The U.S. dollar steadied against G10 peers on Tuesday, with Brent crude oil extending its two-day retreat by more than 2% after China formally rejected Washington’s unilateral sanctions on Iran.
The greenback’s gains were tempered by a nearly 0.3% decline in the euro, which slipped to a three-day low near $1.1655 before recovering slightly to $1.1675. The dollar firmed against the Japanese yen, reaching a four-day high near ¥159.50 despite softer U.S. Treasury yields. The yen’s resilience reflected rising expectations for a Bank of Japan rate hike next month, with swaps pricing an 80% chance of a move versus less than 30% prior to recent intervention.
Canada’s currency underperformed among G10 peers, weakening about 0.6% as the U.S. dollar climbed to CAD1.3865. The move followed a widening in the two-year U.S.-Canada rate differential to nearly 130 basis points. The Australian dollar also retreated from last week’s highs near $0.7180, dipping to $0.7140 before recovering to $0.7160.
In emerging markets, the Mexican peso fell 0.3% to MXN16.9735 as risk sentiment soured, though it pared losses later in the session. The Brazilian real and Colombian peso also declined modestly. The offshore yuan steadied near CNH6.7255 after testing a February 2023 low, while the Indian rupee strengthened 0.35% to INR95.39, its best daily gain in a month.
Oil prices extended declines as China, Iran’s largest trading partner, dismissed U.S. sanctions targeting Tehran and potential third-party entities. The move heightened geopolitical uncertainty ahead of next month’s U.S.-China trade talks. Brent crude fell below $82 per barrel, a six-day low, while WTI crude slipped to around $78.50.
U.S. Treasury yields eased slightly, with the 10-year note near 4.67%, as softer oil prices reduced inflation pressures. Reports suggested the Treasury may tap its General Account to buy back bonds, a move that could complicate the Federal Reserve’s balance sheet reduction efforts. European yields also declined 2-4 basis points.
Equities showed mixed performance, with Asian bourses mostly higher after Monday’s losses. The regional MSCI index recovered marginally from a 1.2% slide, while Europe’s Stoxx 600 was flat. U.S. index futures pointed to modest gains, with the S&P 500 up 0.55% and the Nasdaq futures 1% higher.
Germany revised Q2 GDP growth to 0.3% from 0.2%, citing stronger private consumption and government spending, though capital expenditure disappointed. The IFO business climate index rose to 88.8, its highest since August 2023, signaling improving sentiment.
Market focus shifts to Federal Reserve Chair Warsh’s speech at the Jackson Hole symposium on Thursday, where further guidance on monetary policy is expected amid evolving geopolitical and economic conditions.
