Becalmed FX Market

The US dollar is mixed against the G10 currencies. Despite yesterday’s constructive price action, there has been little follow-through buying today.  Mostly narrow ranges prevail.  While the Japanese government reported signaled acceptance of faster rate hikes, the greenback has held above JPY159 and the 10-year JGB yield edged higher. It has not fallen since last Thursday. 

US Energy Secretary Wright claimed that almost 9 mln barrels of oil a day transited the Strait of Hormuz over the past week, which is well above the 4-5 mln barrels estimated by those tracking flows.  Still, the actual amount is indeterminate as many vessels are tuning off transponders and GPS.  Satellite-imagery vendors have reportedly ceased sales of high-resolution pictures. 

Prices 

G10

• The euro posted a bearish outside down day yesterday. It traded on both sides of Tuesday’s range and settled below it low. Indeed, the single currency returned to nearly last Friday’s low, which was slightly below $1.1520. Its losses were extended to almost $1.1510 today before catching a bid in Europe that carried it to new session highs a little above $1.1535.  Nearby resistance is seen in the $1.1540-50 area. 

• The greenback posted an outside up day against the Japanese yen and reached new a session high in the NY afternoon, almost JPY159.55. The dollar posted the highest settlement of the month. While the JPY159.50 area corresponds to the (61.8%) retracement the dollar’s intervention inspired slide, the JPY160 area is the next important psychological hurdle.  News that Japan’s Prime Minister Takaichi appeared to endorse faster BOJ rate hikes failed to lift the yen, which is trading in a narrow range near yesterday’s low.  The greenback is consolidating between about JPY159.20 and JPY159.50. 

• Sterling initially reached almost $1.3545, its best level in almost a month. It reversed lower and took out Tuesday’s low, slightly above $1.3490. A firm, Q2 GDP (0.4%) failed to deter follow-through sales of sterling today. It fell to $1.3475.  The $1.3510 offers the initial cap. Unless it is overcome, risk may extend to $1.3420-40 area, which hosts the (38.2%) retracement objective of the rally from the late July low (~$1.3275) and the 20-day moving average. 

• The US dollar looks like it bottomed against the Canadian dollar yesterday slightly above CAD1.39, which corresponds to the (50%) retracement of the rally from the May 1 low (~CAD1.3550). It reached nearly CAD1.3950 yesterday and almost CAD1.3960 today. Initial resistance is in the CAD1.3980-CAD1.4000 area. The US two-year premium over Canada rose yesterday for the first time in six sessions, which only the third increase in two-and-a-half weeks.  It may have also bottomed near 120 bp after peaking near 145 bp in late July, which was the highest in a year. 

• The Australian dollar briefly traded above $0.7090 yesterday, its best level since early June.  The broad greenback recovery saw it fall back to around $0.7060. It eased to about $0.7045 today but recovered back to almost $0.7060 in Europe. There is limited scope for additional gains before the intraday momentum indicators are stretched. 

EM 

• The Mexican peso reached its best level since June 2024, before the run-up to the presidential election that year.  The dollar reached almost MXN17.0160. The greenback has fallen for the past three weeks and has risen in only three sessions since July 17.  Still, the move was rather small yesterday.  The US dollar fell by about 0.15%. The dollar is a narrow range so far today (~MXN17.0435-MXN17.0805). The competitors for carry trades, like the Brazilian real and the Colombian peso both weakened.  While the Mexican peso was the strongest in the region, the Colombian peso was the weakest, off by a little more than a third of one percent. The recent deadly earthquake is a human tragedy and will adversely impact the economy in the first instance and could mark the end of the rightening cycle at 12.0%.

• The offshore yuan has practically flatlined in recent days. For the last seven sessions, it has settled between CNH6.7460-CNH6.7482.  The dollar against the G10 currencies favored a high fix today by the PBOC after yesterday’s three-and-a-half year low (CNY6.7888 vs CNY6.7882).

• The US dollar edged slightly higher against the Indian rupee today. It reached INR95.4475, matching the high from Tuesday, which is the highest for the week. It settled near the high. Recall that the dollar gapped lower on July 31. The bottom of the gap is about INR95.4715 and extends to about INR95.57. 

Other Markets

• US equities advanced yesterday, but both the S&P 500 and Nasdaq composite settled below opening levels. In the Asia Pacific region today, among the large markets, Japan, Taiwan and South Korea advanced, but most of the other fell.  Europe’s Stoxx 600 snapped a seven-day advance yesterday but recouped the loss today. US index futures are trading with a firmer bias. 

• Benchmark 10-year yields were narrowly mixed in the US and Europe yesterday.  The 10-year JGB yield has not fallen since last Thursday.  It rose another 1.5 bp today. European yields are mostly 1-2 bp lower today.  The US 10-year Treasury yield is off three basis points to 4.67%. Yesterday’s $42 bln 10-year Treasury note auction some lukewarm demand, though the yield was the highest since 2007. Today, the US will sell $25 bln 30-year bonds. The 10-year note auction took place before news that the July federal government deficit was $432.3 bln, above the expectations of the dozen economists surveyed by Bloomberg. It was nearly as big as the previous two months combined and the largest in about 5.5 years, when the post-pandemic stimulus hit.

• Gold and silver extended this month’s advance yesterday. Gold rose by more than 1% yesterday for the second time this week and the fourth time in six sessions.  It peaked in early North American turnover around $4441. It is trading heavier today but found support near $4364. Silver rose a little more than 1% yesterday and still finished a bit more than a dollar off its intrasession highs.  It was the seventh session in the past eight that it rose by more than 1%. At its best, it reached almost $66.80, its best level since June 22. It is also trading with a heavier bias today.  Bids emerged near $64.25. 

• October WTI spent yesterday inside Tuesday’s (~$80.15-$83.35) range. Given what appears to be a stalemate in the Strait of Hormuz, which is still not open, the risk seems to be higher prices. Yet, it is consolidating today.  It held above Tuesday’s low (~$80.15). The 20-day moving average is near $80.35. 

Data

• After yesterday’s tick lower in the year-over-year pace of CPI, the US reports July PPI.  A large moderation is expected after June’s 5.5% headline increase and a 5.1% rise in the core rate. Weekly jobless claims will also draw attention. They have been below 200k for the past three weeks. This has not happened in a generation and offers a somewhat more constructive view of the labor market than non-farm payrolls.  

• The eurozone reported industrial output was flat in June, while the May series was revised to 0.3% from the initial estimate of -0.2%. The market impact is minimal.  It is old news in the sense that Q2 GDP has already been reported at 0.4%. It is subject to revision tomorrow and more details will be released.  

• The UK economy grew by 0.3% in June.  The median forecast in Bloomberg’s survey was for a 0.1% contraction. May’s 0.1% growth was revised away. Still, the June data looked poor. Industrial output fell by 0.2% and the May decline was revised to -0.7% from -0.5%. Construction output weakened and the trade balance deteriorated.  Government spending fell by 0.3%, the first decline since Q1 25. The bright spot was services, where the index of activity rose 0.4%, but the May series was revised to 0.1% from 0.3% initially.  Still, Q2 GDP was spot on expectations, rising 0.4%, led by capex and consumption and better next exports. The impact on policy expectations was minimal, and the swaps market continues to fully discount a hike before year end. 

• Japan’s July PPI edged up by 0.1% and the June series was revised to 0.5% from 0.4%. The year-over-year pace ticked down to 7.2% from a revised 7.3%.  The swaps market has about a 75% chance of a hike discounted for next month, up from almost 65% at the end of last week, but down slightly from yesterday. A hike is fully discounted in October.