Market Overview

The US dollar is trading with limited volatility, remaining within relatively tight ranges against most G10 currencies. The primary market driver has been the intensification of sanctions against Russia by both the US and the EU. The US targeted two of Russia’s largest oil firms, Rosneft and Lukoil, disrupting oil purchases by Chinese and Indian buyers who face potential secondary sanctions after a brief grace period.

Oil prices, as measured by December WTI, recovered from a five-month low near $56 per barrel on Monday to approximately $61.60 today, with the month’s peak nearing $62.50—close to the 100-day moving average. This rise in oil prices appears to be influencing currency moves, notably contributing to the underperformance of the Japanese yen and the strong performance of the Norwegian krone. Emerging market currencies largely weakened, although the People’s Bank of China (PBOC) set the dollar reference rate against the yuan at its lowest level since October 2024.

In fixed income markets, stronger oil prices have dampened demand for global bonds. Benchmark 10-year yields in Europe increased by 1-2 basis points, while the US 10-year Treasury yield rose by nearly four basis points to 3.99%, marking the largest US yield increase this month if maintained. The US is also reportedly considering broad software export restrictions to China, which has exerted pressure on equities in Japan, South Korea, and Taiwan, whereas other regional markets rallied. European equities, represented by the Stoxx 600, firmed up, recovering the previous day’s losses of almost 0.2%. US futures are largely unchanged. Gold prices have stabilized within their narrowest trading range in just over a week, fluctuating between approximately $4066 and $4137.

US Dollar Performance and Economic Data

The Dollar Index extends a four-day gain, matching its longest rally in nearly three months. It approached 99.15 yesterday, with last week’s high near 99.50 coinciding with a key trendline drawn from the highs in early August and October. So far today, it remains firm yet confined within a narrow band around 99.00.

With the US federal government shutdown ongoing, the economic calendar is light. Today’s highlights include September existing home sales, expected to increase by 1.5% following a modest decline in August, and the Kansas City Fed’s October manufacturing survey. However, these releases are overshadowed by tomorrow’s more impactful September CPI data and preliminary October PMIs. Markets currently price in a high probability of a Federal Reserve rate cut next week, fully reflected in Fed funds futures.

The pressure on Russia has intensified, with the US sanctioning Rosneft and Lukoil, firms responsible for about half of Russian oil exports. Chinese and Indian companies continuing to purchase Russian oil risk secondary sanctions. The EU also imposed a new sanctions package on Russian firms. Meanwhile, although the US has not agreed to supply Tomahawk missiles to Ukraine, it has authorized missiles with extended strike capabilities.

Euro Area

Since retreating from near $1.1730 last Friday, the euro has weakened this week to roughly $1.1575. Notably, options expiring today cover 1.4 billion euros at this level. This month’s lows around $1.1540-$1.1545 mark the lowest level in over two months, dating back to August 5th. Additional options for 1.1 billion euros at $1.1650 also mature today.

During the European morning session, the euro trades within a tight range ($1.1590-$1.1615). Looking ahead, the preliminary October PMI is expected to be little changed, with some risk of a slight softening following a gradual increase to 51.2 over the previous four months. The ECB’s policy meeting next week is unlikely to deliver any changes.

Chinese Yuan (CNY)

The US dollar remains range-bound against the offshore yuan (CNH), oscillating roughly between CNH7.1170 and CNH7.1325 since last Friday. Today, it trades narrowly between approximately CNH7.1230 and CNH7.1290. The dollar has not settled above CNH7.1300 for over a week, with the monthly high recorded on October 8 near CNH7.1535.

The PBOC set the dollar’s reference rate today at CNY7.0918, the lowest since October 2024, marking the seventh consecutive session the fix has been below CNY7.10.

Japanese Yen (JPY)

The dollar rebounded from about JPY149.40 last Friday to nearly JPY152.20 by Tuesday. After consolidating above JPY151.50 yesterday, it surged further in the European morning session to a new high near JPY152.65, the strongest level since the significant downside reversal on October 10.

