Market Overview: Dollar Firmness and Currency Movements

The US dollar demonstrates broad-based strength today, primarily consolidating gains, with the Japanese yen standing out as a notable deviation. The greenback reached JPY 156.85, marking its strongest level since January 23, with indications that it has not yet peaked. With Sunday’s election imminent, polls suggest Prime Minister Takaichi is leading the Liberal Democratic Party (LDP) towards a robust performance, potentially regaining an outright majority. Earlier today, Takaichi cautioned that the Bank of Japan (BoJ) should not be expected to suppress yield increases given the risks of excessive yen depreciation.

Meanwhile, the partial US government shutdown has concluded. However, the disruption to economic data releases will delay the January employment report initially scheduled for Friday, potentially amplifying the significance of today’s ADP private sector jobs data. Following recent declines, gold and silver have stabilized and extended yesterday’s gains.

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G10 Currency Trends

Euro (EUR/USD)

After holding its Monday lows near $1.1770, the euro surged to a modest intraday peak close to $1.1830 in North American trading yesterday. Today, it advanced further to nearly $1.1840, surpassing the prior session’s high for the first time in six consecutive sessions. Soft final PMI figures combined with an unexpected drop in core CPI appear to limit the euro’s advance ahead of the $1.1850 level, where options totaling nearly €1.8 billion expire today. Immediate support resides between $1.1780 and $1.1800, with a break below $1.1760 potentially signaling a fresh downward phase.

Japanese Yen (USD/JPY)

The dollar reached a seven-session peak against the yen in North American markets yesterday, slightly above JPY 156. Subsequent buying pushed the greenback to JPY 156.80 today, breaking through key technical levels including the JPY 156.50 retracement target and the 20-day moving average near JPY 156.60 for the first time since January 23. Chart resistance is anticipated around the JPY 157.40-50 band.

British Pound (GBP/USD)

Sterling remained range-bound within Monday’s trading corridor of approximately $1.3625 to $1.3715 yesterday. It edged higher to nearly $1.3735 today, aligning with the midpoint of the decline from the January 28 high near $1.3850. Beyond this level, next retracement resistance is near $1.3765. The Bank of England is scheduled to meet tomorrow, with market consensus firmly expecting a hold on monetary policy. Since late last year, expectations for rate cuts by mid-year have diminished, with pricing reflecting just under 25 basis points of cuts, down from roughly 30 basis points earlier.

Canadian Dollar (USD/CAD)

The US dollar recorded an inside trading session against the Canadian dollar yesterday, spending limited time above Monday’s settlement around CAD 1.3680. The pair remains within Monday’s range today, after initially dipping to CAD 1.3630 before returning to the trading band. Retracement support is seen near CAD 1.3620, reflecting a partial pullback from the greenback’s weekend rally from approximately CAD 1.3480 to over CAD 1.3700 on Monday. Options valued near $375 million at CAD 1.3650 expire today.

Australian Dollar (AUD/USD)

Following the recent rate hike announcement, the Australian dollar peaked at $0.7050 yesterday before retreating to approximately $0.6980 during mid-morning NY trading. It remains just below the previous high, holding firm above $0.7010 amid subdued activity. The January 29 peak near $0.7100 marked a three-year high. A breach below $0.6980 may indicate resumption of downward correction.

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Emerging Market Currencies

Mexican Peso (USD/MXN)

After retreating from the 20-day moving average around MXN 17.60 on Monday, the US dollar was sold off to near MXN 17.1935 yesterday. The peso appears to have established a base within the MXN 17.10-12 range last week. This resilience is noteworthy given equity market risk-off sentiments and mixed economic data from Mexico. December worker remittances exceeded expectations but remain below last December’s levels, consistent with broader trends of slower dollar inflows. For the year, remittances declined by roughly $650 million. Additionally, Mexico’s funding demands eased, with the trade balance shifting from an $18.5 billion deficit in 2024 to a $771 million surplus in 2025.

Chinese Offshore Yuan (USD/CNH)

The US dollar declined to a multi-year low against the offshore Chinese yuan, touching CNH 6.9290 before recovering slightly to above CNH 6.9400 in late European trading. The People’s Bank of China (PBOC) raised the daily USD fixing to CNY 6.9430 today, up from yesterday’s CNY 6.9385, marking the first increase this week.

