Market Overview

The US dollar is trading higher against all G10 currencies today, although it remains confined within this week’s established ranges. The Dollar Index has risen for the fourth consecutive session, erasing last week’s 0.55% decline. The greenback’s performance against emerging market currencies is mixed. The JP Morgan Emerging Market Currency Index has increased by approximately 0.15% this week, while the MSCI gauge is down about 0.10%.

Equity Markets

Equities are generally firmer today. In the Asia Pacific region, Japan’s Nikkei and China’s CSI 300 indices posted gains exceeding 1%. South Korea’s Kospi jumped 2.5%, leading regional advances with a 5.1% gain for the week. South Korea’s won rebounded from six-month lows following verbal intervention by the finance minister. President Lee is scheduled to meet President Trump on October 29 and President Xi on November 1.

The eurozone equity Stoxx 600 is slightly lower despite a better preliminary Purchasing Managers’ Index (PMI). US index futures indicate a firm tone.

Fixed Income Markets

Except for the Japanese government 10-year yield, which declined by a basis point, most major bond yields are firmer. European yields are higher by 2-4 basis points, with France leading the region’s increase. The UK 10-year gilt yield remains near flat. The US 10-year Treasury yield has edged up slightly, standing just above 4.0%. Canada’s 10-year yield rose about 3.5 basis points to 3.09%.

Commodities

Gold is down 1.6%, reversing yesterday’s nearly 0.7% gain. The day’s low breached slightly below $1,048, after closing around $1,356 on Monday. December West Texas Intermediate (WTI) crude is trading in a narrow range between $61.20 and $62.15, near yesterday’s surge high of $62.20.

Currency Analysis

US Dollar

The Dollar Index peaked near 99.15 midweek and has held firm, trading in a narrow band around 99.00 today. Last week’s high was close to 99.50. The Index consolidated around 98.80 yesterday. Today’s US economic calendar is notably busy, including the release of September’s Consumer Price Index (CPI), which will impact cost-of-living adjustments to Social Security and other programs.

A 0.4% increase in headline inflation is expected, which would mark the fifth consecutive month of year-over-year acceleration, pushing the annual rate to 3.1%, the highest since May 2024. Core inflation is forecasted to hold steady at 3.1%. Federal Reserve officials are likely to consider the inflation uptick temporary, attributing some of the increases to tariff effects. The consensus also suggests greater risk lies in labor market deterioration. The market appears nearly fully priced for a Fed rate cut next week, with limited scope for officials to alter expectations during the blackout period.

Preliminary October PMI data due today are expected to show further softening, potentially marking the third consecutive monthly decline in the composite index and the fourth decline within five months. Final University of Michigan consumer sentiment and Kansas City Fed service surveys are unlikely to have significant market impact.

Euro

The euro recorded an inside day yesterday, indicating lack of near-term directional conviction. Uncertainty prevails due to upcoming Fed and ECB meetings next week, the Trump-Xi summit, and escalating sanctions on Russia. Despite better-than-expected PMI releases, the euro is range-bound between $1.1600 and $1.1630.

The preliminary October manufacturing PMI edged up to 50.0 from 49.8, while the services PMI improved to 52.6 from 51.3, both reaching their highest levels since August 2024. The composite PMI rose to 52.2 from 51.2, matching the best reading since May 2023.

Germany’s stronger services sector underpinned the eurozone composite PMI increase to 53.8, the highest since May 2023. Conversely, France’s composite PMI declined to 46.8, the lowest since February 2024.

Chinese Yuan (CNY)

The People’s Bank of China (PBOC) set the daily yuan reference rate at CNY 7.0918 yesterday, the lowest since last October, and 7.0928 today. A week ago, the fix was near 7.0950. Offshore yuan (CNH) is trading between 7.1230 and 7.1300 for the third straight session, slightly above its September 17 low of 7.0850 following the Federal Reserve rate cut.

The upcoming APEC meeting is likely to facilitate a Trump-Xi encounter. Sanctions on Russia and prospective US software export controls on China add complexity to trade relations. China’s recent announcements on critical mineral export controls notably avoided referencing Microsoft software, implying potential regulatory responses.

Japanese Yen (JPY)

The combination of rising oil prices, higher US yields, and growing market consensus that the Bank of Japan (BoJ) will maintain its policy stance next week has pressured the yen. The dollar reached JPY 152.80 yesterday and has traded slightly above JPY 153.00 today. The greenback hit an eight-month high near JPY 153.25 on October 10.

