Market Commentary: Business Travel Interruption and Weekly Outlook

Business travel will limit commentary updates for the remainder of the week. The next comprehensive market update will be published on November 8. Best of luck to all market participants.

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Market Overview: Risk-Off Sentiment Dominates Amid Falling Equities and Softer Yields

Risk aversion was the primary theme across global markets, as equities declined sharply and yields softened. The US dollar broadly advanced, demonstrating resilience despite easing Treasury yields. Within the G10 currency group, the Japanese yen showed relative strength, benefiting from renewed verbal interventions and lower Treasury yields that helped it withstand upward pressure from the greenback.

Approximately half of all currencies depreciated by 0.5% or more, extending their recent downtrends. Emerging market currencies mostly weakened, led by the Mexican peso, which declined nearly 0.75%. The peso often acts as a barometer for constrained Latin American currencies and thus led broader EM currency weakness.

Regionally, all major Asia-Pacific equity markets experienced selling pressure. Japan’s Nikkei dropped 1.75%, while South Korea’s Kospi declined nearly 2.4%, the steepest fall in the area. European equities were also heavily hit, with the Stoxx 600 suffering a 1.5% loss — marking its largest daily decline since August 1. S&P 500 and Nasdaq futures in the US fell over 1%, signaling a likely lower gap open.

Benchmark 10-year yields fell slightly in Europe, with UK Gilts dropping close to two basis points—the most significant decline region-wide. Concurrently, the US 10-year Treasury yield slipped over two basis points to under 4.09%. Gold traded quietly within the previous day’s range, down marginally by less than $10 during late European morning trade. December WTI crude oil retreated from $61.50 reached yesterday, testing the $60 level today.

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Currency Market Analysis

US Dollar

The US federal government shutdown today matched the longest duration on record, with no resolution in sight. As a result, government data releases remain sparse. Market participants continue to anticipate key upcoming releases, including the ADP private sector jobs figure and ISM services index scheduled for tomorrow.

The futures market prices in roughly a two-thirds chance of a Federal Reserve rate cut next month amid the four-day rally in the US dollar. The Dollar Index (DXY) is challenging the August 1 high near 100.25, with its 200-day moving average close at 100.40—levels not breached since early March. The DXY has established a strong base around 99.70.

Euro

The euro has depreciated for the fifth consecutive session, breaking below the $1.15 level for the first time since August 1. It settled below its lower Bollinger Band—currently just above $1.1510—for the second straight day. There are expiring options today for approximately 1.1 billion euros at $1.1525.

A decisive breach of the $1.15 support leaves few technical barriers to potential declines toward late July and early August lows near $1.1390-$1.1400. Economic data releases slated for tomorrow include final services and composite PMIs, German factory orders, and French industrial output.

Chinese Yuan (Offshore)

The US dollar extended gains for the fifth straight session against the offshore yuan (CNH), briefly surpassing CNH7.1320—its strongest level since October 17—before pulling back slightly to around CNH7.1280. The People’s Bank of China set the reference rate at CNY7.0885, slightly higher than yesterday’s 7.0867.

Upcoming data includes the Caixin equivalent’s services and composite PMIs; however, the managed exchange rate remains largely resilient to high-frequency economic data. Debates continue over the implications of recent US-China leadership meetings, with some US hawks expressing frustration over insufficient incentives to shift supply chains or address perceived currency undervaluation. Currently, US tariffs on Brazil and India exceed those on China.

Japanese Yen

The dollar inched closer to JPY154.50 before Japan’s Finance Minister Katayama issued cautionary statements, prompting a sharp reversal. The greenback declined below yesterday’s low near JPY153.95, touching roughly JPY153.30 during European morning trade, where some buying interest emerged.

Year-to-date, the dollar has recovered over 75% of its earlier depreciation against the yen. The currency has not closed below its 20-day moving average (~JPY152.50) in a month, with initial support now around JPY153.

Katayama reiterated earlier warnings of heightened scrutiny on foreign exchange movements, signaling “high urgency.” While earlier this might have foreshadowed intervention risks, the current environment—with the Bank of Japan’s reluctance to hike rates and broad US dollar strength—makes actual intervention less likely. The Finance Ministry makes intervention decisions, and the current government favors accommodative monetary and fiscal policies. Verbal interventions remain a low-cost tool but their efficacy may diminish over time. Although no US approval is required for intervention, any significant action risks criticism from the US Treasury, potentially undermining impact.

British Pound Sterling

Sterling traded within a narrow, albeit volatile, range between $1.3110 and $1.3150 yesterday, closing below last Friday’s settlement just above $1.3150. The currency fell further today to roughly $1.3060, a level not seen in seven months.

Market concerns focus on an impending budget announcement later this month. The lower Bollinger Band lies just under $1.31, with the next critical support zone at $1.2990-$1.3000. The Bank of England’s meeting on Thursday is a focal point. Swaps market pricing implies about a one-in-three probability of a rate cut—substantially higher than the 19% consensus forecast from economists surveyed by Bloomberg.

Canadian Dollar

Despite the US dollar’s broad strength, the Canadian dollar underperformed among G10 currencies yesterday, weakening approximately 0.35%. Since the interest rate cuts by the Bank of Canada and the Federal Reserve last week, the Canadian dollar has lost around 0.75% versus the greenback, closely matching losses in the Australian dollar.

The US dollar approached a six-month peak near CAD1.4080 yesterday and remains close to this level. Options worth $620 million at CAD1.4110 expire today. A break above this target could test the range between CAD1.4150 and CAD1.4165, corresponding to February’s low and the 50% retracement of this year’s US dollar advance.

Scheduled Canadian trade data for September is delayed due to the US government shutdown, postponing key inputs for GDP estimates later this month. Finance Minister Champagne is set to present the budget today, which aims to enhance Canada’s competitiveness—an initiative expected to entail substantial fiscal cost. The Liberal Party holds a minority government with a three-seat deficit for a majority. The budget deficit is projected to widen from approximately 1.6% this year to near 3% in 2025.

Australian Dollar

The Reserve Bank of Australia held its overnight cash rate steady at 3.60% as widely anticipated. The futures market assigns around a 25% probability of a rate cut in December, little changed from yesterday.

Yesterday, the Australian dollar fluctuated within the prior week’s trading range but closed nearly flat, masking technical signals from an outside day. The currency recorded a new five-day low slightly below $0.6520 and has breached the 61.8% Fibonacci retracement level (~$0.6510) of last month’s gains.

Further downside has brought it closer to $0.6490 today. Options totaling about A$830 million at $0.6500 expire Friday. Immediate support is near the $0.6470-$0.6450 area.

Australia’s September trade balance will be reported Thursday. Through August, the trade surplus averaged A$4.04 billion monthly, down from A$5.97 billion in the first eight months of the year. Export volumes declined by 0.2% monthly on average in 2024, while imports rose by about 0.4%.

Mexican Peso

The Mexican peso posted its best gain in more than two weeks, advancing nearly 0.4% against the US dollar despite slight softness in manufacturing PMI and weaker-than-expected remittance inflows. Alongside the Chilean peso and Brazilian real, the Mexican peso was one of the top-performing emerging market currencies yesterday.

The US dollar remained confined to the trading range established last Thursday (approximately MXN18.4515–MXN18.6045), but the risk-off environment pushed it higher to MXN18.65 today—the strongest since September 11. Early European turnover saw the dollar retreat to around MXN18.61.

Banxico’s 25 basis point rate cut last Thursday may discourage aggressive peso buying in current conditions.

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**Disclaimer:** This commentary is provided for informational purposes only and does not constitute investment advice.