The US dollar is mostly firmer ahead of today’s important US employment report. The Japan yen and Swiss franc are exceptions and are 0.30%-0.40% higher. The greenback’s resilience is notable because comments by the vice chair of the FOMC (Williams) and the vice chair of the Federal Reserve Board (Jefferson) both seemed to suggest that the Fed’s leadership did not see the sense of urgency that was reflected in the market, which had, as of Monday, discounted a 70% chance of a hike later this month. It is being trimmed for the fourth consecutive session and is now pricing in about a 25% chance. The Us two-year yield peaked on Monday near 4.96% and is now a little below 4.80%.
We had anticipated that the pendulum of market expectations had swung quite far and there was little juice left. However, thought the pullback would weigh on the dollar. Perhaps, the calendar effect, i.e., the end of the month and quarter, or today’s US jobs report have delayed the expected market reaction. Today’s price action, following the US employment data, may clarify the technical and fundamental picture.
Prices
G10
• The euro was tagged for a 0.75% loss yesterday, its largest decline in three-and-a-half months. It briefly traded to $1.1215, the lowest level since the end of May 2025. Despite the nearly 10 bp decline in the US two-year yield and the almost five basis point decline in the US 10-year yield, the euro settled well below Wednesday’s low (~$1.1320). It remains soft today. After it held $1.1270, it has slumped t a new session low below $1.1230 in late European morning turnover.
• The dollar remained firm against the yen in choppy session yesterday. Despite the pullback in US yields, the dollar still settled above highs from the previous three sessions (~JPY157.70). The firmer than expected Tokyo CPI failed to rebuild expectations for a hike later this month. At the start of the week, the swap market was pricing in a 40% chance of a hike, and now it is a little less than 20%. Nevertheless, the dollar is trading with a heavier bias, but inside yesterday’s range. Options for $2.6 bln at JPY158 expire today. The trend line connecting last month’s two peaks comes in near JPY158.55 today, which is also around where the 200-day moving average is found.
• Sterling was sold to a three-month low yesterday, near $1.3180. Its loss might have been steeper if it were not for the cross-rate demand against the euro. Sterling reached a two-month high against the euro yesterday. The euro fell to about GBP0.8505, the lowest since July 21. It is consolidating, slightly softer today. Against the dollar, sterling found support at the end of Q1, near $1.3160. Late in Q2, it made a marginal new low, closer to $1.3140. It is trading in the lower end of yesterday’s range. So far, it has been capped, near $1.3220. Options for almost GBP600 at $1.3230 expire today.
• The Canadian dollar’s drop continued. It is off for the past nine sessions, coming into today, and has risen once in the past 17 sessions. The greenback reached nearly CAD1.4265 yesterday, its best level since April 2025. The CAD1.4300 area corresponds to the (61.8%) retracement of the US dollar’s losses from the February 2025 high (~CAD1.4800). The US dollar eased to CAD1.4210 today where buyers emerged to take it to CAD1.4240. We have found that US dollar is tracking the two-year interest rate differential. It rose by a little more than 25 bp in the past three weeks. It has been consolidating in recent days after reaching 155 bp. It is now little changed on the week. The reaction to today’s US employment data may be key. The market is stretched. Be on guard for a reversal pattern.
• The Australian dollar held above $0.6900 yesterday, barely. It had not traded closer since it last traded below $0.6900 on July 2. At the end of March, the Aussie found support near $0.6835 at the end of Q1 26 and about $0.6865 at the end of Q2. Today, it is holding above yesterday’s lows and testing the $0.6950 area.
EM
• The Mexican peso was the worst performing emerging market currency last month. It fell by nearly 6%. It was taken for another nearly 1.3% yesterday. The dramatic move reflects market positioning, and the key fundamental development has been the jump in US rates, which is an integral part of the risk-off phase. The dollar rose to a little above MXN18.43 yesterday. It is consolidating today between about MXN18.2050 and MXN18.3430. It finished last week around MXN17.68. A close below MXN18.15 would be an early indication that the surge may be over.
