The is softer against all the G10 currencies. The powerful short squeeze continues to lift the yen, though Japan was on holiday today. Defying expectations, the yen, and Japanese bonds have rallied since the LDP’s sweeping electoral victory. The combination of a stronger yen and lower yields may look like a classic sell the “sell the rumor buy the fact” type of activity but the rally in JGBs began before the election.
Yesterday’s disappointing saw US rates fall. The fell three basis points to about 3.45%. It was at 3.57% at the beginning of last week. The fell six basis points to about 4.14%. It was near 4.28% at the start of last week. And this is ahead of today’s US employment data, which given the benchmark revisions, the report is expected to confirm that the US labor market was weaker than it may have appeared. The other highlight in North America today has to do with the US confrontation of Iran. A climax appears to be approaching. The outcome of President Trump’s meeting with Israel’s Prime Minister Netanyahu is seen as key. The outcome of the meeting may be known around 2:00 pm ET.
Prices
G10
• The held a narrow range yesterday. The disappointing US retail sales helped solidify support around $1.1885, while buying dried up in front of $1.1930, a few ticks above Monday’s high. It is knocking on it again and in the bullish consolidation looks poised to extend its gains in North America, and the next target is around $1.1960. There are two other observations to share. First, US two-year premium over Germany peaked last month a little below 155 bp. It is now below 140 bp and the risk is that is narrows further, perhaps in response to a soft US jobs data (including benchmark revisions and adjustment for the new census population estimates and starts and failures of businesses—birth/death). Second, the euro briefly traded a new multiyear low against the Swiss franc yesterday, slightly below CHF0.9100. It has not been this low since the 2015 spike. Switzerland reports January CPI on Friday. The EU harmonized rate is likely to be unchanged at 0.2% year-over-year. The challenge is that the low inflation and strong franc would favor easier monetary policy, but the policy rate is already at zero. Intervention is trickier than it may appear. To preserve the currency allocation of its reserves, if it were to buy euros and sell Swiss francs, it would then also enter the market and sell euros and buy dollars. Intervention itself to weaken the Swiss franc, while Switzerland has a current account surplus of nearly 8.5% of GDP, could antagonize the mercurial US administration.
• A powerful short squeeze continues to lift the , even though Japanese markets were closed for the National Foundation Day. Before the weekend election, the dollar settled near JPY157.25. In North America, yesterday, the dollar reached nearly JPY154.00. Today, the greenback has been pushed to JPY152.80, the lowest since January 30. Last month’s low was near JPY152.10, and the lower Bollinger Band is slightly lower (JPY152). It stabilized late in the Asia Pacific session and in Europe, but initial resistance may now be around JPY153.60.
• After rallying nearly two cents in two days, stalled. It consolidated in a little more than half-of-a cent range below $1.37 yesterday. It recorded session lows late in North America but came back firmer today and reached a new five-day high slightly above $1.3700. Nearby resistance is seen near $1.3730.
• The reached a new high for the month yesterday in North America and is marginally stronger today. The US dollar recorded a low slightly below CAD1.3525 and edged down to nearly CAD1.3500 today. There is little in the way of a test on last month’s low (~CAD1.3480), which was weakest the greenback has been since October 2024.
• The consolidated yesterday in about a third of a cent below $0.7100. The disappointing decline in December household spending at the start of the week may have curbed enthusiasm, in the futures market the odds of a follow-up hike remain high (80%+). On the back of the broad softness in the US dollar, the Aussie reached almost $0.7130, a new three-year high. The next chart area of note is around $0.7160.
EM
• The traded quietly yesterday, and the greenback was confined to Tuesday’s range (~MXN17.18-MXN17.2750). The trough forged last month was in the MXN17.10-12 area. It has approached MXN17.13 today. The US dollar also recorded an inside day against the Brazilian real. It has approached last month’s low (~BRL5.1655).
• The dollar reached almost the CNH6.9050 area in the local session yesterday. In the European and North American sessions, the market was reluctant to extend the greenback’s losses. It settled above CNH6.9125 and is trading in yesterday’s range today. The PBOC set the dollar’s reference rate lower today (CNY6.9438 vs. CNY6.9458 yesterday) for the third consecutive session.
• The US-India trade deal seemingly has been modified, and the uncertainty has done the no favors. It continues to consolidate within the range set last Friday, when the dollar was confined to an INR90.1750-INR90.8550 range. The consolidation looks dollar-friendly.
Other Markets
• Equities in the Asia Pacific region mostly higher though Chinese markets themselves were mixed. Australia, Taiwan, and South Korean, and Indonesian bourse rallied more than 1%. Europe’s Stoxx 600 is nursing a small loss, while US index futures are little changed to slightly firmer.
• Benchmark 10-year yields are mostly softer, though Australian bonds played catch-up after the strong rally in the US. Its 10-year yield is off seven basis points to 4.75%. European yields are softer by less than one basis point, which is what the US 10-year Treasury is as it hovers near 4.13%.
• Gold is straddling the $5100 area in Europe, a new high for the month. Silver is at a five-session high and is approaching $86.
• The US confrontation with Iran is reaching an endpoint and this has helped lift March WTI to $65, a five-session high. Iran may make one more offer today, and Israel’s Netanyahu meets with President Trump in Washington later today. The tension is palpable.
Data
• In an unusual turn of events, due to the second US government shutdown in quick succession, the January employment report will be delivered today. It will not be a clean report in the sense that this is when the Bureau of Labor Statistics makes its annual revisions and preliminary data suggest there may have been a few months last year that saw job losses. In addition, there will be an adjustment to the birth/death calculation of businesses, and this could adversely impact the figures. The median forecast in Bloomberg’s survey is for an increase of almost 70k jobs in January after 50k initially has been reported for December. The manufacturing sector has lost a little more than 70k jobs since last April’s Liberation Day. Another 7k may have been lost last month.
• Mexico reports December industrial production figures today. After rising by 0.6% in November, it is expected to have slipped by 0.2% in December. Given the base effects, the year-over-year pace will return to growth. The softer industrial output in December will still allow the year-over-year rate to rise to 1.8% from -0.8%. Manufacturing production may rise 2.0% year-over-year after falling 2.2% previously.
• China reported January inflation data earlier today. CPI slowed to 0.2% (0.4% year-over-year expected) from 0.8%. Food prices fell 0.7% (+1.1% in December). The data may be skewed by the timing of the Lunar New Year. Deflation in producer prices slowed to -1.4% from -1.9%. The least since July 2024.
