Weekly Currency Market Review: G10 and Emerging Markets Update

Overview of G10 Currency Movements

All G10 currencies depreciated against the US dollar last week, with six of them experiencing declines exceeding 1%. Notably, Japan’s Ministry of Finance issued an explicit intervention threat, enabling the yen to recover approximately 0.7% before the weekend, pulling it back from a 10-month trough. Conversely, the Swiss franc emerged as the weakest major currency, losing about 1.75% against the greenback. This suggests that the yen and Swiss franc have increasingly been used as funding currencies in carry trades, replacing the US dollar as the short leg.

The strengthening of the US dollar was not accompanied by a rise in US interest rates. Despite the decline in market expectations for a Federal Reserve rate cut in December below 30%, comments from NY Fed President Williams regarding the possibility of a “near-term” cut doubled those odds late in the week. US labor market data remains pivotal in shaping Federal Reserve policy expectations.

Key Upcoming Economic Indicators

Next week’s US economic calendar includes September retail sales, producer price index data, housing price figures, and the Conference Board’s consumer confidence metrics. Weekly estimates such as ADP employment and jobless claims are unlikely to significantly influence market sentiment. US markets will be closed on Thursday for Thanksgiving.

The UK’s fiscal budget announcement on November 26 is highly anticipated. Chancellor Reeves faces the complex challenge of implementing fiscal tightening without eroding political support or empowering the populist Reform UK party.

In Japan, attention will focus on Tokyo’s consumer price index, which may show signs of softening, alongside preliminary October industrial output data indicating continued contraction. Sino-Japanese geopolitical tensions remain elevated, with ongoing economic retaliation potentially persisting further.

Central Bank Focus

The Reserve Bank of New Zealand (RBNZ) is the sole G10 central bank scheduled to meet next week. After a series of cuts earlier in the year, including a 50 basis point reduction last month, the overnight target rate currently stands at 2.50%. A 25 basis point cut appears likely as the RBNZ approaches a terminal policy rate possibly near 2.0%.

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US Dollar and Monetary Policy Dynamics

Dollar Index and Fed Rate Expectations

After reaching a near five-month high on November 5, the Dollar Index retreated approximately 1.35% in the first half of November. However, hawkish Federal Reserve comments helped the greenback regain momentum despite pared expectations for rate cuts. By Friday’s close, the Fed funds futures market priced in nearly a 66% probability of a rate cut, close to the 69% probability observed at the time of last month’s reduction.

Economic Data and Market Sentiment

The government’s data release schedule remains somewhat disrupted. September’s producer price index will be reported on Tuesday amid numerous regional Federal Reserve surveys (Chicago, Dallas, Philadelphia, Richmond). The Beige Book, synthesizing economic conditions ahead of December’s FOMC meeting, is due midweek. Private sector data includes housing price indexes, pending home sales, and the November consumer confidence survey from the Conference Board.

Technical Price Analysis

The Dollar Index peaked near 100.40 late in the week — a marginal new monthly high and the strongest since March — closing above its 200-day moving average for the first time in several months. Momentum indicators show renewed upward bias, with the five-day moving average crossing above the 20-day moving average. While it was previously anticipated that the rebound from September’s low near 96.20 had stalled, recent price action highlights the potential for another upward phase. The next significant technical resistance is around 101.55, corresponding to the 38.2% retracement of this year’s decline. A violation of the 99.60 level may dampen the bullish momentum.

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Euro Area: Shifting Correlations and Market Trends

Interest Rate Sensitivity and Risk Appetite

The euro’s responsiveness to interest rate changes has notably diminished. The 30-day rolling inverse correlation between euro exchange rate movements and the US two-year yield declined from approximately -0.80 in September to about half that level, a range observed last in early July. Similarly, correlation with Germany’s two-year yield moved from an October low near -0.53 to near zero currently.

Meanwhile, the correlation between euro fluctuations and the S&P 500 — a proxy for global risk sentiment — shifted from a positive 0.40 in early October to roughly -0.30, signifying evolving market dynamics.

Economic Data and Inflation Expectations

This week features a light calendar for eurozone releases. Although October money supply growth no longer commands market attention as before, lending figures remain informative regarding financial conditions. The ECB’s inflation expectations survey, scheduled for release at week’s end, recorded one- and three-year inflation anticipations of 2.7% and 2.5% respectively in September.

Price Movements and Technical Outlook

The euro declined below $1.15 before the weekend, marking a new weekly low and approaching the month’s bottom near $1.1470—the lowest since early August. A breach of the $1.1400 level and its adjacent 200-day moving average could pave the way for further declines toward $1.1240, aligned with the 38.2% retracement of this year’s upward move.

The US two-year yield premium over German Bunds fell to a new annual low, just under 150 basis points pre-weekend, tempering a purely technical bearish view on the euro. Stabilization above $1.1560 would improve the technical outlook, while breaking $1.16 could spark speculation of a bottoming process.