• With the mainland markets closed, the dollar seemed almost to have been marked higher yesterday against the offshore yuan and reached about CNH6.7220. It spent most of the European and North American session chopping between around CNH6.7160 and CNH6.7200. Today, the dollar was sold to almost CNH6.70, a seven-day low. It recovered to almost CNH6.7070 in the European morning.
• Indian markets are closed for a national holiday.
Other Markets
• US equities recovered yesterday, and the enthusiasm did not carry over into Asia Pacific activity today. The markets were mixed. Tokyo and Hong Kong fell, while Taiwan and South Korea rose. Australia rose, but New Zealand fell. After falling 1.3% yesterday, Europe’s Stoxx 600 is up around 0.6% through the European morning. US index futures are up (~0.4%-0.8%).
• Benchmark 10-year yields in Asia Pacific played catch-up today after the US 10-year Treasury yield fell by five basis points and the US two-year yield tumbled about 10 basis points yesterday, the day before the market-sensitive US jobs report. The 10-year JGB yield eased a couple of a basis points to a little below 3.08% It is up about one basis point this week. European yields are softer. German and UK yields are off 7-8 bp, while the French yield is practically flat. The German yield is down almost 22 bp this week, while the French yield is up 15 bp and Italy’s is nearly nine basis points higher. The 10-year Gilt yield is off almost 10 bp this week. The 10-year US Treasury yield of a little less than 5.23%, it’s down a single basis point this week.
• Gold settled a bit firmer yesterday, but it was still below the five-day moving average (~$4162 today) and below $4200. Gold traded on both sides of yesterday’s range and a close above $4200 would help steady the tone. Silver settled firmly, though also below the five-day moving average (~$61.50 today). It is holding above $60 but must push above $61.70 to improve the technical tone.
• November WTI appears to have forged a base in the $88.60 area. The contract settled near $92.85 yesterday. It initially probed the $93.50 area and was greeted with sellers that have pushed to a little below $88.90. Last week, it settled around $92.40.
Data
• The US monthly jobs report remains among the most important high-frequency economic reports, even though it is subject to persistent revisions. The median forecast in Bloomberg’s survey has settled at 90k (vs 162k in August). The unemployment rate is seen steady at 4.1% and a 0.3% increase in average hourly earnings will keep the year-over-year rate at 3.1%. A slight decline in the workweek could impact output measures. August factory orders are unlikely to have much impact. Durable goods orders, out earlier this month, were flat in August.
• The eurozone aggregate CPI rose 0.6% in September for a 3.8% year-over-year rate, which is up from 3.2%. It was a little firmer than expected and is the third consecutive month that the CPI has accelerated. Recall that in January before the US shock 2.0 (the war in Iran and 1.0 was the tariff hikes) eurozone inflation was at 1.7%. In September core rate edged up to 2.5% from 2.4%. The core rate was at 2.2% in January. The swaps market has about a 15% chance of a hike at the ECB meeting on October 29. However, the market has about an 85% chance of a hike at the mid-December meeting. A week ago, the swaps market had about a 40% chance an October hike and almost 34 bp before the end of the year. The swaps for both tenors are falling for the seventh consecutive session today.
• Tokyo CPI rose was a little stronger than expected. It rose to 2.7% in September from 1.9% in August. It is the highest of the year. The jump was mostly fueled by the fading of government support programs. Last year’s childcare-fee waiver offered a low bar for the 12-month comparison. The core rate rose to 2.7% from 1.8%, which is also the highest of the year. Processed food prices rose 3.6% year-over-year and twice the number of food and beverage companies raised prices compared with a year ago. Service prices rose by 2.3% year-over-year, the most since late 2023. The Tokyo CPI might exaggerate the translation to the national figure, which is due October 23, as Tokyo’s water-fee waiver also ended.
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