US Dollar Is Mixed Ahead Of July CPI

The US dollar is mixed.  It is mostly softer against the G10 currencies, though sterling, the Australian dollar, and Japanese yen are slightly firmer.  The greenback is a bit weaker against most of the emerging market currencies. Of note, the PBOC set the dollar’s reference rate at a new 3.5-year low, and the Mexican peso is at its best level since the Mexican election in the middle of 2024. The market did bid the dollar to a new post-intervention high against the yen (~JPY159.45) in the local session today. 

President Trump claimed that the US has “total control over the Hormuz Strait”, but both sides appear to be hardening positions. Qatar and Pakistan have been mediating, but the oil prices remain near the highs for the month, suggesting the market remains skeptical.  The data highlight today is the US July CPI, where the headline and core rates are expected to slip slightly. The futures market is discounting slightly less than a 50% chance of a hike next month ahead of the report. 

Prices 

G10

• The euro traded between a little below $1.1520 and about $1.1580 last Friday, with the high being recorded after the disappointing US jobs report. It remains confined to that range so far this week.  It is in a narrow range of less than a fifth of a cent below $1.1550, where options for about 930 mln euros expire today. The down trendline off the Jan and spring highs comes in near $1.1540 today. 

• The US dollar trades firmly even if cautiously against the yen.  The greenback reached almost JPY159.40 yesterday and edged slightly higher today.  However, the dollar hit an air pocket in early European turnover. It fell to about JPY158.60 and just as quickly bounced back above JPY159. Options for almost $1.2 bln at JPY159 expire today. While JPY158 posed the first challenge of the intervention, a softer-than-expected US CPI report today could off the fundamental cover to push closer to JPY160. Looking at pricing in the options market indicates short-dated dollar puts continue trade at a relatively large premium of dollar calls.  Coupled with dollar strength in the spot market suggests the puts may be a hedge for the dollar bulls. The put premium in one-month risk reversal is wider now than before the July 30. Implied one-month volatility is slightly below 8% compared with 6% before the intervention. It jumped to over 10% following the recent intervention. 

• Sterling went no place yesterday and straddled $1.3500 in quiet, uneventful turnover yesterday. Today, it is holding above $1.3500 but below Monday’s high of $1.3530. A break of Monday’s range, roughly $1.3485-$1.3530, may point the direction of the next half-to-three-quarters of a cent move. Options for about GBP330 mln at $1.3525 expire today. 

• The Canadian dollar reached its best level yesterday since June 10.  The US dollar eased to CAD1.3915, having been stuck a little above CAD1.3925 in the previous two sessions. It is consolidating quietly inside yesterday’s range. The CAD1.3875 area corresponds with the (50%) retracement of the US dollar’s rally from the May 1 low (~CAD1.3550).  The 200-day moving average is closer to CAD1.3850. 

• Yesterday’s hawkish hold by Australia’s central bank failed to push the Australian dollar out of the range it recorded before the weekend (~$0.7025-$0.7080). It is in tight range between about $0.7055 and $0.7070. The momentum indicators are stretched but have not turned down.  There may be enough juice to lift the Aussie to a marginal new high.

EM 

• Stronger than expected Mexican June industrial output figures helped lift the peso yesterday, and in late dealing rose to its best level in six months. The dollar was sold to almost MXN17.0925. Follow-through selling today has pushed the greenback to about MXN17.0435, its lowest level since the mid-2024 elections. Led by the Colombian peso (~0.65%), five of the top six performing emerging market currencies yesterday were from Latam.  The notable exception was the Brazilian real, which was the weakest in the emerging market complex with a nearly 1% loss. A soft inflation reading coupled with minutes from the recent central bank meeting encouraged speculation of another rate cut. With the cut last week, Brazil’s central bank has cut the Selic rate four times this year to 14.0%. 

• The offshore yuan has been confined to unusually narrow ranges for several days. This month, the dollar has been trading between about CNH6.74 and CNH6.76. It held below CNH6.75 today. The PBOC’s dollar fix has, likewise, hardly moved this month.  The reference rate has been between CNY6.7884 and CNY6.7917 and today set a marginal new low since February 2023 of CNY6.7882 (CNY6.79 yesterday).

• The Indian rupee rose for the first time this week, seemingly helped by dollar sales by the Reserve Bank of India.  The dollar gapped higher yesterday and today’s setback filled the gap. Still, the greenback settled a little above Monday’s high (~INR95.30).  

Other Markets

• Equities are mostly firmer today. Most of the large bourses in the Asia Pacific regions rallied, with Hong Kong, India, and Australia the main exceptions. Europe’s Stoxx 600 is extending its rally for the eighth consecutive session, and US index futures are recouping yesterday’s losses. 

• Benchmark 10-year yields in Europe and the US reversed earlier gains yesterday and finished lower.  Some linked the recovery to the steadying of oil prices amid reports from Pakistan that a Strait of Hormuz deal was still possible. While the yield of the 10-year JGB jumped almost 4.5 bp today, European and US yields are 2-4 bp lower. It puts the US 10-year yield slightly below 4.67%. The US 30-year yield reached almost 5.28% yesterday, which was the 19-year high recorded at the end of July.   It has pulled back and is now around 5.22%.  

• After reaching slightly above $4435 yesterday, its best level in two months, gold pulled back to about $4357.  Although the yellow metal recovered, sellers blocked it from rising much above $4400.  It is bid in Europe, where the session high was recorded slightly above $4424.  Likewise, silver’s rally stalled near $66.50, its best level since June 22. It found support around $64.25. Silver has returned bid today and reached almost $66.80 in Europe. 

• September WTI rose for the fourth consecutive session yesterday and reached $84.60, a new high for the month. That met the (50%) retracement objective of the losses from the July 23 high near $93.50.  The next retracement (61.8%) is around $86.15.  In subdued activity, it is little changed ahead of the US open and is in a range of about $82.45-$84.35. The US will not accept Iran’s terms and Iran will not accept US terms. Stalemate means continued disruption. 

Data

• The US reports July CPI.  The median forecast in Bloomberg’s survey anticipates a 0.1% increase in the headline and 0.2% in the core rate.  The headline rate fell by 0.4% in June and the core was flat. Given the base, effect, the year-over-year measures are expected to slip slightly, depending on the rounding. In H1 26, the CPI rose at an annualized rate of 4.2% and the core rose at an annualized pace of 2.6%. The federal government’s deficit for July is also due. In the first six months of the calendar year, the US recorded a budget deficit of about $764 bln compared with $626 bln shortfall in the first six months of 2025.  The lion’s share of the difference can be accounted for by the roughly $100 bln of tariff refunds that have been delivered since the Supreme Court ruled against the president’s use of emergency powers to impose the levies.  

• Canada reports June building permits (on a value basis).  They may increase slightly, less than 1%, after falling by around 8.3% in April and May. Still, they are not the stuff the moves investors or policymakers. 

• Norway’s central bank, Norges Bank meets tomorrow and the stable underlying measure of July CPI reported on Monday strengthened the markets conviction that it will stand pat.  Still the swaps market has a nearly fully discounted a hike before the end of the year. 

• India reported a small increase in July CPI: 4.45% from 4.38%.  The swaps market expects the Reserve Bank of India to hike rates before the end of the year.