### United States
The US dollar has shown strong performance across the board, although it’s encountering some resistance from the Japanese yen as investors anticipate a key speech from the BOJ deputy governor. The British pound remains the weakest among G10 currencies. Interestingly, Fed funds futures suggest that the market no longer fully expects a single Fed rate hike this year, with the first rate cut anticipated by mid-2026. Meanwhile, US Treasury yields are affecting global rates, with the 10-year yield rising by almost three basis points to approximately 4.79%. In commodities, gold is experiencing some consolidation within its previous range, just below $2,800, while new US sanctions on Russian oil and recent inventory draws have driven oil prices up. February WTI has risen for three consecutive weeks, achieving a cumulative gain of around 10%, further increasing by 1.6% today around the $78 mark.
The Dollar Index has climbed to nearly 110.00, buoyed by stronger-than-expected jobs data, reaching a high it hasn’t seen since November 2022. The initial support level is anticipated in the 109.60-75 area, as the “buy dollar on the dip” sentiment prevails. The Fed Funds futures reflect that the first Fed rate cut is expected around mid-2026.
### Eurozone
Following the latest US employment report, the euro has been sold down to $1.0215. The break below $1.02, where significant options are set to expire today, may have fueled the further selling, pushing the euro to just under $1.0180 in early European trading. The $1.02 level represents a key (61.8%) retracement of the upward rally from the September 2022 low (~$0.9535). Notably, the market is pricing in a little more than 100 basis points of ECB cuts before the Fed is expected to make its next cut.
### United Kingdom
Sterling is struggling, marking its fifth consecutive losing session. After hitting a peak near $1.2575 last Tuesday, it dropped to around $1.2100 in early European trading today. While the strong dollar is one factor, there are also inherent UK issues at play, such as growing apprehensions regarding fiscal policy, Labour’s tax pledges, and sluggish economic growth signals. UK Gilts have also been affected, with the 10-year yield rising for the sixth consecutive session, totaling a 30 basis point increase. Some concerns may abate in the near term as core and services inflation relaxes slightly, GDP shows growth for the first time in three months, and retail sales remain robust. Initial resistance could be around $1.2150, close to the lower Bollinger Band, positioned slightly above $1.2200.
### China
Record-breaking exports led China’s trade surplus to nearly $1 trillion last year, posing a challenge to the incoming US administration, which is likely to impose higher tariffs on Chinese goods. Exports to the US reached a near two-year high in December of almost $50 billion. While some believe Beijing encourages a weaker yuan to boost exports, the PBOC has tried to halt the yuan’s slide using various strategies like setting daily reference rates and potentially engaging in indirect intervention. Despite ending an export tax subsidy and removing tariffs on goods from the world’s poorest countries, China’s December trade surplus significantly increased to almost $105 billion from $97.4 billion in November. Exports have risen by 10.7% year-over-year, up from 6.7% in November, possibly as a means to preempt tariffs. The yuan’s low nominal 10-year yield (~1.60%) is higher in real terms than several high-income countries. The dollar is nearing its 2023 high against the offshore yuan at approximately CNY7.3680, while the reference rate was set at CNY7.1885 today, allowing a band of CNY7.0447-CNY7.3323.
### Japan
The USD/JPY currency pair recorded an outside day before the weekend, showcasing volatility but ultimately ended neutrally within Thursday’s range. Today, the dollar is seeing lower offers against the yen and has tested the 20-day moving average, just above JPY157.10, for the first time in nearly a month. Although US rates remain firm, some position adjustment is occurring ahead of the BOJ deputy governor’s speech tomorrow. With the yen’s recent weakness and reports suggesting the BOJ might raise its inflation forecast, speculation over a potential rate hike has increased. The challenge lies in determining the increment with the current overnight target at 0.25%. The swaps market is pricing in almost a 15 basis point increase this month.
### Canada
Despite stronger-than-expected Canadian jobs data, the Canadian dollar has fallen for the fourth consecutive session as US news dominates the landscape. For the past three weeks, the Canadian dollar has shown gains in only one session each week, typically on Mondays. Last Monday’s trading range (~CAD1.4280-CAD1.4450) remains a constraint. The key question is whether this is a distributive top or the foundation for the next upward leg. We lean towards the latter, with a movement above CAD1.4450 potentially prompting a near-term advance towards CAD1.4500. The pandemic high hovered around CAD1.4670.
### Australia
Starting this week, the Australian dollar extended last week’s four-day decline. The currency reached a new low since April 2020 today at approximately $0.6130, slightly below its lower Bollinger Band ($0.6140). Technical charts reveal little support before $0.6100. Short-term resistance might appear in the $0.6160-75 zone. The currency’s weakness hasn’t notably altered expectations for the Reserve Bank of Australia’s likely interest rate cut next month. The futures market has priced in roughly a 68% chance of a quarter-point cut.
### Mexico
The broad dollar gains spurred by robust jobs data and a risk-off mood resulted in the greenback nearly reaching MXN20.75 late last week and briefly surpassing MXN20.84 today. It’s approaching the peak recorded at the end of last year, just below MXN20.91. Emerging market currencies are generally subdued amid this risk-off sentiment. Mexico’s economic calendar is light this week, so domestic events have had minimal market impact. However, Mexico will be in the spotlight next year during the USMCA’s formal review, a process where significant geopolitical changes may alter the dynamics.
