## United States
The persistent increase in U.S. interest rates continues to fuel gains for the dollar. The greenback jumped over 1% against the yen, reaching JPY152.75, after ending last week near JPY149.55. The U.S. two-year premium over Germany has widened by approximately 65 basis points since late September, returning to levels seen in June. The dollar shows strength against all G10 currencies except sterling, which hovers around unchanged levels. The U.S. 10-year yield has risen by a couple of basis points to 4.23%. The market’s perception of upcoming Fed rate cuts seems to be cooling, which impacts the interest rate differentials. A softer October employment report might help the euro find support as the U.S. premium surge appears to be nearing its end.
As the Federal Reserve Chair cited the Beige Book and CPI for the recent 50 basis point rate cut, it may garner more attention than usual, especially in assessing disruptions like those caused by Hurricanes Helene and Milton. However, the Bank of Canada’s meeting is a larger focal point today, with markets discounting an 80% chance of a 50 basis point cut.
## Eurozone
The euro continues to struggle, having been sold through the $1.08 level to around $1.0780 today. This reflects a significant adjustment driven by changes in market expectations regarding Fed rate cuts and the ECB’s scope to revise rates due to sub-2% CPI. There’s also been considerable movement in the currency-sensitive two-year interest differential, which surged nearly 60 basis points in the past five weeks. Options for 1.35 billion euros at $1.0755 are set to expire soon, which may impact euro movement.
## United Kingdom
Sterling has been marginally stronger than the euro recently, showing resilience in not experiencing significant follow-through selling. The currency, recording a low in North American markets near $1.2945, could stabilize if it moves above $1.30. The trendlines and retracement levels provide some technical context for sterling’s performance, with specific targets and projections suggesting possible movements under varied conditions.
## China
In China, official data shows that companies have been selling foreign exchange to banks at an unprecedented pace since late 2021, attributed to the yuan’s depreciation and stimulatory measures encouraging repatriation. Recently, China and India reached an agreement to ease tensions along their shared border, potentially setting up a formal meeting between their leaders at the upcoming BRICS summit.
## Japan
Despite the yen’s weakness, Japanese equities have not seen the expected boost that had occurred earlier in the year. The dollar reached its highest level against the yen since July, now standing at JPY152.75. With volatility rising, Japan’s financial authorities might step in with warnings or actions sooner rather than later. The significant technical levels for the dollar-yen pair are beyond the JPY153.40-JPY155 range.
## Canada
The Canadian central bank faces pressure with markets anticipating a significant 50 basis point rate cut during their meeting. The Canadian dollar has been weighed down by this expectation, despite stronger-than-expected employment reports. Given the substantial U.S. two-year premium over Canada, which is at its highest since 1997, the scope for Canada’s monetary policy independence seems limited. A different rate decision could see volatility in the CAD’s performance.
## Australia
Australia’s strategic alliance with the U.S., though China remains its largest trading partner, has created a political and economic balancing act. In retaliation for Australia’s call to investigate COVID-19’s origins, China had previously imposed punitive tariffs, which have since been lifted, spurring a rise in Australian wine exports. Despite some strength earlier, the Australian dollar remains vulnerable and near significant technical levels.
## Mexico
The U.S. dollar traded in a range against the Mexican peso, staying within the bounds of MXN19.65 and MXN20.0750. Disappointing retail sales data could weigh on the peso, while the upcoming half-of-October CPI might influence market sentiment significantly, particularly with concerns about inflation driven by the weaker peso.
