Dollar’s Mixed Start to the Week and Month

The US dollar has begun the new week and month with a mixed performance. Following gains realized before the weekend, the currency has seen some follow-through appreciation, but overall trading has adopted a consolidative tone. The dollar continues to hold firm against the Canadian dollar, Norwegian krone, and Swiss franc, while it remains essentially flat versus the Japanese yen. Emerging market (EM) currencies show a mixed picture, with most Asian currencies weakening except for the Indian rupee, which appreciates by approximately 0.5% following budget-driven rate increases.

Meanwhile, geopolitical tensions have eased somewhat as dialogue between the US and Iran resumes, contributing to a sharp decline in oil prices. Precious metals have experienced continued sell-offs, with prices stabilizing but heightened volatility persisting. Market participants are also factoring in the nomination of Kevin Warsh as Federal Reserve Chair, a process potentially complicated by ongoing investigations into renovation cost overruns at the Fed.

Equity markets remain volatile, mirroring last week’s swings. Upcoming central bank meetings—including those of the European Central Bank (ECB), the Bank of England (BoE), Mexico’s central bank, and likely the Reserve Bank of India (RBI)—are expected to result in steady monetary policy stances.

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G10 Currency Developments

Euro (EUR)

The euro declined before the weekend, breaking below key levels as options worth €6 billion at the $1.19 strike expired. The currency dropped to $1.1850, matching a four-day low, and slipped briefly to $1.1840 before stabilizing below $1.1875. Near-term downside risk extends toward the $1.1825–$1.1830 zone, with the possibility of further retracement to the $1.1745–$1.1665 range. Notably, €3.4 billion in options at the $1.1850 strike are set to expire tomorrow.

Japanese Yen (JPY)

The dollar hit a three-day peak against the yen, moving close to JPY 154.80 pre-weekend. Subsequent buying, supported by Prime Minister Takaichi’s acknowledgement that a weaker yen aids economic adjustment to elevated US tariffs, propelled the dollar to JPY 155.50. The pair later corrected to around JPY 154.55 and remains steady ahead of the North American session. Options totaling $570 million at JPY 155 expire today. The dollar tested the gap from last Monday’s lower opening but failed to close it, with the gap extending to JPY 155.65—also near the midpoint from the dollar’s January 23 peak at JPY 159.25.

British Pound (GBP)

Sterling declined to a three-day low prior to the weekend, remaining just below $1.3680 and easing further to roughly $1.3660 today. Last Tuesday’s broad trading range ($1.3665–$1.3870) has held despite comments from President Trump expressing little concern about the dollar’s strength. Sterling currently hovers around $1.3700 in late European morning trading. Breaching the 38.2% retracement level near $1.3650 could trigger a move toward $1.3600. Options worth £350 million at $1.3650 expire today.

Canadian Dollar (CAD)

The US dollar generated a bullish key reversal against the Canadian dollar ahead of the weekend. After falling to a low not seen since October 2024 near CAD 1.3480, the dollar rallied through the North American session to above CAD 1.3520, closing well above Thursday’s high near CAD 1.3580. The dollar reached CAD 1.3675 today but found support at CAD 1.3625, with additional chart support around CAD 1.3600.

Australian Dollar (AUD)

The Australian dollar pulled back from a near $0.7100 peak on Thursday to about $0.6940 ahead of the weekend, correcting amid the dollar’s broad recovery. Selling pressure extended to approximately $0.6910 today before the AUD rebounded to near $0.6970. The currency may face “buy the rumor, sell the fact” dynamics ahead of the Reserve Bank of Australia’s (RBA) rate decision, with significant downside potential if a hike is absent. Options expiring today include A$475 million at $0.6900 and A$325 million at $0.6930.

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Emerging Market Currency Trends

Mexican Peso (MXN)

The Mexican peso weakened against the dollar amid the greenback’s overall strength, despite a stronger-than-expected Q4 GDP print of 0.8% quarter-over-quarter following a 0.3% contraction in Q3 2025. The dollar reached a weekly high near MXN 17.4850 before retreating to MXN 17.3665 and subsequently rebounding to MXN 17.5725, just below the 20-day moving average (~MXN 17.6015) which it has not surpassed in three weeks. Mexico was closed today for a national holiday, and the peso appears vulnerable amid this context despite modest short-term gains.

