Market Overview: Mixed Dollar Performance Across G10 Currencies

The US dollar exhibits a mixed performance against G10 currencies today. Influenced by official Japanese concerns over exchange rate dynamics and a seemingly productive meeting between US President Trump and Japanese Prime Minister Takaichi, the dollar halted its seven-day advance against the yen. Meanwhile, dollar-linked currencies and sterling lag behind, while a nearly 1.75% decline in crude oil prices—the third consecutive session of losses—dragged the Norwegian krone to the lowest point in the G10 universe today. Emerging market currencies present a varied performance. Despite the yuan’s strength and the People’s Bank of China (PBOC) setting the dollar’s reference rate at its lowest in a year, Asia Pacific currencies show a mixed trend. Equities are under pressure; most Asia Pacific markets declined, and Europe’s Stoxx 600 index threatens to end its three-day rally. After initially surging in the previous two sessions, S&P 500 and Nasdaq futures are largely flat. Sovereign bond yields generally softened, with the exception of peripheral European markets where yields firmed marginally. The UK 10-year Gilt yield dropped by two basis points—one of the largest decreases in Europe—mirroring a near three basis point decline in Japanese government bonds. The US 10-year Treasury yield eased slightly, holding just above 3.97%. The US Treasury plans to auction $44 billion in seven-year notes today.

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US Dollar: Stalled Momentum Ahead of FOMC Meeting

The Dollar Index paused near 99.15 but extended its decline today to approximately 98.55, reaching a five-day low and breaching the 20-day moving average around 98.65—a level not settled below since September 23. Immediate support is identified in the 98.40 to 98.45 range. Market participants await tomorrow’s Federal Open Market Committee (FOMC) decision, where a rate cut is almost fully priced in. Key economic releases include Richmond and Dallas Fed manufacturing surveys, Conference Board consumer confidence data, and August home price reports. The Federal Housing Finance Agency (FHFA) price index, partially disrupted by the government shutdown, has declined for four straight months through July, continuing a downward trend since 2010. Similarly, the S&P CoreLogic Case-Shiller house price index shows decelerating growth throughout the current year, with July’s 1.68% year-over-year increase marking the slowest pace in two years.

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Euro: Extended Gains Amidst Resistance

The euro recorded its fourth consecutive day of gains yesterday—the longest continuous advance in recent months—and extended its rise slightly above $1.1665 today. However, upside momentum faces resistance, evidenced by its inability to settle beyond $1.1650 yesterday, a level corresponding to the 50% Fibonacci retracement of the pullback from the October 17 spike near $1.1730. The 20-day moving average stands near $1.1645. Significant euro options approaching expiration include 890 million euros at $1.1630 today and 880 million euros at $1.1650 tomorrow. The European Central Bank’s (ECB) latest one-year inflation survey decreased marginally to 2.7% from 2.8%, while the three-year outlook remained stable at 2.5%. Market focus will soon shift to upcoming data releases including Q3 GDP, expected to replicate Q2’s 0.1% growth, the ECB policy meeting where no change is widely expected, and preliminary October Consumer Price Index (CPI) readings anticipated to show modest softening in headline and core inflation.

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Chinese Yuan (CNY): Reference Rate Hits One-Year Low

The US dollar recorded its second-lowest settlement against the offshore yuan (CNH) yesterday, closing just below 7.11 after reaching nearly 7.1025. Today, the dollar further softened below 7.10, touching a low near 7.0955. The year’s intraday low occurred on September 17, coinciding with the Federal Reserve’s rate cut, at around 7.0850. The PBOC set today’s dollar reference rate at 7.0856, down from 7.0881 yesterday, marking the lowest fixing since last October. While some associate this weaker fix with an emerging trade deal framework between China and the US, the dollar’s reference rate was already declining for the fourth consecutive week prior to deal announcements. Market observers suggest the PBOC is guiding the dollar towards the 7.00 level, with last year’s lowest reference rate at approximately 7.01.

