currencies, while most of
the G10 currencies are posting small gains against the greenback. Gold is
trading little changed after falling for extending its losing streak for the
fourth consecutive week. Asia Pacific equities were
mixed. Japan and South Korea, whose officials meeting with US President Biden
at the end of last week, saw gains in equities, while China and Hong Kong the
declines. Europe’s Stoxx 600 is snapping a four-day slide and is up about

There seem to be three large
forces shaping the investment climate. First is the resilience of the US
economy, with four consecutive quarters of above trend growth.  It appears that the US economy may be expanding faster than the 2.4% annualized pace seen in Q2.  Many of the
largest naysayers have capitulated. Second, the monetary tightening cycle is
widely seen as almost over, and many are beginning to fine tune forecasts for
the first cut by the major central bank. Rate cuts by the Federal Reserve and
European Central Bank are priced in for the first half of next year. Third, the
poor economic performance in Europe and China is in stark contrast to the US. Europe
does not appear to be considering fresh measures to support the economy. China
has published several long lists of actions

Overview: What may have been hoped to be a quiet
August has turned into a feeding frenzy for dollar bulls as the contrasting
economic performance has spurred persistent buying of the greenback. Even
shallow dips have been bought. Today, it is mostly trading inside yesterday’s ranges
against the G10 currencies. The PBOC set the dollar’s reference rate at what
appears to be a record gap below the Bloomberg average survey, and the dollar
was scooped up and is above yesterday’s settlement against the yuan. If the dollar’s strength is a consistent
theme this week, so is the sell-off in equities. The MSCI Asia Pacific Index
fell for the sixth consecutive sessions and has only risen one in the past two
weeks. More negative news from Chinese developers, including Evergrande’s
filing for Chapter

Overview: Encouraged by the continued stream of US data, which
suggests that the world’s largest economy is accelerating, the US 10-year yield
is approaching last year’s 4.33% high, and the dollar’s run has lifted it to
new highs for the year against the Japanese yen, Chinese yuan, and the
Australian and New Zealand dollars. Even a rate hike by Norway did not stop the
dollar from rising against the krone. The greenback is firmer against most of
the major currencies but has steadied in the European morning against the yen,
Swiss franc, and Canadian dollar. Disappointing employment data from Australia
has kept the pressure on the Aussie, which spiked lower $0.6365 before buying
emerged. The dollar gapped higher against the Chinese yuan, the sixth day of
gains, and is holding above CNY7.30.

Overview: The US dollar is trading with a slightly
heavier tone in the European morning. It has stalled in front of JPY145.90,
where the BOJ intervened last September and ahead of CNY7.30, which some
observers think Chinese officials are defending. We are less convinced that
either central bank has drawn a line at a particular level and suspect it is
too early to be confident that the greenback has peaked against either. On the
back of yesterday’s wage figures and today’s CPI, sterling has extended
yesterday’s gains marginally. The greenback is softer against most emerging
market currencies today. It is hard to call today a
risk-on day, though. Asia Pacific bourses were lower, with Japan, Hong Kong,
Australia, and South Korean markets shedding more than 1%. After falling nearly
1%

Overview: Today’s highlights include a surprise rate
cut from China after another series of disappointing data and much stronger
than expected Japanese Q2 GDP (6% annualized pace). The UK reported an
unexpected sharp jump in average weekly earnings, which were sufficient to get
renew speculation of a 50 bp hike by the Bank of England next month. The US
dollar is mixed. The Swedish krona and dollar-bloc currencies are struggling,
while the Swiss franc and sterling are leading the other European currencies
higher. The yen is slightly lower and is threatening to extend its losing
streak for the seventh consecutive session. Gold is holding above yesterday’s
low, which was slightly below $1903, but the upside has been capped near $1908.
Stocks and bonds are selling
off. China’s 10-year bond

Overview: The dollar and US rates remain firm. The
greenback rose to new highs for the year against the Japanese yen and
Australian dollar before steadying. Outside of the Swedish krona, which is off
nearly 0.5%, the G10 currencies are nursing small losses late in the European
morning, mostly less than 0.1%. Most emerging market currencies are also lower. The Chinese
yuan gapped lower for the second consecutive session and is also approaching
this year’s low amid property market and wealth management woes. Gold is pinned
near last week’s lows (~$1910). It has not closed once this month above its
five-day moving average (~$1916). September WTI reversed lows last Thursday
after reaching almost $84.90. It fell to a four-day low today a couple of cents
below $82.00 and has recovered back to

