US Dollar Exhibits Broad Softness Amid Ongoing Consolidation

The US dollar has weakened across the board against all G10 currencies, maintaining the consolidation trend observed throughout the week. Japanese officials persist with verbal intervention aimed at stabilizing the yen. With the US market closed on Monday due to a holiday, the risk of substantive intervention increases, prompting some short positions on the yen to be covered.

In political developments, Machado’s controversial decision to donate her Nobel Peace Prize to President Trump has drawn widespread criticism. Concurrently, US assertive nationalism appears to have propelled the European Union and Canada to advance efforts to repair trade relations with China. On the corporate front, Ford Motor Company is reportedly engaged in discussions with China’s BYD to secure battery supplies for hybrid vehicles manufactured outside North America. President Trump expressed openness to Chinese direct investment in the US automotive sector during his address to the Detroit Economic Club.

Key US economic data slated for release includes December industrial production, with manufacturing output anticipated to have declined—the first drop since July. Federal Reserve officials scheduled to speak today include Boston Fed President Collins, Governor Jefferson, and, notably, Governor Bowman. The latter is watched for potential dissenting views favoring rate cuts at the upcoming FOMC meeting.

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G10 Currency Movements and Technical Levels

Euro

The euro was sold off slightly below $1.1595 yesterday, reaching its lowest level since late November, though it remained above its 200-day moving average near $1.1590. This level has provided significant technical support, with no closes below it since March. The euro is hovering around $1.1600 today but has struggled to reclaim levels above $1.1625. Options totaling €2.4 billion at $1.16 expire today. A weekly close under $1.1600 could open the door to a decline toward $1.1550.

Japanese Yen

The yen stabilized yesterday and has appreciated modestly today amid continued Japanese verbal intervention signaling potential material actions. The US dollar slipped below JPY158 for the first time in three sessions. Options worth $2.12 billion at JPY158 expire today. Although there is speculation of possible intervention on the upcoming Monday holiday in the US, current verbal measures appear to have halted the yen’s decline.

British Pound Sterling

Sterling slipped beneath $1.3365 yesterday, reaching its lowest level since December 19 and hitting the 38.2% Fibonacci retracement of its rally from the late November low (~$1.3040). The currency rallied today, attempting to regain footing above $1.3400 during European trading. GBP800 million in options at $1.3425 expire today. A break beyond $1.3440 would improve the technical outlook; otherwise, a further retracement toward $1.33 remains possible.

Canadian Dollar

The US dollar neared last week’s high against the Canadian dollar yesterday, touching CAD1.3920, just below the 61.8% retracement of its decline since November 21 (~CAD1.4130). The retracement level near CAD1.3945 aligns with the upper Bollinger Band. So far today, the US dollar is consolidating within a 15-pip range just under CAD1.3900. A close below the day’s low, near CAD1.3880, could signal a fatigue in the greenback’s rally from its Boxing Day low of CAD1.3645.

Australian Dollar

The Australian dollar found support around $0.6660 yesterday and rebounded to settle near Wednesday’s high. This outside-day bullish setup is considered technically constructive. The currency reached about $0.6710 during European trading and is a little below this week’s highs, recorded on Monday and Tuesday near $0.6725 and $0.6765 respectively. The January 7 high marked the strongest level since October 2024.

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Emerging Market Currencies: Performance Overview

Mexican Peso

The Mexican peso continues to display notable strength, quietly appreciating to its highest level since July 2024, with the US dollar falling to MXN17.62. The greenback remains constrained near yesterday’s trough and has struggled above MXN17.67. The immediate target near MXN17.60 is within reach, and a break below this level could open the way toward MXN17.38. The peso’s low prior to Mexico’s electoral run-up stood near MXN16.26.

Offshore Chinese Yuan

The offshore yuan reached a new high today as the dollar traded near CNH6.9610; however, a potential consolidation phase may be emerging. The People’s Bank of China’s reference rate hovered just above 7.00 this week, set at CNY7.0064 yesterday and CNY7.0078 today. The currency’s allowed trading band of ±2% around the fix supports yuan levels down to CNY6.86.

Indian Rupee

The Indian rupee depreciated to a fresh low since mid-December, pressured by foreign investor equity liquidations and perceived lack of central bank support. The dollar climbed to INR90.8750, with local markets closed yesterday. The rupee has not shown strength since January 7, when the dollar approached an all-time high near INR91.08 reached on December 16.

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Broader Market Developments

Equities

Equities rallied broadly across the Asia-Pacific region, excluding Japan, China, and Hong Kong, with Taiwan leading gains at nearly 2%. Progress in Taiwan-US negotiations and positive guidance from TSMC buoyed the market. In Europe, the Stoxx 600 gained nearly 0.5% yesterday but is struggling to extend momentum today, edging slightly lower. US equity futures indicate continued upside following yesterday’s gains.

Fixed Income

The 10-year Japanese Government Bond yield rose by nearly three basis points, reaching a new high slightly above 2.17%. European sovereign yields edged modestly higher. The US 10-year Treasury yield remained largely unchanged near 4.17%.

Commodities

Gold remains confined within yesterday’s narrow range around the $4600 level. Silver stalled near $93.75 yesterday and is consolidating, trading above $90.50 in late European morning activity. March WTI crude futures firmed following a dip to ~$58.75, now testing the $60 mark, roughly $1 above last week’s settlement.

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Upcoming Economic Data

United States

December industrial production figures are scheduled for release today. The consensus from Bloomberg’s survey is a modest 0.1% increase following a 0.2% gain in November. Despite previously anticipated tariff-induced manufacturing support, factory output has averaged only a 0.1% monthly increase, with December’s projected decline signaling the first quarterly manufacturing contraction since Q3 2024. Automation and robotics continue to enhance productivity without corresponding job growth; US manufacturing employment fell by 72,000 last year.

Canada

Canada will report December housing starts alongside November portfolio capital flow data. Housing starts are expected to increase for the second consecutive month and, through November, are approximately 4% higher year-on-year. Conversely, foreign investment appetite in Canadian equities and bonds slowed significantly in 2025, with foreign purchases totaling C$100.5 billion in the first ten months, down from C$165.7 billion during the comparable 2024 period.