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Overview: The dollar is mixed against the G10 currencies today. Fanned by Japanese official caution about exchange rate developments, and perhaps what seems like a successful between President Trump and Japanese Prime Minister Takaichi, the dollar is snapping a seven-day advance against the yen. The dollar bloc and sterling are under-performing, while the roughly 1.75% drop in crude prices, the third consecutive declining session, put the Norwegian krone at the bottom of the G10 today. Emerging market currencies are mixed. And despite the stronger yuan, and the PBOC setting the dollar's reference rate at a new one-year low, Asia Pacific currencies were mixed. 

Equities are struggling today. Nearly all the bourses in the Asia Pacific fell, and Europe's Stoxx 600 is threatening to end its three-day advance. After gapping higher for the past two sessions, the S&P 500 and Nasdaq futures are little changed now. Benchmark 10-year yields are mostly softer, though peripheral European yields are a little firmer. The 10-year Gilt yield is off two basis points, the most in Europe and rivaling Japan's nearly three basis point decline. The 10-year US Treasury yield is a little softer and hovering slightly above 3.97%. The US Treasury sells $44 bln seven-year notes today. 

USD: The Dollar Index stalled near 99.15 but the pullback was extended today to almost 98.55, a five-day low. It has frayed the 20-day moving average near 98.65. DXY has not settled below it since September 23. Nearby support is seen int eh 98.40-45 area. Ahead of the outcome of the FOMC meeting tomorrow, where a rate cut is nearly fully discounted, the US sees Richmond and Dallas Fed surveys and Conference Board's measure of consumer confidence. August house prices are also on tap. The FHFA measure looks interrupted by the government shutdown, but it has fallen for four consecutive months through July, the long decline since 2010. The S&P Cotality house price index has slowed every month this year since January. The 1.68% year-over-year increase in July was the least in two years. 

EURO: The euro rose for the fourth consecutive session yesterday, the longest advance in a couple of months. Its gains were extended today to slightly above $1.1665, but it is struggling to sustain the upside momentum. It failed to settle above $1.1650 yesterday, the (50%) retracement of the recent pullback from the spike to almost $1.1730 on October 17. The 20-day moving average is near $1.1645 today. Options for about 890 mln euros struck at $1.1630 expire today and 880 mln euros at $1.1650 expire tomorrow. The ECB’s one-year inflation survey slipped to 2.7% from 2.8%, while the three-year outlook was steady at 2.5%. The week's highlight still lies ahead, Q1 GDP (expected to match the 0.1% growth in Q2), the ECB meeting (steady policy is widely anticipated), and the preliminary October CPI (slightly softer headline and core measures are likely). 

CNY: The dollar posted its second lowest settlement of the year yesterday against the offshore yuan a little below CNH7.11 after it reached almost CNH7.1025. It has eased below CNH7.10 today to almost CNH7.0955. The intraday low of the year was recorded on September 17, when the Federal Reserve cut interest rates, near CNH7.0850. The PBOC set the dollar's reference rate at CNY7.0856 (CNY7.0881 yesterday), a new low since last October. Some link the lower fix to the framework of a new trade deal with the US, but last week (before the trade deal), the dollar's reference rate was lower for the fourth consecutive week. Some observers argue that the PBOC has been guiding the dollar toward CNY7.00. The lowest the reference rate was set last year was about CNY7.01. 

JPY: The dollar tested the eight-month high set on October 10 near JPY153.25 and it held yesterday. Encouraged by cautionary comments by Kiuchi, the new Economic and Fiscal Policy Minister and a smooth meeting between Japan's new prime minister and President Trump has seen the yen snap a seven-day slide. The greenback has been sold to the (38.2%) retracement of the leg up from the October 17 low (~JPY149.40) that is found around JPY151.80 today. The next retracement (50%) is near JPY151.30 and the 20-day moving average is a little lower, ~JPY151.10. Shipbuilding, defense, and the $550 bln investment in the US were key topics, according to reports. 

