Dollar Opens the Week and Month With Mixed Performance

The U.S. dollar is starting the new week and month on a mixed note. Following gains seen before the weekend, the currency has continued to strengthen against the Canadian dollar, Norwegian krone, and Swiss franc. Meanwhile, it remains essentially flat against the Japanese yen. Emerging market currencies show a mixed response, with most Asian currencies declining. Of note, the Indian rupee has appreciated by approximately 0.5%, buoyed by a weekend budget announcement that contributed to higher yields.

Geopolitical tensions have eased somewhat as the U.S. and Iran engage in talks, resulting in a sharp drop in oil prices. The sell-off in precious metals has persisted, with prices stabilizing but volatility remaining elevated. Market participants are also evaluating the impact of President Trump’s nominee for Fed chair, Kevin Warsh, amid ongoing investigations concerning Federal Reserve renovation costs, which could complicate the Senate confirmation process. Volatility in equity markets observed last week is expected to persist into this week.

The European Central Bank (ECB) and Bank of England (BoE) meet this week, but both are widely expected to maintain current policies. Similarly, Mexico is anticipated to stand pat, with India likely to follow suit.

G10 Currency Market Overview

Euro

The euro declined ahead of the weekend, pressured by the expiration of €6 billion in options struck at $1.19. Following option expiry, the euro dropped to $1.1850, marking a four-day low. It touched a lower level of $1.1840 before stabilizing but remains below $1.1875. Near-term downside risk extends to the $1.1825-$1.1830 range, with a potential deeper retracement toward $1.1745-$1.1765. Notably, €3.4 billion in options at $1.1850 are due to expire tomorrow.

Japanese Yen

The U.S. dollar reached a three-day high near JPY 154.80 before the weekend and climbed to JPY 155.50 amid follow-through buying, partly driven by Japanese Prime Minister Takaichi’s comments acknowledging that a weaker yen aids in mitigating the impact of higher U.S. tariffs. The dollar has since retreated toward JPY 154.55 and remains relatively unchanged entering the North American session. Approximately $570 million in options at JPY 155 expire today. The dollar attempted to close a gap on charts from last Monday but remains below JPY 155.65, which corresponds closely to the midpoint since its January 23 peak at JPY 159.25.

British Pound

Sterling experienced weakness ahead of the weekend, falling to a three-day low just below $1.3680. It slipped further to nearly $1.3660 today. The currency has been trading in a broad range between ~$1.3665 and $1.3870 since last Tuesday, following President Trump’s comments downplaying concerns over the dollar. The lower boundary of this range aligns with the 38.2% Fibonacci retracement level. A breach below this threshold could accelerate a decline toward $1.3600. Options totaling £350 million at $1.3650 expire today.

Canadian Dollar

The U.S. dollar reversed prior losses against the Canadian dollar before the weekend, rallying from a fresh low near CAD 1.3480— its weakest level since October 2024— to above CAD 1.3520 during the North American session. The dollar settled well above Thursday’s high near CAD 1.3580 and extended gains today to CAD 1.3675, finding interim support around CAD 1.3625 and CAD 1.3600 on technical charts.

Australian Dollar

After peaking near $0.7100 last Thursday, the Australian dollar corrected lower due to the greenback’s broad recovery, falling as low as $0.6910. It rebounded sharply to nearly $0.6970 today. Market expectations signal a roughly 70% probability of an interest rate hike by the Reserve Bank of Australia (RBA) tomorrow. The currency may experience “buy the rumor, sell the fact” dynamics surrounding the policy announcement. Options aggregating A$475 million at $0.6900 and A$325 million at $0.6930 expire today.

Emerging Market Currencies

Mexican Peso

Despite better-than-expected Q4 GDP growth of 0.8% quarter-over-quarter (following a 0.3% contraction in Q3 2025), the Mexican peso weakened amid broader dollar strength. The greenback climbed to a weekly high near MXN 17.4850 before the weekend and traded initially lower today around MXN 17.3665, before rebounding to MXN 17.5725, slightly below the 20-day moving average (~MXN 17.6015). The peso appears vulnerable despite a slight improvement in early North American trading; Mexico is closed for a national holiday today.

Chinese Yuan

The People’s Bank of China (PBOC) set a slightly higher fixing for the dollar today at CNY 6.9695, up from CNY 6.9678 on Friday. The offshore yuan experienced a potential outside down day, rallying initially above the pre-weekend high before reversing to test lower levels. The dollar flirted with the 20-day moving average (~CNH 6.9615) but has not maintained a close above it since late November. A recent Financial Times article referencing President Xi’s aspiration for the yuan to become an international reserve currency is based on an older speech, and while the yuan is included in the SDR basket, its reserve currency status remains limited.

