An Investing.com analysis said the yen's surge that began in the middle of last week continued, with the dollar falling from above 160 yen to a little below 153, its lowest level in seven months. The dollar fell through 155 yen and almost to 154 yen yesterday, with losses extending to about 152.90 today. It recovered to about 154.25 in the European morning, where it stalled. The analysis said there was still no evidence of official intervention, although some remain on guard for a change in tactics. The swaps market continued to price a Japanese policy-rate hike next week and most likely another in December, with little change since the middle of last week.
It noted that the United States has strongly advocated tighter Japanese monetary policy even though US inflation and the economy are running hotter than Japan's, while the Trump administration has continued to argue against tighter policy. President Trump has threatened to halt all trade with countries with which the US has a trade deficit unless the Federal Reserve cuts rates. The analysis said the issue for the FOMC next week is whether it should hike, and that none of the officials seem to support a cut. It described the threat as bluster but said it shows that, even with the appointment of a new Fed chair, the president continues to try to drive monetary policy, and that pressure on Governor Cook has not gone away.
Beyond the yen and the euro and sterling, the analysis said the dollar was firmer against the G10 currencies and most emerging-market currencies. New hostilities in the Middle East lifted oil prices further and fanned risk-off position adjustments. Canada's retaliatory tariffs kicked in today, and the US is threatening further action against a trading partner that buys 15% of US exports and is the top destination for goods from 34 US states.
In G10 pairs, the euro was firm yesterday on a broadly weaker dollar led by the continued yen short squeeze. It approached but held below last Thursday's high near $1.1640. The analysis said the cap was holding today and was about the halfway point of the pullback from the August 21 high near $1.1710. Options for nearly 1.3 billion euro expire today at $1.1650. The euro was trading with a heavier bias and looked set to probe $1.16, with support seen in the $1.1565-$1.1585 area.
The analysis said sterling was firm yesterday but held below the $1.3550 area that capped it in the last two sessions of last week. That area corresponds to the 38.2% retracement of the losses from the August 21 high near $1.3675. Although sterling briefly traded above it today, the analysis said it did not signal a breakout; sellers pushed it to new session lows near $1.3520. Support was seen in the $1.3475-$1.3500 area, with the next retracement near $1.3575 and then $1.3600.
The analysis said President Trump's threat that the Canadian dollar's imbalance with the US is unacceptable appears to be part of the escalating trade conflict between the two countries. Canada's retaliatory tariffs were implemented today. According to the OECD's purchasing-power-parity model, the Canadian dollar is the third most under-valued G10 currency against the US dollar at about -18.6%, behind the Japanese yen at about -61% and the euro at about -28.6%. Canada's overnight target rate of 2.25% is the lowest compared with the US federal funds rate since the mid-1990s, partly the result of disruption spurred by the US administration. The holiday in the US and Canada made for quiet trading, and the Canadian dollar consolidated within the pre-weekend range. The dollar traded between CAD1.3805 and about CAD1.3840 yesterday, was sold to almost CAD1.3775 today, and recovered to a little above CAD1.3800 after buyers emerged ahead of last week's low near CAD1.3765. Initial resistance may be in the CAD1.3820-CAD1.3840 area.
The analysis said the Australian dollar rose for the fourth consecutive session yesterday and reached $0.7225, its best level since mid-May. It stalled today and was consolidating slightly above $0.7200. The analysis said it looked vulnerable, with nearby support seen in the $0.7175-$0.7185 area.
In emerging markets, the dollar recorded a new two-year low against the Mexican peso before the weekend near MXN16.8575 after the push above the 20-day moving average was rejected in the middle of last week. It consolidated yesterday within the pre-weekend range and settled slightly below MXN16.93. Today's risk-off lifted the dollar back to MXN16.99, a three-day high. The 20-day moving average is around MXN16.9780, and the dollar has not settled above it since late July.
The dollar bled lower against the offshore Chinese yuan ahead of the weekend, falling to nearly CNH6.7050, its lowest level since February 2023. It consolidated quietly yesterday and today, holding below CNH6.7125. The People's Bank of China fixed the dollar slightly higher at CNY6.7795 from CNY6.7787 last Friday, and today's fix was set at CNY6.7804.
The Reserve Bank of India continues to intervene in the foreign-exchange market, with reports suggesting it is operating in offshore and onshore markets. Large inflows from the central bank's effort to draw in foreign deposits have boosted reserves and liquidity in the banking system, and overnight borrowing costs are well below the central bank's policy rates. The dollar traded between about INR94.3725 and INR94.4915 yesterday. It rose slightly above INR94.89 today, helped by the continued rise in oil prices. The gap created by last Thursday's sharply lower dollar, which extended to about INR94.8425, was filled today, and the dollar settled above its five-day moving average near INR94.6565 for the first time in a little better than two weeks.
Most large Asia-Pacific equity markets rallied yesterday, led by South Korea's Kospi, which surged 4.6%. Hong Kong, India and Singapore were notable exceptions. The MSCI Asia Pacific Index has risen in six of the past seven weeks. Higher oil prices are taking a toll today, and all of the large bourses in the region fell today. Europe's Stoxx 600 eked out the smallest of gains yesterday to record its third consecutive gain, but it was heavier today and had given back the gains of the past two sessions. US index futures were trading with a heavier bias.
Benchmark 10-year yields rose mostly 4-5 basis points in Europe yesterday. The 10-year Japanese government bond yield was practically flat, while the longer end of the curve saw yields increase. The 30- and 40-year yields rose almost two basis points to 4.01% and 4.08%, respectively. Those gains were unwound today. European yields were mostly less than a basis point lower, while the 10-year US Treasury yield was firmer near 4.80%. The US Treasury's first bond buyback under the recently announced stepped-up plan will begin tomorrow for at least $14.5 billion.
Gold consolidated with a heavier bias yesterday and straddled the $4,400 level. Last week's low was a little below $4,283 and the high was nearly $4,511. Gold reached almost $4,443 today but was back near $4,400 late in the European morning. Chinese reserve figures showed the People's Bank of China continued to accumulate gold last month. Silver traded in a little more than a dollar range between $65.40 and $66.75 yesterday, inside last Friday's range. It made a marginal new three-day high today near $67.20 but was around a dollar lower in European turnover.
October WTI crude rose nearly 9.7% last week, its largest gain since mid-July and the second-largest weekly gain since mid-March. It reached almost $93.15 last week. Yesterday's low was recorded in early European turnover slightly below $90.90 and recovered to a new high near $93.30 before European markets closed. Houthi attacks on Saudi vessels lifted October WTI to almost $94.75 today. It pulled back in Europe and was around $93.65. Support was seen between $92 and $93.
The analysis said the US market had a long weekend digesting the jobs data. The focus this week turns to prices, with PPI and CPI due late in the week and the NY Fed's August inflation report due today.