The US 10-year Treasury yield settled just above 4.0%, its largest rise since the September Fed rate cut. This yield increase likely supported the greenback’s advance.

Japan’s November CPI data, released earlier, showed headline and core inflation rising to 2.9% from 2.7%. The less volatile measure excluding fresh food and energy eased to 3.0% from 3.3%, the lowest since April 2024. Preliminary October PMI data indicated continued manufacturing contraction (48.3 vs. 48.5) and slower but ongoing services expansion (52.4 vs. 53.3). The composite PMI declined modestly to 50.9 from 51.3, following a Q3 average of 51.6, the highest quarterly reading since Q3 2024. Market pricing for a BoJ rate hike next week has dropped from slightly above 25% last week to less than half that level this week.

British Pound (GBP)

Sterling experienced an inside day yesterday, dipping slightly below Wednesday’s low near $1.3305 but remaining above $1.33. It has not surpassed $1.3335 today. Without further recovery, this will mark the fifth straight session of lower highs.

Swaps markets currently price a year-end base rate near 3.80%, down 6-7 basis points on the week and at a two-month low. The current Bank of England target rate stands at 4.0%.

Despite stronger than expected data—with September retail sales up 0.5% against forecasts of a 0.4% decline and preliminary October PMI figures showing improvements in manufacturing (49.6 vs. 46.2), services (51.1 vs. 50.8), and composite (51.1, a three-month high)—sterling remains subdued.

Canadian Dollar (CAD)

After climbing to a six-month high near CAD 1.4080 last week, the US dollar retraced in recent sessions, reaching a Wednesday low close to CAD 1.3975 and holding near CAD 1.3980 yesterday. The greenback has settled below CAD 1.40 for two consecutive days but posted a significant outside up day against the loonie today.

Following an initial breach below yesterday’s lows, the greenback recovered amid US suspension of trade negotiations with Canada related to Ontario’s policies. Notably, a 1987 speech excerpt by President Reagan defending free trade and criticizing tariffs has circulated on social media, although the Reagan Foundation has contested the ad’s unauthorized and selective use.

The greenback surged to nearly CAD 1.4030, retracing approximately 61.8% of the week’s earlier losses. The week’s high was around CAD 1.4065 set Tuesday.

The Bank of Canada’s upcoming meeting has swaps markets pricing roughly a 72% probability of a rate cut, largely unchanged from about 70% a week ago. In Bloomberg surveys, approximately 70% of economists expect a cut.

Australian Dollar (AUD)

The Australian dollar has been range-bound for nearly two weeks, oscillating between roughly $0.6440 and $0.6535. It remains capped near $0.6520 today and is probing the $0.6490 area in late European morning trading. Overextended momentum indicators that have recently begun to turn up suggest the current base may precede a further dip lower.

Australia’s preliminary October manufacturing PMI unexpectedly declined to 49.7 from 51.4 in September, marking the second consecutive monthly decrease and the first sub-50 reading this year. However, the services PMI firmed to 53.1 from 52.4, while the composite PMI edged higher to 52.6 from 52.4.

The composite PMI’s nine-month average stands at 52.0, above last year’s 50.8 end-year figure and the January-September 2024 average of 51.3.

Mexican Peso (MXN)

The US dollar remains range-bound against the Mexican peso, trading near an eight-day trendline at MXN 18.4350 and a longer-term trendline near MXN 18.3770. Momentum indicators suggest a potential downside breakout is more likely.

The dollar has traded in a narrow band between MXN 18.3870 and MXN 18.4185 so far today. A retreat into the MXN 18.25-18.30 range would not disrupt the long-term consolidation that began after the year’s low near MXN 18.20 on September 17, following the Federal Reserve’s rate cut.

Mexico reported solid August retail sales growth of 0.6%, double the annual average monthly gain, alongside slightly softer-than-expected inflation for early October.

A key near-term risk to the peso is Argentina’s legislative election scheduled Sunday. Market watchers will monitor the vote share of Milei’s Liberty Advances Party (LLA) compared with the Homeland Force party. The LLA’s ability to secure at least one-third of seats in either congressional chamber will affect presidential decree power.

Market consensus, with some exceptions possibly within parts of the US Treasury, anticipates continued peso depreciation regardless of election outcomes. However, the electoral results may influence the pace and magnitude of this depreciation.

Disclaimer

This analysis is provided for informational purposes and does not constitute investment advice. Market conditions and economic data can change rapidly, and readers should conduct their own research or consult a financial advisor before making trading decisions.