Indian Rupee

The Indian rupee strengthened by approximately 0.5%, its largest daily gain since last October, supported by a budget projecting a slightly narrower fiscal deficit (~4.3% of GDP versus 4.4%) and central bank interventions. The Reserve Bank of India is scheduled to meet on Friday and is expected to maintain the repo rate at 5.25%.

Other Key Markets

Equities

Asia-Pacific equity markets declined, led by South Korea’s Kospi, which fell 5.25%. India was a notable exception, recording a roughly 1% gain. European Stoxx 600 was generally flat, while U.S. equity futures weakened, with Nasdaq futures down nearly 1% and S&P 500 futures off slightly more than 1%.

Government Bond Yields

Ten-year government bond yields showed mixed movements. The Japanese 10-year yield eased slightly by one basis point to just below 2.23%, while longer-dated Japanese bonds firmed. European yields mostly edged higher, except for the 10-year U.K. Gilts, which declined by two basis points. The 10-year U.S. Treasury yield slipped by a couple of basis points to just under 4.22%.

Precious Metals and Oil

Gold initially plunged to around $1,403 (settling just above $1,489 ahead of the weekend) before rebounding to nearly $1,480, where it stalled. Silver followed a similar pattern, dropping to near $71.40 (approximately $85.20 last Friday), then recovering to nearly $84. March WTI crude oil faced significant selling pressure, falling from $65.20 to nearly $61.40, a four-day low, reflecting reduced concerns of an imminent U.S. strike on Iran and OPEC+’s decision to maintain current output levels next month.

Economic Data Highlights

United States

Focus today centers on the ISM manufacturing survey, which holds greater significance compared to the final manufacturing PMI reading, as it remains in expansion territory following a brief dip below 50 last July. Additionally, quarterly Treasury borrowing estimates will be released. Attention will shift to labor market data later in the week, including JOLTS on Tuesday, ADP employment on Wednesday, and the nonfarm payrolls report on Friday. Recent estimates for nonfarm payrolls have trended higher, with Bloomberg’s median forecast now calling for an increase of 78,000 jobs.

Canada

January’s manufacturing PMI will be released today, having not exceeded the 50 expansion threshold since January of last year. The Canadian economy remains challenged despite slight growth of 0.1% in November following a 0.3% contraction in October. The labor market report scheduled for Friday is the week’s highlight, with consensus expecting a 7,000 job increase and stable unemployment at 6.8%, compared to December’s 10,100 gain.

Eurozone

The final January manufacturing PMI was revised slightly upward to 49.5 from an initial 49.4, representing a third consecutive month of improvement, though still below the 50 expansion mark. France recorded a reading of 51.2 (up from 50.7 in December), while Germany (49.1 vs. 47.0), Italy (48.1 vs. 47.9), and Spain (49.2 vs. 49.6) remain in contraction territory. Germany also reported a 0.1% decline in retail sales for December, with aggregate data due Thursday.

United Kingdom

The final January manufacturing PMI was confirmed at 51.8, up from 51.6 initially and 50.6 in December. This marks the fourth consecutive month of expansion and the third above the boom-or-bust 50 level. For comparison, the PMI was at 48.3 in January last year.

Japan

Japan’s January manufacturing PMI remained at 51.5, aligning with the preliminary estimate and signaling the third consecutive month of expansion. This is the strongest reading since August 2022, compared to 48.7 in January last year.

Australia

Australia’s final January manufacturing PMI was confirmed at 52.3, slightly below the preliminary estimate of 52.4 and higher than the 51.6 readings from November and December 2025. Markets price in roughly a 70% chance of a rate hike by the RBA at tomorrow’s meeting. A no-hike outcome would likely weigh negatively on the Australian dollar, while a hike could prompt some profit-taking.

China

China released disappointing January PMI figures over the weekend. The manufacturing PMI fell to 49.3 from 50.1, marking a return to contraction after a December anomaly. January 2025 stood at 49.1. The non-manufacturing PMI declined to 49.4 from 50.2, indicating contraction for the first time since November. The composite PMI dropped to 49.8 from 50.7. The Caixin version later edged up to 50.3 from 50.1, suggesting marginal expansion.

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_Disclaimer: This report is for informational purposes only and does not constitute financial advice._