The Dollar Is Mostly Firmer But In Narrow Ranges

The US dollar is mostly firmer against the major currencies.  The Australian and Canadian dollars are the exception, but their gains are minor.  Still, the Canadian dollar’s resilience in the face of the US tariffs it faces first thing tomorrow is notable.  While some progress has been reported, it seems too close to call.  October WTI is at a new high for the month, a little over $85. Bond markets remain under pressure.  And the sell-off in stocks is broadening and deepening today. 

The US has what appears to be a busy data schedule, but most of the reports pose little more than headline risk. However, US data has more often than not surprised on the downside recently. Meanwhile, the market has pushed the dollar to its best level since last month’s intervention against the yen. It approached JPY159.80 today.  The market may draw cautious as the JPY160 level is approached.  

Prices 

G10

• Follow-though buying after the rally in response to the unexpected decline in US retail sales reported before the weekend lifted the euro to almost $1.1615 yesterday. That corresponds with the (38.2%) retracement of euro’s decline from the year’s high in late January near $1.2080.  It consolidated from early in Europe through the North American session and found support near previous resistance $1.1580. The 200-day moving average, which the euro has not closed above since mid-May is near $1.1630.  It is trading quietly in about a 10-tick range on either side of $1.1575, where options for 1.34 bln euros expire today. The momentum indicators remain stretched, and the slow stochastics are beginning to show a bearish divergence by failing to confirm the highs of the last couple of sessions. 

• The market has not given up testing the official resolve to put a floor under the yen. For more than a week now, the dollar has been settling near session highs, which concentrated in the JPY159.36-55 area. True to form, the greenback recorded a low near JPY158.85 in late Asia/early European turnover yesterday and recorded the session high (slightly above JPY159.50) in North America.  The greenback made a new post-intervention high, slightly shy of JPY159.80 today. The market seems to suspect that the JPY160 level could be spur official action.  Despite the disappointing Q2 GDP that saw consumption and private investment contract and core inflation holding below target this year, the swaps market has 20 bp of tightening discounted compared with around seven basis points before the late July intervention.  

• Sterling reached a three-month high yesterday, near $1.3570.  After the high was recorded it remained in a narrow range and held above about $1.3550. The (61.8%) retracement of the loss from the late January high (for the year) comes in around $1.3590. The disappointing jobs report today capped sterling around $1.3555 and took it to $1.3520. It stretched the intraday momentum indicators, and it has consolidated in the European morning below $1.3535. 

• The US dollar nicked the 200-day moving average against the Canadian dollar yesterday (~CAD1.3950) and recovered to about CAD1.3975, where it stalled. The momentum indicators are stretched and US tariffs (50% on ~$20 bln of goods) will come into effect tomorrow unless a last-minute agreement is struck today. The greenback is trading between about CAD1.3860 and CAD1.3880.  Options for almost $750 mln at CAD1.3875 expire today. Canada’s July CPI was a bit firmer than expected (3.0% vs. 2.8% in June) and the underlying core measures also ticked up. Still, the data did not change views: The Bank of Canada will stand pat when it meets on September 2.  Separately, Canada reported another strong month of foreign demand for its stocks and bonds in June (~CAD40.8 bln). In the first six months, foreign investors bought C$157.8 bln of Canada’s financial assets compared with net sales of C$22.7 bln in H1 25. 

• The Australian dollar recorded the session high yesterday in the European morning, near $0.7130. It pulled back around a quarter of a cent in North America. It approached resistance in the $0.7135-40 area and congestion extends toward $0.7200. It is trading quietly today between $0.7995 and $0.7115. The failure to break $0.7200 could help form a large technical topping pattern, reinforced by the stretched momentum indicators. 

EM 

• The dollar recorded a marginal new low yesterday against the Mexican peso (~MXN16.9765) but spent the North American session consolidating mostly within the pre-weekend range. The greenback briefly spiked above MXN17.04.  As was the case before the weekend, this seemed to bring in new USD sellers. The greenback was bid to almost MXN17.0720 today, a three-day high. Initial resistance is seen in the MXN17.08-MXN17.10 area. So far this month, the peso is the strongest of the Latam currencies. The Colombian peso was the region’s best performer last month, with an 8.3% gain. The earthquake has seen the COP consolidate.  Yesterday, local markets were closed for a national holiday. 

• For the tenth consecutive session, the US dollar settled with a CNH6.74 handle yesterday.  On an intraday basis, it fell to a marginal new low against the offshore yuan since February 2023 (~CNH6.7375). The greenback enjoyed a slightly firmer tone today but is holding below CNH6.7480. PBOC set the dollar’s reference rate at CNY6.7905 (CNY6.7873 yesterday, a new low since February 2023. 