Tuesday
marks the 52nd anniversary of the end of Bretton Woods currency arrangement,
which pegged the dollar to gold and other currencies to the dollar. Some
economists have tried framing their views in terms of Bretton Woods II and
there have even been proponents of Bretton Woods III, but these are informal
arrangements at best, no reciprocity, or mutual obligations. The point of the
matter is that the end of Bretton Woods ushered in the modern era of floating
currencies, which in practice has meant volatile exchange rates.One of the big picture ideas from
international relations is hegemonic stability theory. It sees capitalism
working best when there is one country that can set and enforce international
rules of engagement. The attempts to resurrect Bretton Woods miss the insight

Overview: The dollar’s resilience after initially
selling off in response to the as-expected CPI was impressive. A quieter tone
is dominating today and most of the G10 currencies are +/- 0.15%. While the
dollar is consolidating, the underlying tone is still firm. For the week, it
has risen against all the major currencies and the Dollar Index is up nearly
0.6% this week, its fourth consecutive weekly gain. The greenback is rising
today against most of the emerging market currencies as well. The US quarterly refunding has
been successfully completed and both the US and China’s July CPI have been
published. The net result is that the US benchmark 10-year yield is off about
five basis points this week to a little below 4% and the two-year yield is up
less than two basis points. The US

Overview: The deluge of Treasury supply is nearly
over for this week. On tap today are 4- and 8-week T-bills and $23 bln 30-year
bonds to finish the quarterly refunding. The sales will come after the July CPI
print that is expected to see the first year-over-year increase since last June.
The market is going into the report with about a 15% chance of a Fed hike next
month discounted. Meanwhile, September crude oil extended its recover from $80
seen on Tuesday to a new 12-month high near $85 before steadying. Amid strike
fears, Europe’s natural gas benchmark soared by more than 27% yesterday but is
about 5.3% lower today. For its part, gold has stabilized after falling to
four-week lows yesterday near $1914. It is pushing above $1920 in the European
mornings. The dollar is broadly softer

Overview: The first leg of the US refunding was well
received, with the three-year note being scooped up by investors, driving the
yield below it was trading in the when-issued market. Today, the Treasury sells
$38 bln 10-year notes, whose auctions have been less than stellar recently. The
US 10-year yield reached 4.20% last week and is now straddling 4%. Italian
bonds are also firm as the Italian government clarifies the
new tax on banks’ windfall profits. Other European bond yield are mostly little
changed, though UK Gilt yields are softer. Despite China’s CPI slipping below
zero (as expected), the 10-year Chinese government bond yield edged slightly
higher. Equities are stabilizing, though Japanese and Chinese markets trading
off. Most of the other large markets in the region rose,

Overview: The combination
of falling Chinese imports and exports, Moody’s downgrade of ten US small and
medium-sized banks is serving to squash risk appetites. Equities are weak, but
bond markets are strong despite the surprise tax on Italian banks announced
yesterday and the kick-off of the US $103 bln refunding today. Outside of Japan
and Australia, Asia Pacific equity markets were lower led by a 1.8% drop in the
Hang Seng and a nearly 2.2% loss of the mainland shares that trade there. The
0.65% fall in Europe’s Stoxx 600 offset the gains of the past two sessions plus
some. US equity futures are around 0.5% lower. Bond are rallying strongly. European
benchmark yields are mostly 10-12 bp, including Italy and Spain. Greece is the
lagged today. The 10-year US Treasury yield is off nearly

Overview: The US dollar is recovering today
after it was sold following the jobs report before the weekend. It is enjoying
a firmer bias against nearly all the G10 currencies. The dollar-bloc is faring
best, while the Scandis are off close to 0.5%. Most emerging market currencies
are also softer, with only a few Asian currencies edging higher today,
including the South Korean won, Indian rupee, and Taiwanese dollar. With a
stronger dollar and firmer interest rates, gold is trading heavier and looks
poised to test last week’s low near $1926. Asia Pacific equities are mixed.
The softer yen may have encouraged the bid to Japanese stocks, while Hong Kong
and mainland, South Korean and Australian stocks eased. Europe’s Stoxx 600 is
giving back the pre-weekend gain of nearly 0.3% in fully amid

The US
and China report July CPI figures in the coming days and they are likely moving
in opposite directions. Headline US CPI is likely to rise for the first time
since peaking in June 2022. China’s CPI has been slowing and is likely to go negative
on a year-over-year basis. It finished last year at 1.8% and in June was
unchanged year-over-year. The divergence of policy is what is driving force of
the exchange rate, and the    question is not really so much why
the yuan is weak, but why it is not even weaker, and the answer seems to be
because of Beijing’s use of soft power. It has moderated the pace through the
setting of the daily reference rate, and it has gotten banks to reduce the
interest rate on dollar deposits for example. Press reports also note that State
Administration of

