# United States
The US 10-year Treasury yield has dropped to a fresh two-month low near 4.33%, amidst a $70 billion auction of five-year notes. This follows a strong demand for two-year floating rate notes. The benchmark 200-day moving average stands close to 4.25%, having peaked at around 4.80% in mid-January. Initially, the dollar saw temporary strength from President Trump’s statement that tariffs on Mexico and Canada are still anticipated, though reports suggest no specific timeframe has been established. Consequently, the dollar’s gains have been uneven, with currencies tied to the dollar bloc and Norway being the most affected. Most emerging market currencies, except those from some Central European countries, have weakened. South Korea has implemented its third interest rate cut of the cycle, reducing the base rate to 2.75%, while Hungary is expected to maintain its key rate at 6.5%. Bond markets in the Asia-Pacific region mirrored the rally in US Treasuries, with Japan, Australia, and New Zealand observing yield declines. In Europe, benchmark yields decreased slightly, although German Bund yields experienced a small uptick due to discussions on potentially heightened military expenditure.
In other markets, gold is consolidating after hitting a new record above $2,956, while April WTI crude extended its recovery past $71, with resistance seen in the $71.50-60 range. The Dollar Index had made a new low earlier this week, but recovered to a potentially bullish position, though below 106.80 today. The dollar’s bids were initially buoyed by the tariff talk, perceived by many as a negotiation strategy, amid reports urging Mexico to consider increasing tariffs on Chinese goods as a counter mechanism. As for upcoming economic indicators, more Federal Reserve surveys, December house prices, and consumer confidence measures are on deck, with the latter drawing attention following a significant decline. Initial calls for February non-farm payrolls hint at figures comparable to January’s 143,000 and a stable unemployment rate of 4.0%.
# Eurozone
Despite an upward trend earlier in the month, the euro has reversed from a high near $1.0530, forming a bearish star candlestick pattern, with support found around $1.0450. A break below targets the previous week’s low of approximately $1.04, and then $1.0380. January saw a 2.6% decline in eurozone car registrations, following a 5.1% surge in December. Tesla’s market share took a hit, dropping from 1.8% in January 2024 to 1.0% last month, with sales down 45%, from 18,200 vehicles to 9,900. A crucial monetary policy indicator, the eurozone’s negotiated wage growth slowed down year-over-year, from 5.4% in Q3 2024 to 4.1%. Moreover, Germany is contemplating passing a €200 billion defense bill under the current parliament, with the potential for opposition in the incoming parliament. German Bunds are underperforming, superficially due to these fiscal discussions.
# United Kingdom
Sterling reached a new high since mid-December at $1.2690, only to face resistance and slip to around $1.2610. It avoided breaching $1.2600, but selling pressures persist with the next target in the $1.2550-60 range. The UK’s economic data this week holds little significance, but Prime Minister Starmer’s visit to Washington on Thursday is notable. Starmer, referencing historical precedence, backs Ukraine and President Zelenskyy, stressing that martial law is the basis for Ukraine’s electoral suspension during this crisis.
# China
The economic calendar for China is sparse until upcoming PMI releases, with expectations for a modest improvement. Despite technological advances, forward economic momentum remains unconvincing. The US dollar’s recovery has been reflected in its valuation against the Chinese yuan, moving from CNH7.2290 to about CNH7.2700. The goal is to reach last week’s high near CNH7.2865. The People’s Bank of China set the reference rate at CNY7.1726, the highest since January 20.
# Japan
After approaching a low of ~JPY148.65 last December, the dollar rebounded to JPY149.80, with Trump’s tariff negotiations pushing it to approximately JPY150.30 before dipping back to JPY149.20. It recovered to around JPY149.85 in early European trading. To bolster technical sentiment, it needs to surpass JPY150.40-JPY150.75. The US 10-year yield, now at a two-month low, offers little support. Japan’s upcoming economic highlights include softer Tokyo February CPI, a retail sales rebound, and continued contraction in industrial production. Anticipations are aiming for a Bank of Japan rate increase by October, though some see it happening as early as July.
# Canada
The US dollar climbed to nearly CAD1.4270 after President Trump’s comments on tariffs, with further, albeit marginal, gains today, recording an eight-day high near CAD1.4280. The 20-day moving average stands at CAD1.4300, with no close above it since February 3. Having hit a two-month low at CAD1.4150 on February 14, the dollar maintained a range mostly below CAD1.4250. Momentum indicators suggest a potential upward turn, with looming tariffs placing the Canadian dollar at risk. GDP data will be revealed at the week’s end, with a 0.3% growth expected in December after a previous contraction.
# Australia
The Australian dollar experienced a pullback after nearly surpassing the $0.6400 level, having reached a 38.2% retracement of its previous decline, unable to rise above $0.6400 on subsequent attempts. It decreased to $0.6325, nearing last week’s low, with further declines targeting the $0.6285 range. Daily momentum indicators are yet to shift direction. Australia’s anticipated January CPI, predicted at 2.6%, would represent the highest level since last August. The futures market suggests an 80% probability for a rate cut in May, though not fully priced until July.
# Mexico
The dollar’s trading range against the Mexican peso prior to Trump’s tariff reaffirmation extended from MXN20.2015-MXN20.4770, rising close to MXN20.5250 yesterday, yet staying under MXN20.50 today. Peso vulnerability emerges from potential US tariffs and technical momentum shifts. Mexico is slated to report a Q4 current account deficit near $9 billion. Following a 0.4% deficit in 2023, this likely widened to 0.7% last year, contrasting with a 0.3% deficit in 2019. Brazil’s economic reports indicate potential jumps in CPI, prompting aggressive monetary tightening intentions amidst a trading week climaxing in a March 19 meeting.
