The war continues to disrupt the global capital markets. The remains firm though mostly within the ranges seen in recent days. It is threatening to break higher against the , where the JPY158 level is coming under pressure. Still, the yen, despite Japan’s reliance on imported oil and refined products is the second-best performing currency in the G10 this week, off around 0.15%, second only to the , which continues to shadow the greenback. The is the worst performer, down 1.2%, followed the by oil exporter, , which has fallen by about 0.9%.
The bond market sell-off continues. Among the G10, the has risen the least (~nine basis points) while the UK Gilts and Italian BTPs have risen the most (almost 25 bp). Despite the mixed performance in the Asia Pacific region today, equities also have sold off this week. The is off 6.6% and Europe’s Stoxx 600 is off nearly 5%. The comes into today with a little less than a 1% decline this week and the is up about 0.3%.
Prices
G10
• The trades weakly but as it has over the past two sessions, remains in Tuesday’s range (~$1.1530-$1.1705). It is trading between about $1.1570 and $1.1620 today, inside yesterday’s range. Options for 1.5 bln euros at $1.16 expire today. In the first instance, we play emphasis on market positioning and momentum, but we also recognize the importance of interest rate differentials. The US two-year premium over Germany narrowed by a couple of basis points this week and near 135 bp, it is around the lowest in a couple of months. The swaps market is discounting a 75% chance of a hike later this year.
• While the threat of intervention by Japan’s minister of finance helped cap the dollar earlier this week near JPY158, the market is not done yet. The dollar was snapped up from the three-day low near JPY156.45 in the local session yesterday and was lifted to JPY157.85 in the NY afternoon. It pushed against JPY157.90 in Asia and again in Europe today. The trendline off the January highs (~JPY159.45 and ~JPY159.25) comes in today near JPY158.30. Nearby support has been forged in the JPY157.40-50 area.
• spent most of yesterday inside Wednesday’s range (~$1.3305-$1.3405), which was inside Tuesday’s range (~$1.3255-$1.3425). That said, it did dip below $1.3300 briefly as London desks were closing. It has been confined to yesterday’s range so far today, trading between about $1.3320 and $1.3380. The market sees the uncertainty spurred by the Gulf War as dramatically shifting the interest rate outlook. A week ago, the swaps market had a little more than 85% chance of a BOE rate cut later this month. The odds now stand around 15%. The UK two-year premium over the US rose to around 28 bp, the most since the middle of last December.
• Despite yesterday’s 8.5% surge in April WTI, the Canadian dollar’s roughly 0.35% loss was its biggest decline in nearly two weeks. Unlike the inside days recorded against some other pairs, the US dollar trade on both sides of Wednesday’s range yesterday. And despite intraday penetration, it failed again to settle above CAD1.37. It is trading quietly today between CAD1.3645 and CAD1.3680. There are $400 mln of options struck at CAD1.3650 and another batch for $520 mln at CAD1.3670 that expire today.
• The Australian dollar traded on both sides of Wednesday’s range (~$0.6985-$0.7085) yesterday and but settled inside the range. Tuesday’s low is the next obvious target (~$0.6945). In subdued trading it has been confined to slightly below $0.7000 to almost $0.7050 today.
EM
• The broad risk-off environment continues to weigh on the . The greenback continues to hold above MXN17.57, which previously acted as resistance, and traded above Wednesday’s high (~MXN17.7735). It is trading firmly today, though it has held so far below MXN17.80. Tuesday’s high is the next obvious target (~MXN17.8770) and above there could see the MXN18.00-05 area next.
• The has become more volatile. The implied one-month volatility is around 4%, the highest since last June. The dollar’s high this week was recorded on Tuesday near CNH6.9425. It is trading quietly, mostly between CNH6.8970 and CNH6.9185 today. The greenback has not settled above CNH6.95 since the end of January. Still, after it cut the required reserves for foreign exchange forwards and made it easier for banks to provide yuan liquidity offshore last week, the PBOC continued to lower the dollar’s fix this week. Yesterday’s reference rate was set at CNY6.9007, the lowest since April 2023. Today’s fix was slightly higher at CNY6.9025. The gap between the on- and offshore yuan is near the most since last October.
• The US granted a temporary waiver to allow Indian refiners to purchase Russian oil provided the crude and products were loaded on to vessels before yesterday. The waiver ends on April 4. However, it brought little relief to the , which slipped lower against the dollar. The greenback rose to INR91.7540 from yesterday’s settlement at INR91.60. The record high, set Wednesday, was INR92.3050.
Other Markets
• Equities were mixed in the Asia Pacific region. Hong Kong, which did not participate in yesterday’s rally, was among the strongest today, gaining 1.7%. In addition to HK, Tokyo, China, and South Korea bourses rose, while Australia, Taiwan, and India fell among the large markets. Europe’s Stoxx 600 is off about 0.3%, bringing this week’s loss to about 4.8% and ending a five-week rally. US index futures are off around 0.3%-0.6%.
• Benchmark 10-year yields continue to rise. Japan’s 10-year yield rose slightly and is up nine basis points this week, the best performer among the major bond market. Australia’s 10-year yield rose almost five basis points to and is up almost 21 bp on the week. In Europe, only UK Gilts and Italian BTP yields have risen more (~23 bp and ~24 bp, respectively). The 10-year US Treasury yield is up nearly three basis points today and is up nearly 13 bp this week, around 4.16%.
• is little changed, but in a roughly $5067-$5144 range, inside yesterday’s range. It settled around $5279 last week. Silver is also trading broadly sideways within yesterday’s range. It is hovering around $83 and settled a little below $94 last week.
• Ideas floated yesterday about some US Treasury action in the oil futures market proved for naught and April has climbed to a new high near $85. It settled slightly above $67 last week. The average price of US retail gasoline rose to $3.32 yesterday from slightly less than $3 at the end of last week.
Data
• The US reports February jobs data and January . The median forecast in Bloomberg’s survey is for a 58k increase in after a 130k initial estimate of January increase. Poor weather may weigh on the household survey, which generates the unemployment rate, and could also adversely impact hours worked. In January, the slipped to 4.3% from 4.4%. Even so, caution is needed when looking at the household survey, which will include the annual population adjustment and breaks from past surveys. The average work week was 34.3 hours in January. It averaged about 34.2 hours last year. Headline January retail sales were likely weighed down the slower auto sales and poor weather. Still, core retail sales, excluding autos, gasoline, food services and building materials may have recovered after slipping 0.1% in December. Late in the session, the Federal Reserve reports January consumer credit. The $24 bln increase in December 2025 was the most in a year. It is seen rising around half as much in January.
• Canada sees the February IVEY PMI. It tends to run hotter than the S&P PMI. The IVEY survey averaged 51.85 in 2025, while the composite PMI averaged 46.2.
• The eurozone provided another look at Q4 25 GDP. It was revised to 0.2% from 0.3% quarter-over-quarter and 1.2% year-over-year from 1.3%. Government expenditures were and capex were revised lower and more than offset the upward revision in consumption. The ECB will update its macro forecasts when it meets on March 19. In December, it projected 1.2% growth this year and 1.9% CPI. Depending on the assumptions around the Middle East war, growth may be shaved and inflation projections adjusted a little higher. A week ago, the pricing in the swaps market implied almost a 60% chance of a cut this year and now it is discounting around a 90% chance of a hike.