Overview: The
capital markets are calmer today but the US (and Canadian) jobs data stand in
the way of the weekend. While equity markets are firmer, the rise in yields
continues with new highs for the week being recorded today. European benchmark
yields are 2-3 bp higher and the US 10-year Treasury yield is approaching 4.20%.
Most of the large market in the Asia Pacific region advanced, but South Korea
and Taiwan where the superconductor fascination eased. The Stoxx 600 in Europe
has steadied after a falling by almost 3% in the past three sessions. US index
futures are enjoying a firmer profile.The dollar is mixed against the
G10 currencies. The Scandis and Antipodeans are advancing. The Swiss franc is
leading the losers, with a 0.4% decline after yesterday’s softer than expected
July

Overview: The global
capital markets remain unsettled. The combination of the BOJ adjustment of its
monetary policy, Fitch’s downgrade of the US to AA+, ahead of a flood of
supply, and new measures by China have injected volatility into the summer
markets. The US dollar has extended it gains today against the G10 currencies
and most emerging market currencies. The yen has recovered a bit after the BOJ
stepped in and bought JGBs for the second time this week at market prices, well
shy of the 1.0% upper band for the 10-year yield. However,
bonds and stocks continue to sell off. The 10-year JGB yield is near 0.65%,
while European benchmark yields are most 3-7 bp higher. The 10-year Gilt yield
is up about two basis points to almost 4.42% ahead of the Bank of England
meeting. Most now look for

Overview: Late yesterday, on the eve of the
quarterly refunding announcement, Fitch cut the US rating to AA+ from AAA,
citing project fiscal deterioration over the next few years and "the
erosion of governance". S&P also has the US as an AA+ credit. Ironically,
many observers who have been critical of the US monetary and fiscal policies,
like former Treasury Secretary Summers and El-Erian, were also critical of Fitch’s
decision. The US 30-year yield reached its highest level since last
November before Fitch’s announcement. It and the 10-year yield
are slightly firmer today, ahead of the Treasury’s refunding announcement an
hour before the US equity markets begin their day session. Note that Moody’s continues to rate the US as AAA, and asset managers have idiosyncratic rules of what to do

Overview: The dollar has
come back bid. It is rising against all the major currencies today. The Reserve
Bank of Australia left rates steady and the poor Chinese Caixin PMI is weighing
on the Australian dollar, which is off about 1.25% today. Sterling is the best
G10 performer, off about 0.1%. Perhaps, the BOE’s meeting on Thursday is
helping to deflect some of the selling pressure. Emerging market currencies are
also nearly all lower, led by the South African rand and South Korean won. The
greenback’s gains are weighing the gold, which is consolidating in yesterday’s
range but looks heavy. After yesterday’s surge to $82, September WTI is a
little lower and is trading around $81.30 in the European morning. It
seems like a risk-off day, though Asia Pacific equities were mixed. Japan,

Overview:  The Bank of Japan took the market by
surprise with its adjustment of the cap on the 10-year yield before the
weekend, and then stepped in to buy the government bond as yields rose in
reaction today. The move helped lift the dollar to JPY142.50. from where it had
settled on Friday (~JPY141.15). The dollar is mostly softer, however, with only
the yen and Swiss franc weaker. The Australian dollar is leading the other
currencies higher ahead of tomorrow RBA meeting. Emerging market currencies,
outside of a handful of central European currencies and the Malaysian ringgit
and South Korean won are lower. Asia Pacific equities rallied with Taiwan
being the only notable exception. Europe’s Stoxx 600 has edged higher after
falling 0.2% before the weekend. US index futures are narrowly

Prices
pressures are abating, albeit gradually, while economic momentum is faltering.
The data in the coming weeks will help shape expectations for rate decisions
for September. As the market pushed back against the Federal Reserve’s forward
guidance that anticipated two hikes in the second half, the US dollar fell
against the G10 currencies, but found support beginning around the middle of
the July as the market was reluctant to return to pricing in a cut this year
and doubts rose about the extent that the European Central Bank and the Bank of
England would raise rates.The dollar’s recovery is
likely to extend into August, perhaps, encouraged by the risk of the first
increase in the US year-over-year headline CPI since June 2022, when it peaked
slightly over 9%. The US economy is looking

Taking some time off for the next few days.  Will return with the August monthly outlook on July 29 and daily commentary on July 31.  Good luck to everyone.