Indian Rupee (USD/INR)

The dollar gapped sharply lower against the Indian rupee yesterday and is consolidating today within the gap formed between Monday’s low (~INR 91.44) and yesterday’s high (~INR 90.52). It has retraced part of this gap, rising to INR 90.55 without closing it fully. Services and composite PMIs declined sequentially, with the composite PMI at 58.4, down from 59.5. The Reserve Bank of India is expected to maintain the repo rate steady at 5.25% in its upcoming meeting.

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Other Market Highlights

Equity Markets

Despite the Nasdaq’s nearly 1.5% decline yesterday, Asia-Pacific equities rallied, led by South Korea’s Kospi with gains near 1.6%. The MSCI Asia-Pacific index remains close to its record high set at the end of January. In Europe, the Stoxx 600 index rose for a fourth consecutive session, its longest rally since November. US equity futures are trading in a narrow range.

Government Bond Yields

Benchmark 10-year yields present a mixed picture. Although Japan’s Prime Minister warned against reliance on the BoJ to contain rising JGB yields due to risks including yen weakening, the 10-year JGB yield declined by one basis point today, with longer-dated yields also modestly softer. European 10-year yields dropped 2-3 basis points, while the UK’s 10-year gilt yield and the US 10-year Treasury yield firmed slightly. The US 10-year yield approaches 4.28%.

Precious Metals

Gold’s recent sharp decline of over $1000 over three days stabilized yesterday, with the metal posting its first gain in four sessions. Gold remained cautious near the $1,500 level but reached almost $1,510 intraday. Silver also rebounded for the first time in four sessions, rallying as high as $90.75 before retreating to about $88 in European trade. Silver’s three-day fall spanned from $121.65 to roughly $71.40.

Energy Markets

March WTI crude oil jumped to nearly $63.75 following reports that the US Navy downed an Iranian drone. However, comments from former President Trump indicating ongoing interest in negotiations eased concerns about an imminent military strike, leading to consolidation in a $62.95 to $64.20 range today.

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Key Economic Data and Reports

US Data

The ADP private sector employment report assumes heightened importance due to the delayed release of the January nonfarm payrolls report. Bloomberg’s median forecast projects a 45,000 increase, up from 41,000 in December, reflecting the first back-to-back monthly gains since April-May last year. Final S&P services and composite PMIs will attract some attention, but the ISM services index—released today—may provide new insights. The US Treasury will also announce quarterly refunding details following this week’s borrowing estimate.

Canada

January services and composite PMI data are anticipated today, though likely with limited market impact. Focus shifts to Friday’s jobs report, where slower overall job growth is expected compared to December’s 10,100 increase, which featured a 51,400 rise in full-time positions.

Eurozone

Final January services PMI came in at 51.6, slightly below the preliminary 51.9 and December’s 52.4. The composite PMI stands at 51.3, versus the preliminary 51.5, stable year-over-year against January 2025’s 50.2. Producer prices dropped 0.3% in December, down 2.1% year-on-year. Preliminary January CPI fell 0.5% month-on-month, with an annual rate of 1.7%. The core inflation rate declined to 2.2% from 2.3%.

United Kingdom

Final January services PMI was slightly revised down to 54.0 from the initial 54.3, following last year’s 51.4. Manufacturing PMI showed improvement from the flash estimate. The composite PMI adjusted slightly lower to 53.7 from 53.9 initially.

Japan

Final January services PMI was upgraded to 53.7 from the preliminary 53.4, improving from December’s 51.6. The composite PMI rose to 53.1, surpassing the initial 52.8 estimate and reaching the highest level since May 2023.

Australia

Final January services PMI increased to 56.3 from the 56.0 initial estimate, up from 51.1 in December. The composite PMI was revised to 55.7 from an initial 55.5, rising from 51.0 in December 2024.

China

The Caixin services PMI inched up to 52.3 from 52.0, while the composite PMI rose to 51.6 from 51.3.

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_Disclaimer: This summary reflects current market conditions and economic data as of the publication date and is intended for informational purposes only._