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Chinese Yuan and Monetary Policy Developments

Currency Dynamics and Volatility

The People’s Bank of China (PBOC) has gradually lowered the dollar reference rate, though offshore yuan (CNH) trading has remained largely sideways for two months. Implied three-month volatility dipped to an eight-year low near 2.6% recently. Market speculation persists that authorities are steering the dollar’s reference rate toward CNY7.00.

Trade discussions between the US and China have not prominently featured exchange rate issues, amid divergent narratives over agreements on rare earths, agricultural trade, and other strategic topics, including recent US arms sales to Taiwan. Reports suggest some new understanding may emerge in the coming weeks.

Macro Data and Economic Conditions

China’s October industrial profits, due Thursday, improved year-on-year over August-September to their best level since late 2023. The year-to-date profit growth also improved but remains below strong levels, expanding 3.2% year-on-year in September—the best since July.

Exchange Rate Technicals

The dollar reached its lowest level of the year versus CNH near 7.0850 on September 17, coinciding with the Federal Reserve’s initial rate cut. It revisited this low in late October and mid-November. The range’s upper bound was shaped around 7.15 during early October, with the dollar stalling near 7.12 late last week. Against the onshore yuan (CNY), the dollar’s yearly low was near 7.0920 on November 14, rising to around 7.1180 the following week before settling near 7.1050 ahead of the weekend. The dollar now appears to be in a gradual downtrend channel.

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Japanese Yen: Intervention Risk and Economic Activity

Dollar-Yen Correlations and Market Influences

The dollar-yen exchange rate shows greater sensitivity to US interest rates than Japanese rates, with 30-day correlations near 0.45 against US 2- and 10-year yields and about half that relative to Japanese yields. Correlation with the S&P 500 (risk appetite) stands at a five-month high around 0.45. Gold’s correlation with dollar-yen swings has shifted from strongly negative in recent months to mildly positive, the first such movement since February.

Economic Data and Policy Outlook

Japanese data releases intensify midweek, including October’s services PPI, followed by employment, retail sales, industrial production, and Tokyo CPI data on Thursday. Although Japan’s GDP contracted 0.6% quarter-over-quarter (annualized -2.4%) in Q3, indications suggest Q4 activity is recovering. The swaps market has lowered the probability of a December rate hike to approximately 32%, down from 50% earlier in November.

Currency Movements and Intervention Risk

The dollar touched nearly JPY157.80 on November 20, its highest since January. Japanese officials have escalated verbal interventions, with Finance Minister Kstayama acknowledging the possibility of direct foreign exchange market intervention, referencing the US-Japan finance ministers’ joint statement from September. Bank of Japan Governor Ueda noted the weaker yen pushes import costs higher, potentially accelerating inflation.

Despite these comments, market expectations for a policy rate increase next month have declined, with implied probability halving to about 16% last week. Technical support now sits around the prior resistance near JPY155 and the 20-day moving average near JPY154.65. Intervention is perceived as a measure of last resort, with a rate hike expected to be the primary policy response.

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UK Sterling: Fiscal Uncertainty and Market Sentiment

Interest Rate Sensitivities

Sterling’s sensitivity to US interest rate fluctuations has weakened, with the 30-day correlation between changes in GBP/USD and the US two-year yield dropping from about -0.67 in mid-September to -0.25 currently. Meanwhile, the correlation with UK two-year yields has turned slightly positive for the first time since August. Correlations with 10-year gilt yields have similarly moderated.

Though sterling has hit two-and-a-half-year lows against the euro, the 30-day correlation between GBP/EUR and GBP/USD remains robust near 0.70.

Fiscal Policy and Economic Outlook

Next week’s UK budget announcement on November 26 will dominate the economic landscape. The government must generate approximately GBP30 billion in revenue amid political constraints, skeptical markets, and opposition from Reform UK. Chancellor Reeves has reportedly shifted strategy toward measures such as bracket creep and targeted taxes on gambling and high-value properties, navigating the tension between fiscal responsibility and electoral promises.

Price Action and Technical Levels

Sterling appears to have formed a short-term bottom near $1.3040, but price momentum remains subdued, with six consecutive sessions failing to breach prior highs. The currency opened the new week near $1.3100, coinciding with the 38.2% retracement of this month’s pullback. The lowest point this month was around $1.3010; the 50% retracement of this year’s rally stands near $1.2945.

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Canadian Dollar: Diverging Correlations and Economic Data

Changing Correlation Patterns

The movement of USD/CAD has become less correlated with the broader Dollar Index, with the 30-day rolling correlation dropping from a peak near 0.80 in late August to approximately 0.30. Sensitivity to US interest rate changes has decreased, with correlations near zero, while correlations with Canada’s two-year yield have swung from positive (+0.40 in early October) to inversely correlated (-0.30), the most negative since April.