• The dollar rose against the Indian rupee today. It gapped higher and rose to a new high for the month, near INR95.6860. It gapped above the 20-day moving average (~INR95.6365) and settled about 0.07% higher.

Other Markets

• US equities failed to sustain initial gains yesterday.  Most of the large bourses in the Asia Pacific region fell today, with the notable exception of Hong Kong.  The Nikkei was tagged for 2.5%. Taiwan and South Korea fell 1.2%-1.5%.  Europe’s Stoxx 600 is off around 0.5%. If sustained it would be the fifth consecutive loss.  US index futures are heavy, led by the Nasdaq futures 1.2% loss. S&P futures are off about 0.5%, and the Dow is virtually flat. 

• Benchmark 10-year yields rose yesterday. The roughly two basis point increases in Germany and France were sufficient to record new highs for the year.  European yields are mostly 3-4 bp lower today. The disappointing employment data may be helping limit the rise in the 10-yer Gilt yield to a couple of basis points. The 10-year US Treasury rose almost two basis points, as well, to 4.71%. The high for the year was recorded at the end of July, slightly below 4.75%. It is now a little above 4.73%. The US 30-year yield is now at almost 5.32%, a new high since 2007. Despite the solid five-year bond auction, the 10-year JGB crept up two basis points and is closing in on 3%. 

• Gold recorded the session high yesterday a few cents below $4429 near midday in North America. It reached $4436 today before reversing lower. It found support near $4286 but is struggling to regain the upside momentum Silver rose nearly 2.5% yesterday and reached $66.55 on an intraday basis. Last week’s high was nearly $66.80. However, it is trading heavier today but holding above yesterday’s low, near $64.55. 

• The US-Iran 60-day memorandum of understanding struck on June 17 ended yesterday.  Its significance seems questionable given the action of both sides.  October WTI reached a three-day high almost $84.00 in North America and filled the gap created by the lower opening on July 27. It is trading firmly today and reached almost $84.90. 

Data

• The US reports several data points for July today, including import/export prices housing starts/permits, and industrial output. Import/export prices have ceased to capture the market’s imagination.  It is widely recognized that tariffs have been paid mostly by US importers who have passed them to consumers.  Still, the idea that tariffs have a one-off impact may be a bit naïve.  First, the US continues to impose new tariffs. Second, surveys suggest businesses intend to pass more of the tariffs to consumers. July housing starts will be reported. Through June, US housing starts have increased slightly more than in H1 25, but it is a volatile series, with monthly swings of more 10% in three of the past four months. Meanwhile, industrial output is expected to have risen by 0.3% in July after a 0.1% increase in June. While manufacturing output increased an average of 0.3% a month in H1 26, slightly faster than in H1 25, the US has added about 24k manufacturing jobs in H1 26. What does all this mean for Q3 GDP?  The median forecast in Bloomberg’s survey sees growth improving to 2.1% this quarter after 1.5% in Q2. The Atlanta Fed GDP tracker has growth twice as fast as the economists surveyed but the model will be updated after today’s reports. 

• Canada reports July existing home sales and housing starts.  New home sales in H1 26 slipped a little.  Housing starts are off about 6% in H1 26.  More important than these data points are the 50% tariffs that US is threatening on about $20 bln of imports from Canada.  Among other things, the US is annoyed by the audacity of Canada to retaliate marginally for the US tariffs and the sensitivity to the Trump administrations references to Canada as the 51st state.  In addition, there is a petition that seeks to expel the US ambassador to Canada who seems not to understand why that bothers Canadians.  US State Department officials have reportedly met activists who are seeking Alberta independence several times. A recent survey by PEW Research found 35% of Canadian view the US as a reliable partner, down from 82% in 2022. 

• Germany’s ZEW survey improved in August.  Expectations rose for the fourth consecutive month (34.2 vs. 26.3) but remain below levels that prevailed before the Middle East war (59.6 in January.  The current assessment is at -61.1, improving from -77.6 in July.  It was at -81 at the end of last year and -72.7 in January. 

• The UK’s labor market report was mixed.  June earnings growth   slowed sequentially but not as much as expected (4.1% vs. 4.4%--revised from 4.3%--average weekly earnings, and 2.8% vs. 2.9% private sector earnings, excluding bonuses on a three-months year-over-year basis). The ILO measure of unemployment was unchanged 4.9%. It had been expected to slip. Payrolls shrank by 11k and the loss of jobs fell more than initially reported in June (-13k vs-4k) and job vacancies fell to a new five-year low.  Tomorrow, the UK is expected to report a 03% rise in July CPI, which given the base effect, translates into a 2.9% year-over-year pace (from 2.6%).