Ahead of the North American session, the US dollar is mostly a little softer. It has initially extended its gains in the Asia Pacific session, where Japan is still on holiday, but has retreated in the European morning. Optimism about the amount of oil making its way through the Strait of Hormuz and pipelines has seen November WTI extend the pullback that began last week after the foray above $100. It approached $89.25 today, its lowest level in two weeks. It is weighing on yields, and the US two-year note yield is threatening to fall for the first time since September 3.
Neither of the US two new initiatives have impacted the broader markets. First, the deal struck with Denmark/Greenland do not appear to give the US anything it did not have under the earlier agreement. That foreign countries cannot have bases there seems to affirm what is already taking place on the ground. Second, the idea that the US-China have a framework for an AI dialogue seemed to have been agreed upon in May. Both sides seem to be slow walking it. Notifying each other about AI incidents that threaten national security seems to be a minimal step.
Prices
G10
• The euro approached $1.15 in early North American turnover but was quickly beaten back. There are almost 4.4 bln euros in options that expire at $1.15 between today and Thursday. New session lows were recorded midafternoon in NY, near $1.1460 and follow-through selling today took out last week’s low, recorded before the weekend, was slightly above $1.1450. It fell to about $1.1435 in early European turnover before it bounced back to almost $1.1470. .
• Japanese markets are closed today and tomorrow for national holidays. The dollar firmed to almost JPY157.55 yesterday and reached the session high in the North American session. The greenback reached almost JPY157.80 before being sold in the European morning to the session low near JPY156.85. Options for about $925 mln at JPY157 expire today. Yesterday’s low was slightly below JPY156.60. A move below that would weaken the dollar’s technical tone.
• Sterling sellers lurked around $1.34 yesterday and turned sterling back in early North American activity. It was squeezed to around $1.3365. It took it out today and fell to almost $1.3325 before catching a bid in early European turnover that lifted sterling back to around $1.3370. Options for about GBP325 mln struck at $1.3380 expire today.
• The Canadian dollar weakened by about 0.25% against the US dollar yesterday and fell to its lowest level since August 6. The greenback reached nearly CAD1.4040 and edged up to CAD1.4050 today, the (61.8%) retracement of the US dollar’s losses since the test on CAD1.4250 in late June and early July. The US two-year premium over Canada rose to a new high since May 2025 (~146 bp). A move above CAD1.4050 targets the CAD1.4080-CAD1.4100 area next.
• The Australian dollar traded sideways yesterday. The session high was recorded in early North American turnover, near $0.7140. It pulled back and found support around $0.7120. It traded below $0.7100 today for the first time in three days and approached $0.7090. Options for almost A$500 mln at $0.7100 expire today. The Aussie recovered in the European morning to around $0.7120.
EM
• The dollar traded in a narrow range against the Mexican peso. It was confined to about MXN17.1850 to almost MXN17.24. It rose above last week’s high (~MXN17.2750) today and reached MXN17.2915 before steadying. Options for about $600 mln at MXN17.30 expire today. The next chart area of note is around MXN17.40. None of the 17 economists surveyed by Bloomberg expect the central bank to change its 6.5% overnight rate target at Thursday’s meeting.
• The dollar was sold to a new low since mid-July 2022 yesterday, near CNH6.6910. It has held slightly above there today and recovered to about CNH6.7035. The offshore yuan has risen in only two weeks here in Q3. It rose in five weeks in Q2. The signal from the PBOC is clear: Beijing is accepting a mild appreciation of the yuan. The PBOC set the dollar’s reference rate lower for 10th consecutive session today (CNY6.7459 vs. CNY6.7487 yesterday). The IMF estimates that the yuan is around 16-21% undervalued. Some economists estimate it is 20-30% undervalued. Over the past 12 months, the yuan has appreciated nearly 6.25%.
• The decline in oil prices appeared to help strengthen the Indian rupee today. It reached a six-day high. The dollar has drifted lower for the fifth consecutive session today. It settled below INR95.60 for the first time since September 11. Nearby support is seen in the INR95.34-INR95.37 area.
Other Markets
• The US major equity indices traded firmly yesterday and settled above opening levels. The Nasdaq Composite (~2.3%) and the S&P 500 (~1.5%) rose by the most since early August. Asia Pacific equities were narrowly mixed, while Europe’s Stoxx 600 is about 0.35% better and a higher close today would be the fourth in five sessions. US index futures are slightly firmer.
• Benchmark 10-year yields tumbled in the Europe and North America yesterday, but Asian bonds were narrowly mixed today. European 10-year rates are mostly 2-3 bp lower but the 10-year Gilt is off three basis points, and the French benchmark is flat. With the effective Fed funds rate (weighted average) of 3.88% and expectations priced into the Fed funds futures of three more hikes in the cycle, a 4.70% two-year Treasury yield does not seem particularly high.
• Gold was unable to find much traction yesterday, despite the pullback in rates. At the low, it had retreated by about $55. It managed to pare its losses in late turnover but was sold today below $4300 in early European turnover before it bounced back to almost $4340. It needs to reestablish a foothold above $4400 to improve the technical tone. Silver stalled slightly above $67 and a little below the last week’s high recorded before the weekend (~$67.35). It was sold slightly through $64.60 today before steadying. It reached the $65.50 area near midday in Europe.
• Optimism dragged November WTI down to around $91.20 yesterday, its lowest level since September 9. Follow-through selling pushed the contract to $89.30 today and below the 20-day moving average (~$90.50) for the first time in nearly a month. If, technically, the rally from the late August low is being retraced, the $90.10 area was the halfway mark, and $87.40 is the (61.8%) retracement objective.
Data
• In a fairly light data week ahead of next week’s US employment report, the Philadelphia Fed’s non-manufacturing survey and the Richmond Fed’s survey are unlikely to capture the market’s imagination today. The Fed reports are unlikely to have a material impact on expectations for next month’s Fed meeting. Several Fed officials speak today (Williams, Jefferson, and Barkin). The futures market has slightly more than a 50% chance of another quarter point hike. The Atlanta Fed’s GDP tracker sees 5.1% growth this quarter, which would likely exceed China’s. It will be updated at the end of the week.
• Mexico reports July retail sales today. While we have noted the strength of Mexico’s external account, the domestic economy continues to struggle sustaining forward momentum. Retail sales have been flat in H1 26 after they increased by about 1.8% in H1 25. They fell by 0.6% in May and slipped another 0.2% in June. The median forecast in Bloomberg’s survey for July anticipates a flat report.
• The UK reported August government finances. The UK borrowed more than anticipated in the first five months of the fiscal year. The GBP77.3 bln shortfall is a little more than GBP8 bln more than projected by the Office for Budget Responsibility in March. The deterioration was the result of the increase in the cost of goods and services, as revenue was solid. The next important development is the fall budget at the end of next month. Ahead of the budget, sterling has tended to weaken in September. Sterling has declined in five of the past six Septembers and is off a little more than 1.3% so far this month. The 10-year Gilt yield has risen by about 12 bp this month.
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