Economic Releases and Outlook

Canada’s September and Q3 GDP data, due at week’s end, will provide insight into economic momentum. Monthly GDP contracted 0.3% in August following a 0.3% July increase, the first gain since March. Annualized Q2 GDP contraction was 1.6%, while forecasts suggest a modest 0.5% expansion in Q3.

The Bank of Canada is widely expected to maintain its current policy stance through at least Q1 2026, with less than a 25% probability priced for a rate cut.

Price Movements and Technical Implications

The US dollar experienced an apparent bearish reversal on November 18 but resumed gains thereafter, rising to about CAD1.4130 before the weekend. The month’s high, near CAD1.4140, was a seven-month peak. Technical resistance around CAD1.4165 represents the year’s mid-range, with the 61.8% retracement near CAD1.4315. Daily momentum indicators have turned positive, enhancing the technical tone. A break below CAD1.4030 would indicate a significant dollar top formation.

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Australian Dollar: Correlation Shifts and Inflation Outlook

Correlation Dynamics

Notably, the 30-day rolling correlation between AUD/USD and the Dollar Index briefly flipped to positive earlier this month for the first time in nearly five years but has since reverted to a mildly negative range (-0.17). Similarly, the correlation between the Australian dollar and the euro moved briefly into negative territory before returning to a mild positive stance (approximately 0.12).

Unusually, the Australian dollar’s 30-day correlation with the US two-year yield remains positive around 0.50, the strongest since early 2020.

The AUD has exhibited increased sensitivity to commodity price movements, with its correlation to the CRB Index rising from a historic low near -0.35 earlier this year to about 0.47.

Economic Data and Policy Expectations

Australia will release October’s CPI on Wednesday. Year-on-year inflation has risen to 3.5% from 1.9% in June, influencing market expectations that the Reserve Bank of Australia will maintain policy through at least Q1 2026. Futures markets assign less than a one-third probability to a near-term rate hike.

Q3 private capital expenditure data, flat in the first half of 2025, alongside October private sector credit growth, which remains stronger than the prior year, will also be monitored. Overall, the data profile is unlikely to prompt material shifts in RBA policy outlook.

Price Developments and Technical View

The Australian dollar declined approximately 2.4% from this month’s high near $0.6580 on November 13 to about $0.6420, marking a roughly three-month low. The $0.6400 level aligns with the 38.2% retracement of this year’s gain, with a break below potentially opening losses toward the 50% retracement near $0.6310. The AUD found support near $0.6460 in North American trading, coinciding with its 200-day moving average. A move above $0.6500-$0.6520 would improve the technical outlook.

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Mexican Peso: Exchange Rate Dynamics and Economic Indicators

Exchange Rate and Risk Sentiment

The inverse correlation between USD/MXN and the JPM Emerging Market Currency index remains significant near -0.75 over the past month. The dollar-peso correlation with the Dollar Index decreased sharply from a decade-high above 0.80 in late September to near 0.35 recently after briefly dipping below 0.10 earlier this month. There is also a notable risk-off element, with the greenback’s moves versus the peso inversely correlated (-0.45) with S&P 500 fluctuations, intensifying in recent months.

Recent appreciation of the peso has been accompanied by speculation regarding yen carry trade unwindings, evidenced by shifts in correlation dynamics between the dollar, yen, and peso.

Economic Data and Monetary Policy Outlook

Mexico’s central bank is expected to keep interest rates steady at the December 18 meeting amidst a contraction of 0.3% in Q3 GDP and ongoing inflationary pressures. CPI data for early November will be released this week, with the headline rate at 3.5% and core inflation elevated at 4.32%, still above the 3% target range.

Despite economic weakness, retail sales have remained relatively resilient, averaging 0.3% growth in the first eight months of 2025 compared to a 0.2% decline in the same period last year. September data is expected to show some moderation.

October trade balance figures also will be released. While the peso has appreciated approximately 13.8% year-to-date, Mexico’s trade deficit has improved, narrowing from a $2.85 billion monthly average in Q3 2024 to roughly $1.45 billion in Q3 2025. Export growth (5%) outpaces import increases (3.6%), and remittance inflows substantially offset trade deficits.

The central bank’s inflation report midweek will provide further clarity on policy trajectory. Target rates have fallen sharply from 10% in January to 7.5% currently, with markets anticipating a terminal rate near 7% by mid-2026.

Technical Price Developments

The US dollar reached a monthly high near MXN18.77 on November 5 before dropping to around MXN18.25 on November 13. It rebounded modestly above MXN18.53 pre-weekend, surpassing the 50% retracement of the recent decline. Momentum indicators suggest renewed upward pressure, with the next retracement resistance at roughly MXN18.5750. Surpassing this could target the November highs.

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**Disclaimer:** This report is for informational purposes only and does not constitute investment advice. Market conditions are subject to change.