Market Overview: US Dollar Stabilizes Amid Mixed G10 Currency Movements

General Market Sentiment

The US dollar is regaining footing against most G10 currencies today following recent declines. As North American markets prepare to open, the dollar posts modest gains against the majority of the G10, with the notable exceptions of the Japanese yen and Australian dollar. The news flow remains subdued, with market sentiment influenced primarily by expectations surrounding central bank policy actions.

Emerging market currencies generally exhibit softness, although the Indian rupee stands out as the strongest performer after intervention by the Reserve Bank of India reversed its slide from record lows. In China, the People’s Bank of China (PBOC) set the dollar’s reference rate to its lowest level since last October, reinforcing the gradual yuan appreciation.

Equity markets show broad-based gains across the Asia-Pacific region, led by a 2.3% jump in Japan’s Nikkei. South Korea’s Kospi is a notable exception, declining slightly. In China, the CSI 300 edged higher whereas the Shanghai and Shenzhen composite indexes retreated marginally. In Europe, the Stoxx 600 is recording its largest weekly gain (~0.3%) and rising for eight of the past nine sessions. U.S. equity futures remain mostly flat in early activity.

Fixed Income and Commodities

Japanese government bonds experienced a sell-off, with the 10-year yield rising four basis points, although longer maturities (30- and 40-year) experienced mild yield declines. European yields inched higher, except for the 10-year UK Gilt, which declined by two basis points. The 10-year U.S. Treasury yield has increased by approximately 1.5 basis points to approach 4.08%. Gold prices remain steady near $1,920, while January West Texas Intermediate (WTI) crude oil consolidates within a $58-$60 range.

Currency-specific Analysis

US Dollar Index

The Dollar Index extended its losses yesterday amid early North American trading, reacting to weaker-than-expected private sector payroll numbers for November. ADP reported a decline of 32,000 jobs, the largest monthly loss since mid-2020 and marking three job reductions in the last four months. Following an initial dip below 99.90, the Dollar Index dropped below 99.10, settling near 98.80 late in the session.

Today, the dollar trades just above 99.00, re-testing the 98.80 level—corresponding to the 38.2% retracement of the rally since September 17. Technical developments include scrutiny of a potential double top pattern with a downside target around 97.70, while the 61.8% retracement of the same rally is near 97.80.

Upcoming U.S. economic data include Challenger job cuts and weekly unemployment claims, with September personal income, consumption, and deflators released tomorrow—though these are considered dated and unlikely to move markets substantially. Additionally, the preliminary University of Michigan consumer sentiment and inflation expectations for December will be published.

Euro (EUR)

The euro reached approximately $1.1680 yesterday, the strongest level since October 17, shortly after having surpassed $1.17. It currently trades slightly above this threshold, near the $1.1695 zone, marking the 50% retracement of losses since the year’s high near $1.1920 recorded on September 17.

A higher close today would extend the euro’s rally to nine consecutive sessions. Momentum indicators remain constructive, although the euro has briefly exceeded the upper Bollinger Band (around $1.1675). The momentum stalled somewhat in the European session, with 2.5 billion euro options struck at $1.1650 expiring at 10:00 AM ET likely adding a near-term focus.

The U.S.-Germany two-year interest rate spread has narrowed to about 144 basis points, the lowest since September 2024, compared with lows of roughly 135 and 112 basis points in 2023 and 2022, respectively. European retail sales data present a mixed picture: October sales were flat in volume terms, continuing a pattern of subdued consumption, although September’s slight decline was revised upward.

Chinese Yuan (CNY)

The dollar fell to new lows against the yuan, reaching CNH 7.0540 during North American hours, and currently moves within the CNH 7.0560-7.0680 range. The PBOC has consistently set lower dollar reference rates, establishing a rate of CNY 7.0733 today, down from CNY 7.0754 yesterday, marking the lowest level since last October.