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Japanese Yen (JPY): Risk-Aversion Supports Yen Bounce

The dollar approached the eight-month peak near JPY 153.25 established on October 10 but held firm. Subsequently, cautionary remarks from Japan’s new Economic and Fiscal Policy Minister Kiuchi, combined with a smooth summit between Japan’s new prime minister and US President Trump, reversed the yen’s decline, ending a seven-day losing streak. The dollar retreated to the 38.2% retracement of its upward move from the October 17 low near JPY 149.40, currently around JPY 151.80. The next technical support lies at the 50% retracement level near JPY 151.30, with the 20-day moving average slightly below at approximately JPY 151.10. Discussions reportedly centered on shipbuilding, defense, and a $550 billion investment plan in the US.

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British Pound (GBP): Sterling Under Pressure

Sterling closed near $1.3310 at the end of last week—the lowest in two weeks—before stabilizing yesterday amid generalized dollar strength. Although the pound briefly surpassed the $1.3360-65 resistance zone today—an area which capped gains in recent sessions—it soon faced heavy selling, sliding below yesterday’s low toward roughly $1.3300. Declines have been partially attributed to softer food prices reported by the British Retail Consortium. The pre-weekend nine-day low was near $1.3290. Sterling has also depreciated to a three-month trough against the euro. However, stretched momentum indicators may constrain further losses in early North American trading. Notable options at $1.3330 worth approximately GBP 310 million are set to expire today. UK economic releases include consumer credit and mortgage data due tomorrow, but the calendar remains relatively quiet until the Bank of England’s (BoE) policy meeting on November 6. Market-derived probabilities indicate roughly a 30% chance of a rate cut, which may be somewhat overstated.

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Canadian Dollar (CAD): Resilient Amid Trade Tensions

Despite heightened US-Canada tensions sparked by a World Series advertisement featuring a Reagan-era speech critical of tariffs, the Canadian dollar appreciated to its strongest level in over two weeks yesterday. The dollar retreated to CAD 1.3970, nearing the 61.8% retracement of this month’s rally, and is trading in a narrow band between CAD 1.3980 and 1.4005 today. Yesterday’s high reached approximately CAD 1.4010. A move above this level could target last Friday’s high near CAD 1.4040. While Reagan’s trade policy legacy is complex—marked by unilateral market interventions and voluntary export restraints ultimately challenged by GATT—current US import tariffs on Canada present a mixed picture. Base tariffs of 35% are nominally imposed; however, under the USMCA agreement, most Canadian exports are exempt, though steel and aluminum tariffs of 50% remain, and partial exemptions apply to Canadian automotive products. Canadian Prime Minister Justin Trudeau has acknowledged the recent US actions without signaling retaliatory measures, focusing instead on diversifying trade partnerships, particularly in Asia. The Bank of Canada meets tomorrow, with futures markets assigning an approximately 85% probability of a rate cut, up from under 50% at the end of last month.

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Australian Dollar (AUD): Gains Supported by Hawkish Tones

The Australian dollar advanced to its highest level since October 10 yesterday, supported by prevailing risk-off sentiment and somewhat hawkish commentary from Reserve Bank of Australia (RBA) Governor Philip Lowe. The AUD reached $0.6560, coinciding with a 61.8% retracement of this month’s losses, and closed above its 20-day moving average near $0.6540 for the first time since October 6. The currency made a marginal new high today near $0.6565 before easing back, finding support around $0.6545 during European trading. Futures markets currently price almost a 40% chance of a rate reduction next week, down slightly from early October when odds exceeded 70%. The release of Q3 Consumer Price Index (CPI) data tomorrow may influence these expectations. Market pricing indicates around a 67% probability of a December rate cut, the lowest forecast since mid-October.

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Mexican Peso (MXN): Consolidation Continues

The US dollar remains range-bound against the Mexican peso, confined last week to roughly MXN 18.3430 to MXN 18.49 and trading today within MXN 18.38 to MXN 18.43. Mexico reported a larger-than-expected trade deficit of $2.4 billion in September, exceeding median Bloomberg survey forecasts of $500 million. This marks the largest deficit since January and worsens from a $1.5 billion shortfall in September 2024. Exports increased 1.4% month-over-month and rose 13.8% year-over-year. Imports grew 2.1%, up nearly 10% quarterly and 15.2% annually. Political developments in Argentina influenced regional sentiment, with the Argentine peso surging over 9% to its highest level since October 16 following legislative election results. The 10-year dollar bond yield in Argentina plunged approximately 385 basis points to a new six-month trough near 10.5%, down from a recent peak of 17.45%.

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_Disclaimer: This overview is for informational purposes only and does not constitute investment advice._