Dollar Shows Mixed Movements as North American Trading Resumes

The dollar exhibits a mixed performance as the final North American trading session of the week begins. The Bank of Japan (BOJ), in line with expectations, maintained its interest rates. The ensuing volatility in the yen sparked speculation regarding potential market intervention, although substantial intervention appears unlikely. Instead, there has been increased verbal intervention, and possibly some rate monitoring by authorities.

Meanwhile, the People’s Bank of China (PBOC) set the dollar’s reference rate below CNY 7.00 for the first time since 2023, marking a significant psychological milestone. In the United States, anticipation builds around President Trump’s forthcoming nomination for the Federal Reserve Chair, with Powell’s continuation beyond May as governor remaining uncertain. The Federal Open Market Committee (FOMC) convenes next week, where maintaining current rates is expected to be a relatively uncontroversial decision compared to last month’s rate cut. Concurrently, the Republican-led House of Representatives has approved a federal funding bill through the remainder of the fiscal year, incorporating some opposition to presidential priorities. The Senate is projected to pass the bill, with the president likely to sign it, thereby averting a government shutdown at month-end.

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G10 Currency Movements and Technical Observations

Euro

The euro logged an outside up day, trading beyond Wednesday’s range and closing above its upper boundary. Notably, a weekly close above last week’s high (~$1.17) would constitute an outside up week—an encouraging technical signal. The euro reached near $1.1760, just short of Tuesday’s intraday peak near $1.1770. It has since retreated slightly below $1.1730 amid consolidation. However, stretched intraday momentum indicators suggest a potential rebound during North American hours.

Japanese Yen

According to Bloomberg, the dollar briefly achieved a six-day high at approximately JPY 158.90 before retreating. Options totaling $1.7 billion strike at JPY 159 expired today. Post-BOJ rate hold, the dollar surged toward JPY 159.23, subsequently reversing to around JPY 157.35 — a near two-week low. Speculation about intervention persists, but significant market intervention seems improbable; heightened verbal intervention and rate monitoring are more plausible. The dollar tested resistance near the 20-day moving average at JPY 157.55 but currently trades near JPY 158.25 in late European morning sessions.

British Pound

Sterling tested and sustained support slightly above $1.3400 before advancing to a two-and-a-half-week peak slightly above $1.3500. This move followed the expiration of approximately GBP 380 million in options at $1.3495. Sterling continued its ascent past $1.3535 today, reaching levels last seen on January 6. Earlier this month’s high was just under $1.3570, the strongest since the Federal Reserve’s initial 2025 rate cut in September. Technical momentum indicators suggest an upward trajectory may be developing.

Canadian Dollar

The dollar experienced an outside day against the Canadian dollar but closed without breaching Wednesday’s low (~CAD 1.3785). The pair remains below CAD 1.3800 today while holding above CAD 1.3780. The next significant retracement levels lie at CAD 1.3750 and CAD 1.3710, with momentum indicators turning bearish. The five-month low near CAD 1.3645 set last month emerges as a reasonable medium-term target.

Australian Dollar

The Australian dollar, initially one of the strongest G10 currencies at the start of the year, responded to robust employment data and renewed speculation of an imminent rate cut by reaching nearly $0.6645, advancing to $0.6655 today — its highest since October 2024. However, statistical analysis using Bollinger Bands indicates an overbought status, exceeding three standard deviations above the 20-day moving average — a level not seen in years. The upper three-standard deviation threshold is near $0.6860, while the standard band sits slightly above $0.6810.

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Emerging Markets Dynamics

Mexican Peso

The dollar remains anchored near a 1.5-year low against the Mexican peso, with a recent trough at MXN 17.4225 and intra-day lows marginally lower. Chart-based support is identified around MXN 17.38. Although daily momentum indicators are stretched, they have yet to reverse upward.

Chinese Yuan

For the first time since 2023, the PBOC set the dollar’s reference rate beneath the CNY 7.00 mark, fixing it at CNY 6.9929 compared with yesterday’s 7.0019. Crossing this threshold carries psychological importance and reflects the largest downward adjustment in the dollar fix since last August. Despite some attempts by state-owned banks to support the dollar amid its decline, this remains a secondary development.

Indian Rupee

The Indian rupee continues to face downward pressure. Year-to-date foreign investor activity shows approximately $3 billion sold in equities, with modest bond inflows near $200 million. The Reserve Bank of India’s foreign currency reserves expanded by $14 billion last week to $701.4 billion, indicating intensified intervention. Notwithstanding these measures, the dollar reached a new record high close to INR 91.97 today.