Some analysts attribute the yen’s depreciation to rising oil prices. The new Japanese government is rapidly assembling a fiscal package, estimated at approximately JPY3.9 trillion (~$92.2 billion), which focuses on mitigating inflationary pressures on households, investing in growth sectors, and strengthening national security.

President Trump is set to visit Tokyo next week. Tomorrow’s key economic reports include September’s CPI, with expectations for headline and core inflation to increase modestly to 2.9% from 2.7%, while the measure excluding fresh food and energy may ease slightly to 3.1% from 3.3%. Note that Japan’s year-over-year CPI peaked at 4.0% in January. Also due is the preliminary October PMI, though it is usually not market-moving. The composite PMI declined to 51.3 in September from 52.0 in August, a softening after several months of gains.

British Pound (GBP)

Sterling weakened following softer-than-anticipated UK September CPI data, falling to nearly $1.3300 yesterday—the lowest since mid-October lows near $1.3250. It has stabilized since but remains unable to reclaim the $1.3360 support level seen earlier this week and is trading quietly today between $1.3330 and $1.3365.

The five-day moving average recently crossed below the 20-day average for the first time in almost a month. The CBI October surveys released earlier were weaker than expected—total orders and business optimism fell—though selling prices jumped to a three-month high.

Tomorrow’s economic calendar includes UK September retail sales and the first read on October PMI. Retail sales are forecast to fall 0.3% (volume basis) after a 0.5% rise in August. Meanwhile, the composite PMI is projected to edge higher from September’s 50.1, which was the lowest reading since falling below the 50 boom/bust threshold in April.

Canadian Dollar (CAD)

The US dollar hit a seven-day low against the Canadian dollar yesterday, nearing CAD1.3975, and settled below CAD1.40 for the first time since October 8. This decline represents a roughly 50% retracement of recent gains off the late September lows near CAD1.39.

The next technical support may lie around CAD1.3965, which corresponds to the 61.8% Fibonacci retracement of the advance since September 30 and the 200-day moving average. This zone also provided resistance earlier in October. The greenback is trading in a narrow band of about 10 ticks around yesterday’s settlement near CAD1.3995.

Today, Statistics Canada reports August retail sales, with the market expecting a 1% increase following a 0.8% decline in July. The Bank of Canada is scheduled to meet next week, and markets currently price about a 75% probability of a rate cut, up from roughly 50% a month ago.

Australian Dollar (AUD)

The Australian dollar remains range-bound, trading either side of the $0.6500 mark for the tenth consecutive session. It is firm but remains within Tuesday’s range of approximately $0.6475-$0.6525.

Momentum indicators suggest oversold conditions are bottoming out. A break above $0.6535 would be bullish, but the $0.6545-$0.6555 area needs to be overcome to confirm a reversal in sentiment.

Australia will release preliminary October PMI data tomorrow; September saw the composite index snap a three-month string of gains with a sharp decline from 55.5 to 52.4. The Reserve Bank of Australia meets on November 4, with futures implying just over a 55% chance of a rate cut. Markets will closely monitor the upcoming quarterly CPI report mid-next week.

Mexican Peso (MXN)

The US dollar remains confined within the October 10 range of roughly MXN18.36 to MXN18.64. The 5- and 20-day moving averages have converged near MXN18.41. Options totaling $580 million at MXN18.40 and another $350 million at MXN18.41 expire today. The greenback is trading quietly between MXN18.41 and MXN18.46.

Argentina faces critical midterm elections on Sunday, increasing peso volatility. US financial support may be mitigating the peso’s depreciation but risks alienating voters wary of perceived US influence.

Mexico will publish August retail sales and mid-October CPI today. A modest 0.2% gain in retail sales is forecast following a 0.1% increase in July. Inflation metrics are expected to show slight easing. Mexico’s central bank meets on November 6, with markets evenly split on the prospect of a 25 basis point rate cut.

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_This summary reflects current market conditions and economic data releases without commentary or opinion._