Overview: The main development in the capital
markets is the decline in yields. In Europe, benchmark 10-year yields are off
7-11 bp today, extending the move that began last week. The 10-year Germany
Bund yield peaked last Thursday near 2.68% and is near 2.40% now. Similarly,
the 10-year Italian yield has fallen from 4.42% to below 4.05% today. The
10-year US Treasury yield fell in five of the last six sessions and is off
almost five basis points today. The yield peaked last week near 4.09% and is
testing 3.75% today. The dollar is consolidating with a heavier bias and the
euro made a high since February 2022, meeting a retracement objective at
$1.1275. The dollar-bloc currencies are underperforming, which seems consistent with the growth outlook concerns that are weighing on rates.

Overview:  The US dollar has mostly steadied at
the start of the week after last week’s sharp losses. The yen, euro, and Swiss
franc are enjoying a firmer tone, but only the euro has thus far extended
last week’s gains, and then, only marginally. Uninspiring data from China
pressed the yuan lower, while the firm euro is helping the central European
currencies. A typhoon shut Hong Kong markets and Japan’s markets were closed
for a national holiday. The Ukraine grain-export deal was ended by Russia after
it agreed to a two-month extension in mid-May. This is help spur a rally in
grains, with wheat futures up 3.25% after rallying 4.5% in the last two
sessions. Corn is up almost 2% after rally 6% in past two sessions. Asia Pacific equities were mixed after the
MSCI benchmark rose 4.4% last

After experiencing one of its worst weeks of the year, the US
dollar is stretched from a technical point of view while the short-term
interest rate adjustment has gone as far as it can without resurrecting ideas
of a Fed rate cut this year. Given the lighter economic calendar in the coming
days, we suspect that the greenback may consolidate ahead of the FOMC meeting
that concludes on July 26. The derivatives market shows that a quarter-point
hike is seen as a practical certainty. However, even as the US two-year yield
jumped back a dozen basis points ahead of the weekend, the dollar drew little
support against the euro and sterling. The shallowness of their pullbacks speak
to the underlying demand. Some suspect "stealth intervention" by
Japan and/or China, but by the very nature of it,

Overview: After tumbling headlong this week, the
dollar appears to be broadly consolidating ahead of the weekend Among the G10
currencies, the Canadian dollar’s 1.2% gain is the least and it made new
10-month highs earlier today The beleaguered Scandis soared The Norwegian
krone’s 6.6% advance followed by the Swedish krona’s 5.8% surge led the major
currencies The Dollar Index is off about 2.4% this week ahead of the North
American session It is the largest loss since last November. Among emerging
market currencies, the Hungarian forint (~5%) and South African rand (~4.5%)
led the way. Only the Chilean peso, Turkish lira, and Argentine peso fell. The
lower dollar and softer rates helped lift gold to $1963 today. It settled near
$1925 last week. As the greenback stabilized today, the

Overview: Softer-than-expected US CPI, following
weaker than expected job growth has sent the greenback tumbling. The dollar is
stabilizing against the yen today, but the downside momentum is intact against
the other major currencies. The euro approached $1.1175, sterling $1.3080, and
the greenback slumped to almost CHF0.8615. The Australian dollar reached $0.6850,
and the New Zealand dollar tested $0.6360. The Canadian dollar, often a laggard
in a weak US dollar environment is holding below the highs made at the end of
last month. The Dollar Index approached 100.60, its lowest level since April
2022. The technical indicators are getting stretched and the market may be
getting ahead of itself on the interest rate adjustment. Assuming one more hike
this year, fair value for the year-end

Overview: The US dollar’s losses have been extended
ahead of the June CPI. At the same time, speculation that the Bank of Japan
will adjust policy later this month saw the yen extend its gains for the fifth
consecutive session. Sterling made new highs since last April, while the Swiss
franc has risen to its best levels in about 2 1/2 years. The Dollar Index
gapped lower and through the trendline drawn off the April and May lows. The
greenback has steadied a little in the European morning. Given the move, there
is risk of "sell-the-rumor, buy-the-fact" type of activity. Emerging
market currencies are also mostly higher, including the Chinese yuan, which is
at its best level in three weeks. The yen’s strength is weighing
on the Nikkei, while indications of more economic support from Beijing

Overview: The greenback remains under pressure. The
yen’s short squeeze continues, and strong wage growth has helped lift sterling
to new highs since last April. Among the G10 currencies, only the Australian
and New Zealand dollars are unable to sustain gains through the European
morning. Emerging market currencies are also advancing, with a couple of
exceptions, including the Turkish lira despite reports on foreign equity
inflows. The weaker dollar and softer yields have sent gold to its best level
in around three weeks slightly below $1940. It has found support last week
ahead of $1900. Encouraged by talk of more
stimulus from China, Asia Pacific equities rallied, though the yen’s recovery
meant that Tokyo did not participate very much. South Korea and Taiwan led the
regional advance.