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Broader Market Developments

Most Asia-Pacific markets rose today, with India as an outlier. Europe’s Stoxx 600 surged 1% yesterday, its largest advance since November, though it is slightly lower this morning. U.S. futures are marginally weaker, trimming yesterday’s gains.

The 10-year Japanese Government Bond (JGB) yield inched up by one basis point today but remains down a basis point for the week. Long-term JGB yields (30- and 40-year) declined for the third consecutive session despite week-to-date increases of 13-15 basis points. European 10-year bond yields are mixed, mostly up 4-7 basis points this week, with Greece’s 10-year yield rising 16 basis points despite a minor pullback today. The 10-year U.S. Treasury yield eased slightly to just below 4.24%, showing a small weekly increase of 1.5 basis points.

Gold briefly reached an all-time peak near $1,967.35 today before retreating to around $1,920 in late European trading. Silver similarly hit a record near $99.40 and maintains firmer support, currently just below $99. March West Texas Intermediate (WTI) crude oil prices remain stable around $60.40, trading within yesterday’s range of approximately $58.95–$60.80.

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Economic Data and Indicators

United States

The Atlanta Fed’s GDPNow model projects a 5.4% annualized growth rate for Q4, following an upward revision of Q3 GDP to 4.4% from 4.3%. Fiscal stimuli, including tax cuts and refunds, are expected to sustain growth momentum into early 2025. Preliminary January Purchasing Managers’ Index (PMI) figures are anticipated to reflect modest improvements in manufacturing and services, potentially lifting the composite PMI to 53.0 from December’s 52.7 after two months of softening. The final University of Michigan consumer sentiment survey is scheduled, though market focus remains on the preliminary release.

Canada

Canadian retail sales for November are forecasted to rise by 1.2%, recovering declines of 0.2% and 0.9% in October and September respectively. The bulk of gains is expected outside the automotive sector, with a 1% increase projected in auto sales alone, offsetting prior monthly contractions.

Mexico

Mexico’s Monthly Economic Activity Index (IGAE), viewed as a monthly proxy for GDP, is forecast to increase marginally by just over 0.1% in November, following an almost 1% rise in October — the largest since July 2024.

Eurozone

The preliminary composite PMI for January showed a stable reading of 51.5, balancing stronger manufacturing output against softer services. This follows a contraction from a six-month high in November of 52.8. The manufacturing PMI improved but remained under the 50 expansion threshold, peaking last August at 50.7. Services PMI declined from 52.4 to 51.9. Germany’s composite PMI declined through November and December but improved to 52.5 in January compared with 51.3. The French composite PMI ended 2024 at 47.5, recovered to 50.0 for 2025, before falling again to 48.6 in January.

United Kingdom

UK retail sales in December increased by 0.4%, rebounding from a 0.1% drop in November, surpassing the Bloomberg consensus forecast for flat sales. Economists anticipate UK GDP growth around 0.1% in Q4, mirroring Q3 performance. The preliminary January PMI improved slightly, with the composite rising to 53.9 from 51.4, surpassing last August’s peak of 53.5. Political developments include a potential Labour Party leadership challenge as Manchester Mayor Andrew Burnham may contest a vacant parliamentary seat, positioning him as a possible alternative to Prime Minister Starmer.

Australia

Australia’s flash January composite PMI surged to 55.5 from 51.0 in December, matching the previous year’s August peak. Alongside robust labor market data and hawkish central bank commentary, market expectations for a rate hike at the early February meeting have intensified, with futures markets pricing nearly a 60% probability, more than doubling last week’s estimates.

Japan

Japan’s December Consumer Price Index (CPI) softened to 2.1% year-on-year from 2.9%, with core inflation easing to 2.4% from 3.0%, consistent with earlier Tokyo CPI data. The preliminary January composite PMI rose to 52.8 from 51.1 in December. Revised BOJ forecasts anticipate improved economic growth this fiscal year and next, with a slight upward adjustment to core inflation projections. BOJ Governor Ueda emphasized wage growth in spring as pivotal to future policy decisions and indicated openness to altering bond purchase programs in response to rising yields. Finance Minister Katayama adopted cautious language regarding yen volatility, signaling potential escalation in verbal intervention efforts.

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**Disclaimer**: This analysis is for informational purposes only and does not constitute investment advice.