The U.S. dollar extended gains against most Group of 10 currencies on Wednesday as risk assets sold off and sovereign bond yields climbed, with Middle East tensions and elevated oil prices reinforcing a cautious market tone.
The dollar firmed against nearly all G10 peers, with the Japanese yen the notable exception, posting a modest gain. The yen’s resilience has been limited despite expectations of a Bank of Japan rate hike later this month, with the currency down about 1.4% against the greenback. The move follows hawkish commentary from BOJ Governor Ueda, though a board member suggested the possibility of a larger-than-expected increase. The dollar-yen pair briefly touched JPY160.40 before paring gains to around JPY159.90, with options totaling over $1 billion at JPY159.60 and JPY160 expiring on the session.
The euro approached multi-day lows near $1.1565, a level last seen on August 17, as it retraced roughly 38.2% of its recent gains from the $1.1710 high. The five- and 20-day moving averages are set to cross, with the next downside target seen in the $1.1520-30 range. Sterling also weakened, falling through last Friday’s low of $1.3525 and approaching the 50% retracement of its four-cent rally since late July at $1.3475. A break below that level could expose the $1.3430-45 area.
Commodity-linked currencies underperformed as oil prices surged. The Canadian dollar rose to nearly CAD1.40 against the greenback, while the Australian dollar slipped to about $0.7120, with options totaling A$750 million expiring. The New Zealand dollar led G10 declines with a 1.5% loss, despite a widely expected rate hike by the Reserve Bank of New Zealand.
Emerging market currencies saw mixed performance. The Mexican peso initially strengthened to near MXN16.94 before reversing, with the dollar pushing back above MXN17.02. The onshore yuan remained range-bound around CNY6.78, while the offshore yuan traded near CNH6.72. Intervention was reported in both onshore and offshore markets for the Indian rupee, which settled near session highs within a narrow range.
Global equities extended declines as higher yields weighed on valuations. Asia Pacific markets fell sharply, with Japan’s Nikkei down nearly 3%, South Korea’s Kospi off about 4%, and China’s CSI 300 declining 1.4%. European equities also slipped, with the Stoxx 600 down more than 0.5% for a third consecutive session. U.S. equity futures signaled the potential for a lower cash-market open.
Sovereign bond yields rose across major markets, with the U.S. 10-year Treasury yield up nearly 14 basis points over the past five sessions to about 4.82%. The 10-year Bund yield increased by 11 basis points, while the U.K. Gilt yield surged 23 basis points. European yields were 5-7 basis points higher on the day, while Japanese yields were little changed.
Gold extended its decline, falling to around $4,283 per ounce, its lowest level since August 17, as rising yields diminished its appeal as a safe haven. Silver also weakened to about $63.30, with a break below $63 potentially signaling further downside. October WTI crude oil jumped 5.2% on Tuesday, trading above $90 per barrel for the first time since May and setting a new contract high near $92.30.
Data releases on Wednesday included ADP’s private-sector employment estimate for August, with the median forecast calling for a 47,000 increase after a 44,000 rise in July. Factory orders and durable goods data are also due, with expectations for a 0.7% rise in factory orders and a 1.1% increase in durable goods orders excluding aircraft and defense.
The Bank of Canada is not expected to alter its policy rate at today’s meeting, with swaps pricing indicating a roughly 65% chance of a hike before year-end. Canada’s August employment report is due Friday, following a period of modest job growth. Mexico’s August domestic auto sales are also scheduled, though the data is typically market-neutral.
