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Overview: The US dollar continues to trade with a heavier bias. Today, the yen is leading the move on the back of renewed speculation that the BOJ may still hike rates this year. The Australian dollar has broken above $0.6600 to approach the year's high, while the Canadian dollar is the laggard, as is often the case in a soft US dollar environment. With the encouragement of the PBOC, which set the dollar’s reference rate at a new low for the year, the market has pushed the dollar below CNH7.1150 for the first time since last November. Emerging market currencies are mostly firmer against the greenback today. The fall of the French government has not caused much of a stir, after all, it is the fourth time in 20 months. French bonds are doing a bit better than Germany Bunds today and the French stock market is firmer, while Germany's Dax is nursing a 0.5% loss. The highlight of the North American session is the benchmark revisions to the establishment survey, where a sharp downward revision is expected. 

Equities are mixed. Japanese and Chinese equities retreated, but the mainland shares that trade in Hong Kong, and the Hang Seng itself rallied more than 1%. So did Taiwan and South Korea. Australia and New Zealand indices slipped. Europe's Stoxx 600, which gained 0.5% yesterday is struggling today and is slightly lower, while US index futures are firm. Benchmark 10-year yields are mostly firmer in Europe and the 10-year US Treasury yield is up a couple of basis points to push a little above 4.06%. Gold's run continues. It is up for the 10th session in the past 11 and reached a new record near $3660. October WTI is firm but within yesterday's range, which was in the pre-weekend range, hovering below $63 in the European morning. 

USD:  The Dollar Index trading softer through the North American session and slipped through the pre-weekend low slightly below 97.45 in late turnover. It is approached the upper end of a band of support 97.00-25. The multiyear low was recorded on July 1 just ahead of 96.35. Today's highlight is the BLS annual benchmark revisions to the establishment survey. Last year's revision took 818k from the 12-month job growth. The BLS estimates that in the 12-month through March (the extent of today's revisions) was 147k. This year's revision estimates range from about 550k to 900k, which is about 45k to 75k off per month on average. That said, as administration officials noted over the weekend, August's estimate is often revised higher, but it seems to stretch to suggest it will make a meaningful difference. Manufacturing has lost 41k jobs since February and this cannot be blamed on China. The boom in construction that began under Biden has been undercut by the elimination of subsidies. Construction spending has fallen year-over-year for the past six months. Federal government employment is off almost 100k this year. Overall, non-farm payrolls have risen by an average of 75k a month this year, almost half of the pace seen in January-August 2024, pending today's revisions. In the four months, through August, job growth has slowed to an average of 27k a month. Leaving aside the pandemic, it is the weakest jobs growth for a four-month period since 2010.

EURO: French Prime Minister Bayrou lost the confidence vote, as widely expected. The market has taken it in stride. The euro recorded session highs slightly above last Friday's peak ~ ($1.1760) in late North American dealings to reach $1.1765. It extended its gains to $1.1780 today, and the French 10-year premium over German has narrowed by a couple of basis points today. French President Macron is looking for his fifth prime minister in last then two years. News that French industrial output fell by 1.1% was also shrugged off. It rose by 3.7% in June. The euro set a high in late July, near $1.1790, and the multi-year high set July 1 was closer to $1.1830. There are options for 885 mln euros struck at $1.18 that expire today. The US two-year premium over Germany continues to narrow. It is near 155 bp, having been above 200 bp in late July and above 180 bp as recently as August 21. It is the narrowest since last September. The premium reached a low last year of almost 135 bp and the low in 2023 was near 112 bp.

CNY: The dollar was pinned the pre-weekend low against the offshore yuan yesterday. The year's low was recorded on August 29 near CNH7.1160 and has been sold to a marginal new low today slightly below CNH7.1147. The offshore yuan continues to trade stronger than onshore yuan, seemingly reflecting the direction of the speculative pressure. The next technical target may be in the CNH7.0870-CNH7.10 area. The PBOC set the dollar reference rate at a new low for the year CNY7.1008 (vs. CNY7.1029 yesterday). There is speculation that officials are guiding the dollar toward CNY7.00. China reports August PPI and CPI first thing tomorrow. Although some observers clamor for more rapid yuan appreciation given its trade surplus, the deflation that still grips China seems to weaken such arguments.