Chinese Yuan (CNY)

The People’s Bank of China (PBOC) set the yuan’s midpoint fixing slightly higher today at CNY 6.9695 compared to Friday’s 6.9678. The dollar posted what may be an outside down day against the offshore yuan (CNH), rallying above the pre-weekend high before selling off to new lows. The dollar barely traded above the 20-day moving average (~CNH 6.9615), a level not breached since late November. Reports suggesting President Xi aims to elevate the yuan as a global reserve currency largely recycle speeches made over a year ago. The yuan remains included in the IMF’s SDR basket, confirming its status as a limited reserve currency.

Indian Rupee (INR)

The Indian rupee rallied roughly 0.5%, its largest single-day gain since last October, buoyed by a budget that forecast a slightly reduced fiscal deficit (~4.3% versus 4.4% of GDP) and supportive central bank actions. The Reserve Bank of India meets on Friday and is expected to maintain the repo rate at 5.25%.

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Other Market Highlights

Equities

Asian equity markets retreated sharply, with South Korea’s Kospi suffering a 5.25% drop. India was an exception, posting a roughly 1% gain. European equities as measured by the Stoxx 600 were mostly flat, while US futures showed weakness—with Nasdaq futures down by almost 1% and S&P 500 futures off slightly more than 1%.

Bond Yields

Benchmark 10-year sovereign yields exhibited mixed trends. Japan’s 10-year yield softened by one basis point to just under 2.23%, though its 30- and 40-year bonds firmed. European yields generally ticked higher except for UK 10-year gilts, which declined two basis points. The US 10-year Treasury yield eased about two basis points to just below 4.22%.

Precious Metals

Gold initially plunged from around $4894 pre-weekend to approximately $4803 but stabilized near $4800. Silver fell sharply to $71.40 from last Friday’s ~$85.20, later recovering near $84.

Oil

WTI crude settled near $65.20 before dropping to roughly $61.40, a four-day low. The likelihood of a US strike on Iran appears to have diminished, and OPEC+ agreed to maintain production levels into next month as its current deal expires.

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Economic Data and Central Bank Highlights

United States

Today’s key data includes the ISM manufacturing survey, which is considered more critical than the final manufacturing PMI figure. The latter remains in contraction territory, whereas the ISM has expanded continuously since a brief dip below 50 last July. The Treasury will also release quarterly borrowing estimates. Market focus will soon shift to labor data: JOLTS tomorrow, ADP on Wednesday, and nonfarm payrolls on Friday. Current nonfarm payroll estimates have edged upward, with a Bloomberg median forecast of 78,000 jobs added.

Canada

Canada will report its January manufacturing PMI today, with readings below the 50 boom/bust mark since last January, indicating ongoing economic challenges. StatsCan recently reported 0.1% growth in November following a 0.3% contraction in October. The week’s highlight is Friday’s labor market report, with surveys forecasting a modest 7,000 jobs increase (compared to 10,100 gains in December) and a steady unemployment rate of 6.8%.

Eurozone

The final January manufacturing PMI for the eurozone was revised slightly upward to 49.5 from 49.4, marking the first increase in three months yet remaining below the 50 expansion threshold. Among member countries, France’s PMI improved to 51.2, while Germany (49.1), Italy (48.1), and Spain (49.2) remain in contraction or near-contraction zones. Germany also reported a 0.1% decline in December retail sales, with aggregate sales data due Thursday.

United Kingdom

The final January manufacturing PMI stood at 51.8, up marginally from the initial 51.6 and December’s 50.6. This marks four consecutive increases and the third month above 50, signaling ongoing expansion. In January 2025, the PMI was 48.3.

Japan

Japan’s January manufacturing PMI was confirmed at 51.5, matching preliminary estimates and marking the third straight month of expansion. This is the highest reading since August 2022, compared to 48.7 a year ago.

Australia

Australia’s final January manufacturing PMI was revised slightly down to 52.3 from 52.4 (up from 51.6 last November and December). The market assigns roughly a 70% probability to an RBA rate hike in tomorrow’s policy announcement. Disappointment could lead to significant AUD weakness, while a hike may trigger some profit-taking.

China

China’s January manufacturing PMI disappointed over the weekend, falling to 49.3 from 50.1. December’s reading had been an outlier above 50—the first since March. The non-manufacturing PMI dropped to 49.4 from 50.2, with its composite reading down to 49.8 from 50.7. The new “RatingDog” survey (formerly Caixin) indicated a slight improvement to 50.3 from 50.1.

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_Disclaimer: This rewritten analysis reflects current economic data and market conditions without endorsement or recommendation._