### United States
The US dollar experienced a pullback today as it consolidated within the range established last Thursday and Friday after last week’s rally. The focus for the week is the employment report expected on Friday, with Bloomberg’s survey forecasting around 160,000 job additions. However, as Fed Chair Powell has noted, there’s a possibility that jobs growth has been overstated, and upcoming benchmark revisions could lower the monthly average rise by up to 100,000. The FOMC minutes set for release this Wednesday may offer insights into the Fed’s renewed emphasis on its price stability mandate. Should the employment report disappoint, it could challenge this stance. Other data include the final services and composite PMI, which might draw limited attention, and a potential revision in durable goods orders from a previously reported 1.1% drop. Meanwhile, Treasury begins the new year with a $119 billion sale of notes and bills.
### Eurozone
The euro started the year on a low note, dropping to about $1.0225 on the first trading day, marking its lowest in two years. Despite consolidating over the weekend and trading stronger today, it has stalled just short of the January 2 high near $1.0375. The eurozone faces added pressure from Trump’s tariff threats and expectations of more aggressive rate cuts due to weak economic conditions. Political instability in Germany and France complicates the prospect of bold policy moves. Meanwhile, central Europe grapples with Ukraine’s decision to halt Russian gas transit, although the Dutch benchmark for gas has eased for three sessions. Tomorrow’s preliminary December CPI report is anticipated to reflect a 0.4% rise, likely increasing the year-over-year rate to 2.4%, with the core rate steady at 2.7%. Key unemployment data show a persistent low of 6.3%.
### United Kingdom
Sterling touched eight-month lows on January 2, but saw some recovery ahead of the weekend. Substantial US dollar strength combined with growing recognition of the UK’s economic frailty contributed to the pound’s decline. Nonetheless, sterling has bid higher, reaching $1.2490 in early European trade today. The December manufacturing PMI ended the year at 47.0, consistent with the year’s previous low, reflecting worsening conditions in the latter half of December. Options on sterling expiring today and tomorrow, totaling significant amounts, could influence immediate market dynamics.
### China
Last week, the dollar reached its highest level against the Chinese yuan since September 2023, moving above CNY7.32. The People’s Bank of China set the dollar’s fix slightly lower at CNY7.1876, signaling intentions to issue bills in Hong Kong to absorb excess liquidity. Although China’s Caixin services PMI registered an uptick, the manufacturing PMI decline erased overall composite gains. China’s bond yields slightly firmed, with the 10-year yield maintaining a wide discount compared to US yields. Economic insights take center stage as the December CPI and PPI are due Wednesday, with market perceptions largely unmoved by their outcomes.
### Japan
The Japanese yen stands out as the only G10 currency to weaken against the US dollar today. Despite Bank of Japan Governor Ueda’s reaffirmation of potential rate hikes contingent on economic and price conditions, the dollar remains resilient against the yen. Japanese official rhetoric in Forex markets intensifies, although major interventions appear unlikely. Japanese rates increased slightly today, with the 10-year yield marking new multiyear highs. Economic highlights feature labor earnings and household spending reports later this week, with substantial market focus.
### Canada
The US dollar closed at a two-year high against the Canadian dollar ahead of the weekend at CAD1.4460, with the Canadian dollar performing poorest among G10 currencies on Friday. Although the US dollar fell to a four-day low against the loonie today, the widening US-Canada two-year interest rate differential, reaching a 28-year high, poses challenges. Speculation mounts regarding Prime Minister Trudeau’s potential resignation amid political upheaval. Canada anticipates several key economic reports this week, including November trade balance data and the December jobs report.
### Australia
The Australian dollar ended the last quarter with a substantial 10.5% decline, marking its weakest quarterly performance since Q1 of 2020. After stabilizing at the end of the last week, the Australian dollar has rallied slightly today. Speculation on an imminent rate cut adds complexity, though next week’s CPI release and later retail sales figures may shift expectations. Economic indicators suggest more resilience in consumer spending, bolstering short-term economic forecasts.
### Mexico
The Mexican peso concluded 2024 on a downward trajectory, with the dollar nearing MXN20.91. Although the peso stabilized in recent sessions, it faces tests today, beginning with support levels around MXN20.52. Mexico’s December CPI report is due Thursday, with expectations of moderating headline inflation, although slightly higher core inflation may not prevent a forthcoming rate cut. Industrial output data on Friday might underscore an economic slowdown, marking potential declines in activity for recent months.
