The was sold to new session lows against several currency pairs late in the North American afternoon yesterday, but there has been little follow-through today. The greenback is firmer against most of the G10 currencies today in subdued activity. The highlight includes an unexpected dovish hold by the Reserve Bank of New Zealand and a soft UK CPI. Many financial centers in the Asia Pacific region are on extended holiday.
With US-Iran and Russia-Ukraine negotiations, the geopolitical tensions are elevated. Japan has agreed to the first installment of the $550 investment program agreed to avoid higher US tariffs, but it still is not clear how much new money versus loans and loan guarantees are involved. The market impact seems minimal, but it probably sets the stage for a friendly meeting next month between President Trump and Prime Minister Takaichi. While the US economic calendar is full today, the week’s highlights, including the first estimate of Q4 GDP and a possible Supreme Court ruling on the president’s tariff powers still lie ahead.
Prices
G10
• The was sold to a seven-day low yesterday, slightly above $1.1800. It recovered to record a new session high in the NY afternoon, near $1.1855, leaving a potential bullish hammer candlestick in its wake. However, there was practically no follow-through buying today. Tentative support has been found near $1.1830, but a retest of yesterday’s lows cannot be ruled out. The five-day moving average is slipping through the 20-day moving average for the first time in nearly a month.
• The dollar reached a four-day high against the yesterday, slightly shy of JPY154.00. It backed off to nearly JPY153 today but has rebounded to approach JPY154.00. A move above the JPY154.35 area will improve the dollar’s technical tone. It could signal an advance toward JPY155, a technical retracement target and around the 20-day moving average. The US and Japan have reached an agreement on $36 bln investment in US oil, gas, and critical materials as part of the $550 bln commitment made under threat of higher tariffs. The trade minister has indicated that only 1-2% will be cash, loans and loan guarantees will be the main funding mechanism.
• The disappointing UK employment data has been followed by soft inflation data. The chances of a rate cut next month have been boosted to a little over 80% from about 70% a week ago, according to the swaps market. Yesterday, fell below $1.35 for the first time since January 23. It recovered back to almost $1.3560 after London closed, but technical damage was done. The five-day moving average crossed below the 20-day moving average on Monday for the first time in almost a month. It is trading quietly today in about a third of a cent above $1.3350. A convincing break of $1.3500 could target the $1.3440-60 area.
• The US dollar extended its recovery against the yesterday. The greenback bottomed last Wednesday around CAD1.35 with a powerful outside up day. It reached almost CAD1.37 yesterday and then was sold back to the session low near CAD1.3635 in the North American afternoon. A bearish shooting star pattern looks to have been formed, but follow-through selling was minimal today and the US dollar has recovered into the CAD1.3665 area. The month’s high was near CAD1.3725 (Feb 6). A band of support is seen in the CAD1.3575-CAD1.3600 area. There are $1.4 bln of options at CAD1.36 that expire today and another stack for almost $680 mln that expires there tomorrow.
• The was pressed to a six-day low yesterday and slipped slightly through $0.7030 before rebounding to new session highs near $0.7090. That area has held today, and the Aussie has been pulled lower by the US dollar’s broadly firmer tone and the unexpected dovish hold by the Reserve Bank of New Zealand, which sent the New Zealand dollar to a new eight-day low near $0.5990. Options for nearly A$500 mln at $0.7000 expire tomorrow.
EM
• The dollar looked as if it might break higher against the yesterday, but sellers reemerged a little above Monday’s high (~MXN17.1910) and drove it a little below MXN17.11. It posted the lowest close of the month yesterday (~MXN17.1285). After posting the outside down day yesterday, the greenback has been sold to a new low today since June 2024, near MXN17.0865.
• After falling to CNH6.8810 on Monday, the dollar held above it yesterday but stalled a little above CNH6.8920. Today, the dollar has not moved off the CNH6.88-handle. The five-day moving average is around CNH6.8960. The greenback has not settled above it this month.
• The traded quietly in a narrow range as the consolidative phase continues. The dollar was confined to an INR90.5965-INR90.7150 range. It continues to trade within the range set on February 6. The central bank is proposing tighter rules of disclosure of foreign exchange transactions by banks.
Other Markets
• Many equity markets in the Asia Pacific region are closed for the extended holiday. Those that were open tended to advance, including Japan, Australia, New Zealand, and India. Europe’s Stoxx 600 is up nearly 1% in late European morning turnover and is extending its advance for the third consecutive session. US index futures are extending yesterday’s recovery and are up around 0.50%.
• Benchmark 10-year yields are mixed. Japan’s 10-year yield edged up. European rates are mostly +/- around half of a basis point, while the soft inflation report is underpinning Gilts, where the 10-year yield is off one basis point. The 10-year Treasury yield that approached 4% early this week is slightly firmer, a little above 4.06%.
• Gold is firmer. It held above yesterday’s low (~~$4843.50) and reached slightly above $4942 today. Similarly, silver held above yesterday’s low near $72 and recovered above $76 today.
• March WTI is trading higher today. It briefly traded below $62 yesterday but is trading nearly $1 higher in the European morning and is near $63.35. Yesterday’s high was a little above $64. Geopolitical tensions continue to run high.
Data
• Today sees a flurry of US economic data. December’s durable goods orders and housing starts may help economists fine tune Q4 GDP expectations, which will be reported Friday. January industrial output will be reported. January manufacturing jobs and aggregate hours rose, suggesting manufacturing output rose and the cold spell likely boosted the output of utilities. The FOMC minutes from the late January meeting will be published, but outside of Governors Miran and Waller, there seems to a consensus in favor of a pause after three rates cuts in the last few months of last year. Lastly, late in the session, the December TIC data will be reported. Contrary to the popular “sell America” meme, through November, foreigners had done the exact opposite. Settling through US custodians, foreign investors bought $1.32 trillion of US stocks and bonds compared with $1.12 trillion in the first 11 months of 2024. That said, foreign investors were net sellers of US financial assets in the first month of each quarter last year.
• Canada reports January existing home sales. They fell in seven months in 2025 and ended the year with a 2.7% decline in December.
• The UK’s January CPI fell by 0.5% and the year-over-year rate eased to 3.0% from 3.4%. The core rate ticked down to 3.1% from 3.2%. Service inflation softened slightly to 4.4% from 4.5%.
• The Reserve Bank of New Zealand held policy steady at 2.25%, but the bias seemed dovish not hawkish as the market expected. And the central bank noted that policy is likely to remain accommodative. The RBNZ expects inflation to fall back to the midpoint of its 1-3% target. It sees the possibility of a hike in Q4.
• Japan’s January’s trade balance always deteriorates in January (25 years without fail), and this year was no exception. The December trade surplus of JPY113.5 bln swung to a JPY1.152 bln deficit in January, despite the 16.8% year-over-year jump in exports and a 2.5% decline in imports. In January 2025, Japan’s trade deficit was JPY2.74 trillion. Last year, exports to the US fell (~4.1%), led by autos and chip-fabrication machinery, but it still recorded a trade surplus (JPY7.52 trillion or ~$47.5 bln), about 1/8 smaller than in 2024. Shipments to China were off 0.4%, and Japan reported a JPY7.91 bln deficit with China in 2024.
• Australia’s wage price index was steady at 3.4% year-over-year in Q4 25. This reflected a 0.8% increase on the quarter, the same as in Q3. This measure is similar to US unit labor costs, taking into account labor costs and productivity. Tomorrow, the January employment figures are due, and the median forecast in Bloomberg’s survey is for the net creation of 20k jobs (65.2k in December). The unemployment rate is expected to rise to 4.2% from 4.1%.