GBP: Sterling posted its lowest close in two weeks before the weekend (~$1.3310), it stabilized yesterday amid the broadly heavier greenback. Although yesterday it was unable to rise above the $1.3360-65 area that capped it in the previous two sessions it did so briefly today before running into a buzzsaw of sales that drove it through yesterday's low to almost $1.3300. Some linked the sales to softer food prices in a report by the British Retail Consortium. The nine-day low recorded before the weekend was slightly below $1.3290. Note that sterling has also been sold to a three-month low against the euro. Still, the intraday momentum indicators have been stretched, which may limit the losses in early North American activity. There are options for about GBP310 mln at $1.3330 that expire today. The UK sees consumer credit and mortgage data tomorrow, but the economic calendar is fairly light until the Bank of England meeting on November 6. The swaps market is pricing in about a 30% chance of a cut, which seems a bit exaggerated. 

CAD: Despite the escalation of US-Canadian tensions over an ad shown during the baseball World Series that used an old radio address by former President Reagan that was critical of tariffs, the Canadian dollar rose to its best level in a little more than two week's yesterday. The greenback eased to CAD1.3970 to approach the (61.8%) retracement of this month's rally. It is trading mostly between CAD1.3980 and CAD1.4005 today, with the high being recorded in Europe. Yesterday's high was closer to CAD1.4010. A move above there could target last Friday's high near CAD1.4040. Reagan's trade legacy is more complicated than it may appear in that soundbite. The unilateral "orderly market agreements," "voluntary export restraint" proved too much for GATT, and especially in his second term, Reagan authorized large-scale (and coordinated) intervention in the foreign exchange market to drive the dollar lower. Ironically, the facts, though, are beside the point. It is not clear under what authorization the US imposed the extra 10% levy. The US currently imposes a base tariff of 35% on Canada, but because of the USMCA agreement, most Canadian exports to the US are exempt. Still there are separate steel and aluminum tariffs (50%) and Canadian-made cars and trucks are only partially exempt. Prime Minister Carney seemed to take the latest US move, which includes the cancelation of bilateral trade discussions in stride, without threatening retaliation. Carney is in Asia and is committed to diversifying its trade with more partners. The Bank of Canada meets tomorrow, and the market is confident of a rate cut (~85%), up from slightly less than 50% at the end of last month. 

AUD: Encouraged by the risk-off mood and the somewhat hawkish takeaway from comments by central bank Governor Bullock lifted the Australian dollar yesterday to its best level since October 10. It reached $0.6560, which met the (61.8%) retracement of this month's losses. It settled above the 20-day moving average (~$0.6540) for the first time since October 6. The Aussie made a marginal new high today near $0.6565 before coming off. It found support in the European morning around $0.6545. The futures market is discounting about almost a 40% chance of a rate cut next week. The odds fell for the fifth consecutive session yesterday but rose today. There was a little more than 70% chance priced in at the start of last week. A rise in tomorrow's Q3 CPI may see the odds ease further. The futures market is discounting about a 67% chance of a cut at the last meeting of the year in December, which is the least since mid-October. 

MXN: The dollar continues to consolidate against the Mexican peso. Last week, it was confined to a range of about MXN18.3430-MXN18.49. Today it has been confined to about MXN18.38-MXN18.43 range. Mexico reported a larger than expected September trade deficit ($2.4 bln vs, the median forecast in Bloomberg's survey of $500 mln). It was the largest shortfall since January and compares with a nearly $1.5 bln shortfall in September 2024. Exports rose 1.4% on the month and are up 13.8% year-over-year. Imports rose by 2.1% and were up nearly 10% in Q3 and 15.2% year-over-year. News of the results of the Argentine legislative election saw the Argentine peso surge by more than 9% to its best level since October 16. The 10-year dollar-bond yield collapsed by around 385 bp to a new six-month low near 10.5%. The recent high was 17.45%. 

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