This intervention is part of a broader effort that has seen the reference rate reduced in eight of the past ten sessions, resulting in a near 2% decline since April. Year-to-date, the onshore yuan has appreciated approximately 3.35%, with the offshore yuan outperforming at roughly 4%. The US-China inflation differential remains near 3%. Notably, some reports suggest state-owned Chinese banks are purchasing dollars, presumably for commercial transactions rather than official intervention.

Japanese Yen (JPY)

The dollar remains range-bound between JPY 154.65 and JPY 156.25, demonstrating little change over the last two trading days. Earlier today, it moved toward the lower boundary during European trading hours. Notably, yesterday marked the first session since November 18 where the dollar failed to exceed JPY 156.00, barely holding above the JPY 155 mark.

Technically, the five-day moving average crossed above the 20-day average in early October but is now slipping below it again. A break below JPY 154.65 may open the door to a decline towards the JPY 153.55-65 range. Momentum indicators are trending downward.

According to weekly Ministry of Finance portfolio flow data, Japanese investors were net sellers of roughly JPY 675 billion in foreign assets last week (selling bonds, buying equities), while foreign investors acquired about JPY 1.67 trillion of Japanese securities.

British Pound (GBP)

Sterling reached a four-day low near $1.3180 on Tuesday but rebounded to almost $1.3355 in North America yesterday and has climbed marginally to near $1.3360 today. The pair remains confined within a narrow band of approximately $1.3325 to $1.3360 as upward momentum fades.

Sterling crossed above the 200-day moving average for the first time since late October and is approaching the 50% retracement level of its sell-off from the September 17 high of approximately $1.3725. The next key technical target aligns with the 61.8% retracement near $1.3450.

UK purchasing managers’ indices (PMIs) for November displayed mixed results: manufacturing and services PMIs remained above the expansionary 50 level, but the construction PMI registered a depressed reading at 39.4, a multi-year low down from 44.1 in October.

Canadian Dollar (CAD)

The US dollar weakened against the Canadian dollar yesterday even as the Antipodean currencies outperformed the CAD. The greenback hovered just above the November low near CAD 1.3940—the 50% retracement level of its gains from the September 17 low around CAD 1.3725. The 200-day moving average sits slightly below the CAD 1.3920 level.

The CAD’s resilience occurred despite disappointing November services and composite PMIs, which fell to 44.3 and 44.9 respectively—the lowest levels since April and June.

Today, the Canadian IVEY PMI will be released; historically, it tends to run hotter than the S&P PMI. The main market focus remains on Friday’s November jobs report. The swaps market continues pricing for an end to the Bank of Canada easing cycle.

Australian Dollar (AUD)

The Australian dollar surpassed the $0.6600 mark yesterday for the first time since late October, nearly reaching the 61.8% retracement level of its September 17 peak near $0.6705. Today, it trades around $0.6610, extending gains to nine sessions in the last ten.

Momentum indicators maintain an upward trajectory, with the AUD settling above the upper Bollinger Band (~$0.6590), a threshold not breached since mid-September. The October high of approximately $0.6630 remains near-term resistance.

Earlier today, Australia released trade and household spending data for October. The monthly trade surplus expanded to A$4.4 billion from a revised A$3.7 billion in September. Exports rose 3.4% while imports increased 2.0%. Household spending surged 1.3%, the strongest monthly gain since September 2023, driven largely by discretionary expenditures.

Futures markets fully price in the conclusion of the RBA’s easing cycle, with rate hikes anticipated in late 2026.

Mexican Peso (MXN)

The dollar reached a two-month low against the Mexican peso yesterday, dropping just below MXN18.2470 during early North American trading. It remained broadly stable, mostly below MXN18.28, before receding slightly below MXN18.26 in European hours.

Mexican vehicle sales soared by 11.8% in November following a 13.2% increase in October. Year-to-date sales slightly outpace last year. Despite concerns among observers regarding Mexico supplanting Russia as China’s largest foreign auto market, much of this trade involves U.S. brands employing Chinese production facilities. For instance, a significant proportion of Chevrolet units sold in Mexico originates from Chinese factories.

Disclaimer

This analysis is provided for informational purposes and does not constitute financial advice.