The war and rhetoric around it keep investors on edge, even though and are consolidating now after reaching marginal new four-day highs. The greenback is firm against the G10 currencies. Disappointing UK January GDP has weighed on sterling, whose 0.65% loss leads the majors. The proximity of the JPY160 level may be encouraging a more cautious tone, leaving the yen as the best performer, only off around 0.1%.
The unknown risks over the weekend may help keep greenback supported in North America today. The Dollar Index is up 1.2% this week as the North American session gets underway. Last week, it rose 1.4%. The is at highest level since last November. The average price of retail gasoline in the US is more than 4% this week after a 16% rally last week. Mortgage rates are at 11-month highs.
Prices
G10
• The traded poorly yesterday and approached Tuesday’s low slightly above $1.1505. It still posted its lowest settlement since last November. Follow-through selling today has knocked it to slightly below $1.1435, its lowest level since last August. It has recovered to around $1.1470 in late European morning turnover. The technical tone is poor, and a stronger recovery may be held at bay by the heightened uncertainties over the weekend.
• Yesterday, for the third consecutive session, the greenback settled near session highs against the . It traded above the high from January 23 when reports indicate that the Federal Reserve checked foreign exchange rates on behalf of the US Treasury. The gains were extended to almost JPY159.70 today, the best level since July 2024. While we expect the market to turn a bit cautious as the psychologically important JPY160 level is approached, we think the risk of intervention is minimal, given the orderliness of the market, the range-bound volatility, and the fact that it has been a largely orderly dollar advance.
• was sold to a three-day low yesterday, slightly below $1.3340. The broad greenback gains, and the disappointing UK January provided incentive to take sterling to nearly $1.3255 today, to test the low for the year set March 3. Initial resistance may be around $1.3280. The next support area is seen around $1.3200-15.
• The broke higher against the yesterday. Perhaps the deterioration of the January trade balance (the C$3.65 bln deficit, was three-times larger than the median economist forecast in Bloomberg’s survey. After knocking against it for the previous three sessions, the greenback pushed convincingly above CAD1.36. It approached the lower end of a band of resistance that extends from about CAD1.3640-CAD1.3665, and edged above the upper end today, poking above CAD1.3670. The next target is around CAD1.3700-15.
• Despite continued high expectations that the Reserve Bank of Australia hikes rates next week, the succumbed to profit-taking. It reached the highest level since mid-2022 on Wednesday, slightly above $0.7185, and retreated to almost $0.7070 yesterday in North America and to about $0.7015 today. Options for about A$855 mln struck at $0.7000 expire today. The week’s low was recorded Monday near $0.6955.
EM
• The remained under pressure in the risk-off environment. The greenback reached a three-day high near MXN17.8955 and nearly MXN17.95 today. It has stabilized in Europe. Support is seen near MXN17.80. Monday’s high was around MXN18.0245. A move above MXN18.04 could signal a run toward MXN18.12-13.
• The dollar remained within Tuesday’s range (~CNH6.86-CNH6.8970) against the yesterday. The greenback’s broad strength spilled over and lifted it to about CNH6.9075 today and held below resistance near CNH6.91. The PBOC se the dollar’s reference rate higher for the second consecutive session (CNY6.9007 vs. CNY6.8959 on Thursday). Still, it was the 14th week that the PBOC has reduced the dollar’s fix.
• The fell to a new record low today despite the talk of intervention. The dollar reached almost INR92.4790. The greenback rose almost 0.8% this week after last week’s 0.85% gain.
Other Markets
• There is no relief for equities today. Nearly all the Asia Pacific markets fell. India’s 2% decline was the steepest among the large bourses, though the and fell by more than 1%. Europe’s Stoxx 600 is off about 0.5% and came into today nearly flat on the week. US index futures are narrowly mixed.
• Benchmark 10-year yields are mostly higher. The yield on the 10-year JGB jumped around seven basis points to 2.24%. European 10-year yields are mostly firmer, though the UK Gilt yield is slightly softer as is the German Bund. On the week, the 10-year JGB yield was flat before today’s move, and European yields are up 10-15 bp. The 10-year US Treasury yield is up a basis point at 4.27%, a 17.5 increase on the week. The two-year US yield is flat near 3.74%, after jumping nearly nine basis points yesterday. It settled last week at 3.56%.
• is consolidating quietly around $5100. It finished last week near $5172. Silver is softer and hovers around $83 in European morning turnover. It settled around $84.50 last week.
• April WTI reached a four-day high slightly above $98 today but has slipped back toward session lows ~$94.50-$95 as the European morning progressed.
Data
• The US economic calendar is jammed today, but the war likely dampens the market’s reaction. Another look at Q4 , which rose by disappointing 1.4% at an annualized rate, may be among the least relevant as Q1 26 winds down. The most important element of the January personal income and consumption data is that adjusted for inflation, spending be flat after rising 0.1% in December. The price deflators will remain firm, with the seen stable at 2.9%, while the may tick up to 3.1% from 3.0%. Boeing and defense orders likely flattered the January durable goods orders, without which a 0.5% gain is expected by the median forecast in Bloomberg’s survey. The January report is expected to show job opening increased for the first time in four months, while the level of quits fell for the first time in three months. This will support ideas suggested by some Fed officials that the labor market showed some signs of stabilizing recently. Lastly, it will surprise no one if the inflation expectations in the preliminary March University of Michigan survey rise. At the risk of over-simplifying, consider that the average retail price of gasoline has risen every day since the war began for a cumulative rise of more than 20%.
• Canada reports February jobs data today. It is difficult to envision a better report than January’s when the unemployment rate fell to 6.5% from 6.8%, nearly 45k jobs were created, and wage pressure eased. On February 6, when the report was released, the Canadian dollar strengthened by about 0.25%. which was broadly in line with the 0.20% decline in the Dollar Index. The median forecast in Bloomberg’s survey anticipates a small rise in the unemployment rate and softer wages growth.
• Mexico reports January industrial production. The Mexican economy may have avoided a recession, but the economy has yet to establish much traction. A small rise is expected.
• The eurozone reported its January industrial output figures today. Given that Germany’s decline by 0.5% and Spain by 0.4%, the median projection in Bloomberg’s survey of a 0.6% gain seemed optimistic. In fact, it slid by 1.5%, though the sting may have been lessened by the upward revision in December to -0.5% from -1.4%.
• The UK economy stagnated in January. The median forecast in Bloomberg’s survey was for 0.2% growth. Industrial output fell 0.1% in January (-0.9% in December) and services were flat. The construction sector grew by 0.2% (-0.5% in December). The trade balance also improved (-GBP3.9 bln vs.-GBP-4.3 bln), and excluding precious metals trade, showed a small surplus for the first time since December 2024. The Bank of England meets next week and the odds of a cut have been slashed in the swaps market to about 5% from around 85% before the war began.
• China’s February lending figures were somewhat stronger than expected at CNY5.6 trillion in the first two months of the year. Early Monday, Beijing reports February real sector data and the economy is seen struggling to maintain much forward momentum.