JPY: Japanese politics add a new dimension to calculations about the exchange rate, but the most likely scenario is one of continuity. The LDP's leadership election is planned for October 4. The dollar peaked yesterday in early Asia Pacific turnover near JPY148.60. It trended lower and set session lows late in North America near JPY147.35. News reports claiming that BOJ officials still see scope for a rate hike this year pushed the dollar through the small shelf that was forged last week around JPY146.80. Some dollar selling also may have been related to the expiration of nearly $1 bln in options that expire today at JPY147.00. It reached nearly JPY146.35. The August low was a little lower, around JPY146.20. 

GBP: The market took the UK cabinet reshuffle in stride. Sterling and Gilts gained yesterday but this seemed to be more a reflection of the weak dollar and the broad rally in bonds rather than a specific UK assessment per se. If anything, sterling was among the weaker G10 currencies yesterday. Many observers concluded that the cabinet reshuffle does not represent a shift in the Labour Government's policies. Sterling did manage to take out the pre-weekend high, but it was only about 1/100 of cent. It has edged higher today, to almost $1.3590. The $1.36 level held sterling back in the second half of July and near the middle of August. Options for nearly GBP375 mln struck there expire today. 

CAD: In the general soft US dollar environment, the Canadian dollar was a laggard yesterday. Only the yen did worse. The greenback recorded an inside day yesterday. The other factor that may be weighing on the Loonie is the shift in market expectations toward a rate cut next week after the recent disappointing Q2 GDP and the poor jobs report at the end of last week. The year-end rate, implied by the swaps market has fallen by about 16 bp (to 2.35%) since Q2 GDP (-1.6% annualized) was reported on August 29. The jump in the unemployment rate (7.1% vs. 6.9%) and the loss of full-time jobs for the second consecutive month appears to have swayed several Canadian banks to forecast a cut next week. Yet the Canadian dollar's recent high was on August 29. The greenback climbed from almost CAD1.3735 on September 1 to about CAD1.3855 before the weekend. A move above CAD1.3860 could target the August high, set before Fed Chair Powell spoke in Jackson Hole on August 22, near CAD1.3925. It is straddling the CAD1.3800 level today in narrow range in quiet turnover. 

AUD: The Australian dollar's pre-weekend gains were extended by a 1/10 of cent in North America yesterday. It got as close to $0.6600 without trading it. The Aussie traded above $0.6600 twice in July but it proved to be a false breakout. Follow-through buying today lifted the Aussie to almost $0.6620. The high for the year was recorded in late July at $0.6625. Options for A$420 mln struck at $0.6600 expire today. Although there is some speculation that the Reserve Bank of Australia may not cut rates again this year, the futures market is suggesting otherwise. The odds of a cut at this month's meeting were never very high in the first place and there is about an 88% chance discounted a cut at the next meeting in early November. About 29 bp of cuts is discounted by the end of the year, down slightly from the end of August and about half of what was discounted at the end of July. 

MXN: Since mid-August, the dollar has been chopping between MXN18.60-MXN18.80. There have been several intraday violations, but only two closes beyond that range. It is fraying the lower end in the European morning and has been pushed to almost MXN18.59. The sharp downtrend seen in April through July morphed into a broad range affair (~MXN18.50-MXN19.00 on the wide). Mexico reports August CPI today. The headline is expected to firm (~3.56% vs. 3.51%) while the core rate may soften slightly (~4.20% vs. 4.23%), according to the median forecasts in Bloomberg survey. The central bank meets on September 25. Barring significant upside surprise, another rate cut seems likely. Although it does not draw much attention, Mexico will also report August vehicle production and exports. There is a strong seasonal factor in Mexico's output: It nearly always falls in July and rises in August. It fell by 14.3% in July and is likely to have bounced back in August. Mexico exported almost 95% of the vehicles in produced in July. In 2024, Mexico exported 87% of the vehicles in produced. Yet for the all the critics of China's excess capacity, is there much attention Mexico's auto sector? It is not clear how this is substantively different than slapping a 25% levy on India for importing Russian oil, while addressing other importers of Russia's energy. 

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