Overview: The US dollar is mostly firmer after selling off hard
before the weekend in response to the jobs data. Ranges are mostly narrow, but
the Australian and New Zealand dollars are the heaviest following news of
China’s deflation. Emerging market currencies are mixed, but of note the
liquid, freely accessible currencies, South African rand, Hungarian forint, and
Mexican peso are atop the leader board. Despite repeatedly lower US dollar
fixes by the PBOC, the yuan continues to trade softly.Asia Pacific equities were mixed. Many of the large markets fell, including
Japan, South Korea, Taiwan, Australia, and New Zealand. On the other hand,
China, Hong Kong, India, and many smaller equity markets rose. Europe’s Stoxx
600 is hovering around little changed levels. US index futures are

The dollar appears at an inflection point. Its
failure to draw much traction even as US rates rose may be an important tell. The
US 2-year yield rose to a new multiyear high near 5.12%, while the 10-year
yield set a new high for the year around 4.09% after the
employment report. The dollar’s broad gains in the second half of last month
looks corrective. The underlying downtrend, which we argue began last September
and October, looks set to resume. Moreover, the base effect warns of another
large drop in the headline CPI on July 12. This coupled with the disappointing
jobs report (209k and a downward revision of 110k in April and May) will
reinforce market skepticism of not the hike later this month, but the one after
that, which the Fed signaled in June. Japan’s verbal intervention and

Overview: A powerful short squeeze has lifted the
yen by the most in two months this week. The dollar’s push today below JPY143
was encouraged by the stronger than expected wage growth. The US jobs report
will test its strength. The PBOC fixed the yuan sharply higher today and it is
the only emerging market currency that is higher on the day, ahead of the Latam
open. The dollar has not drawn much support for the surge in US yields. The
10-year yield came within a whisker of the year’s high set in March near 4.09%
and the two-year yield set a new multiyear high near 5.12% yesterday, bolstered
by a series of stronger than expected data. Both are firm today but off
yesterday’s highs. The euro, Swiss, franc, and Canadian dollar are slightly
softer today, with the yen and Antipodeans the

Overview: Stocks and bonds ae selling off today. The
greenback is also trading heavily. Ironically, the yen is the strongest among
the G10 currencies and the Chinese yuan is the strongest among emerging market
currencies. The dollar is firmer against the Scandis and Canadian dollar. Most
emerging market currencies, including the Mexican peso, which traded at its
best level yesterday since 2015. While nearly all the bourses
but India fell in the Asia Pacific region, Hong Kong and mainland shares that
trade there were tagged for more than 3%. Europe’s Stoxx 600 is off more than
1% and if these losses hold, it would be the biggest down day since late May. US
index futures are extended yesterday’s losses. The bond market is not offering
a haven today. Benchmark 10-year yields are up 6-7 bp in

Overview: As US markets prepare to re-open from yesterday’s holiday, the dollar
is trading mostly higher, though the euro and yen are steady to slightly firmer.
Narrow ranges are prevailing. The Canadian and Australian dollars are
exceptions and are off about 0.3%. Emerging market currencies are mostly lower,
including Russia, China, South Africa, and Turkey. Final service and composite
PMIs were mostly revised lower in Japan, Australia, and the eurozone, while the
Caixin readings were lower than expected. 

Asia Pacific equities were weaker, led by
a nearly 1.6% drop in the Hang Seng and almost a 1.9% fall in mainland shares
that trade in HK. Europe’s Stoxx 600 is off 0.6% after rising less than 0.1%
yesterday. US index futures are trading heavily. European benchmark 10-year
bonds are

The US dollar was mostly softer. The
New Zealand dollar was the strongest (~0.85%) helped by cross rate gains
against the Australian dollar, following the RBA’s decision to stand pat. The
Australian dollar fell to one-month lows below NZD1.08. There is scope for
another 0.5%, or so to the next target near NZD1.0750. The RBA’s decision to
leave its cash target at 4.10% was not surprising, and despite the hawkish
rhetoric, the market downgraded the chances of a hike in Q3, though has it
priced into Q4 and about a 50% chance of another hike too. The Australian
dollar recovered from almost $0.6640 to $0.6700.