United States
The recent trends for the US dollar show it backing off from its previous gains as it halted a three-day 1.2% advancing streak on Monday. It’s now been on a downward trajectory for the past four sessions, pulling back by approximately 3.4%. The Dollar Index closed below the 200-day moving average, which was around 105.00, for the first time since November’s elections. Currently, it’s flirting with the 61.8% retracement mark of its ascent since last September, near 104.00, with potential support appearing at 103.35. As US traders sift through several economic data points today amidst looming tariff impacts and Friday’s employment report, the focal point remains the January trade balance. Given that America’s goods deficit surged by 25% to hit a record 153.3 billion, there is an anticipation that the overall trade deficit may have swelled to around $129 billion from nearly $98.5 billion in December. This surge in goods importation could potentially be explained by rushed procurements ahead of threatened tariffs, which might get counterbalanced somewhat by higher wholesale inventories.
Eurozone
The euro has recently witnessed significant upward momentum, driven by increased European defense spending and climbing long-term interest rates, juxtaposed against growth concerns in the US. Closing last week under $1.04, the euro approached $1.08 yesterday and rose slightly above $1.0820 today before steadying. The $1.08-mark sees significance as the 61.8% retracement of the euro’s drop from last September’s peak near $1.1215. Today, the European Central Bank is anticipated to deliver another quarter-point rate cut, though the market expects a pause before another potential reduction in rates by June. ECB President Lagarde, through her communications, is anticipated to maintain flexibility while minimizing any firm commitments as the central bank grapples with fiscal and geopolitical uncertainties. Meanwhile, the Eurozone bond market is seeing a bit of a rout, with benchmark 10-year yields climbing 6-8 basis points lately, summing up to a 45-basis point rise over the past five sessions.
United Kingdom
Sterling has been showcasing resilience, settling above the 200-day moving average (~$1.2785) for the first time since November 12. With sustained buying, the British pound rose to $1.2900 yesterday and has touched $1.2925 today. The level $1.2925 represents a 61.8% retracement of sterling’s decline since last September. However, the currency faced some resistance in European trading and hit a session low near $1.2870. While there’s support seen close at $1.2850, the UK’s economic landscape remains clouded, as evidenced by the construction PMI, which fell below 50 in January, marking its lowest since late 2023. With crucial economic reports not arriving until next Friday’s GDP details, the British economy has stagnated through the latter half of 2024, with little signs of improved growth.
China
The US dollar edged towards CNH7.30 at the start of the week but receded a bit to CNH7.2335 yesterday, reflecting broader dollar weakness. Earlier in the month, the dollar had touched a low of CNH7.2290, marking its lowest since late last November. Today, as the dollar gains strength, it’s testing levels above CNH7.25. Meanwhile, intensified US tariffs targeting Chinese goods by 20% in recent months remain a point of contention, though China has so far retaliated with restraint. This restrained stance might reflect Beijing’s push for a diplomatic solution amidst the ongoing political standoff, even as US President Trump and Chinese President Xi have yet to discuss these matters since January 20.
Japan
The sag in US 10-year yields following lackluster ADP private sector job figures fostered a yen recovery, driving the dollar lower to session lows near JPY148.40. Despite a recovery in US Treasury yields, the dollar struggled to maintain ground above JPY149 and is currently hovering near JPY147.70, the lowest level since last October. The yen is contending with the retracement mark of its rally from September’s low through January 10. Japan’s Ministry of Finance indicates that Japanese investors have been purchasing foreign bonds at a similar pace to the previous year, while foreign equities have attracted fewer purchases.
Canada
Hopes of a tariff break, alluded to by the US Commerce Secretary, lent strength to the Canadian dollar, seeing the greenback dip near CAD1.4330. It touched an intraday low near CAD1.4300 today before recovering. Resistance for the Canadian dollar is perceived around CAD1.4400-20. Canada has reported its January goods trade balance, which has seen seasonally adjusted deficits, except in three months last year, translating to a C$7.2 billion deficit. Additionally, the IVEY PMI highlighted a sharp drop in January due to pandemic influences, likely exhibiting deterioration further last month.
Australia
The Australian dollar registered a bullish outside up day on Tuesday, followed by further buying lifting it above $0.6340 yesterday. It approached $0.6360 today but has since stalled, nearing session lows of $0.6325. Australia recently announced a January goods surplus of A$5.6 billion, albeit lower than January 2024’s figure of $9.23 billion. For the whole year 2024, the country recorded a goods surplus of A$68.7 billion, marking a drop from A$124.6 billion in 2023. While exports grew by 1.3% in January, imports dipped by 0.3%. The current account deficit appears landing around 2% of GDP, potentially the largest since 2018, reflecting Australia’s deep trade links with China.
Mexico
Prospects of a reprieve from US levied tariffs provided a recent lift to the peso, with the US dollar, which neared MXN21.00 on Tuesday, dropping slightly below MXN20.35 yesterday. Today’s trading has been quieter, staying within yesterday’s range, with a move potentially signaling a trend toward MXN20.20. Mexico readies to announce its February CPI on Friday, and given the developments with the peso, the central bank might contemplate another 50 basis point rate cut in its meeting on March 27. In broader region discussions, Brazil’s recent developments include a noteworthy composite PMI rise to 51.2 in February, shaking off a recent three-month decline.
