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Overview: The dollar rallied in North America yesterday and the foreign exchange market seems to be waiting for its leadership again today. Against the G10 currencies, the greenback is consolidating in narrow ranges near yesterday's best levels without advancing. The dollar is mixed against the major currencies but is not much more than +/- 0.15%. Emerging market currencies are mixed with most of Asia Pacific currencies a little lower and central Europe slightly firmer. The news stream is light. Besides the unexpected flat Tokyo September CPI, the market is digesting a rash of new tariff announcements by the US. They include 100% on non-generic pharma (with an exemption for companies building facilities in the US) 25% on heavy trucks, 50% on kitchen cabinets/vanities, and 30% on upholstered furniture. The details and impacts are still be thought through. 

Asia Pacific equities tumbled, led by a nearly 2.5% slide in South Korea, a 1.7% drop in Taiwan, and a nearly 1.4% loss in Hong Kong. European pharma may (or may not) be protected by the previous 15% levy agreement, and the Stoxx 600 is recouping about half of yesterday's 0.65% decline. US index futures are narrowly mixed. European benchmark 10-year yields are 1-2 bp softer, while the US 10-year yield is little changed slightly below 4.17%. Just as 4.0% marks the lower end of the range (on a closing basis) the 4.20% marks the upper end of the recent range. Gold is trading sideways, and like yesterday, remains in Wednesday's range (~$3717-$3779). November WTI edged up to a marginal new high near $65.40 before meeting sellers that pushed it back to about $64.80. The 200-day moving average is near $64.35. It settled around $62.40 last week. If the nearly 4% gain this week is sustained, it would be the largest weekly advance since June. 

USD: The Dollar Index is firm. It absorbed offers near 98.00. Overcoming resistance near 98.25 sent it to 98.60 area. It is in a narrow range near yesterday's highs (~98.30-55). The 98.70 area is the (61.8%) retracement objective of the slide since August 1. It also corresponds to the highs going back to the middle of August. Above there could target 99.30. DXY is poised for its first back-to-back weekly gain since July. The US reports personal income, consumption, and deflators today. Income is expected to have risen by 0.3% and consumption by 0.5%. However, the nominal rise in consumption is largely a function of higher prices. In real terms, consumption expenditures have not grown this year (monthly average through July is zero). The Fed targets the headline PCE deflator, yet the media insists on calling the core deflator the Fed's "preferred measure". In any event, the CPI and PPI reports contain the signal and deviation of the PCE deflators from expectations tends to be largely a rounded error. Late yesterday, the US announced that effective October 1, there will be a 100% tariff on patented drugs (not generics), unless capacity is being built in the US, a 25% tariff on heavy trucks, 50% on kitchen cabinets and vanities, and a 30% levy on upholstered furniture. Meanwhile, a partial federal government shutdown next week seems increasingly likely, and it could very well disrupt the economic releases, including next Friday's scheduled jobs report. To the extent that a government shutdown weighs on the economy, US yields may ease and could weigh on the greenback. Of course, the longer the shutdown the more impactful. 

EURO: The ECB's survey of inflation expectations rose for the next year from 2.6% to 2.8% while remaining steady on a three-year outlook at 2.5%. The market impact is minimal at best. The euro was sold through the trendline drawn off the August and September lows. The break of $1.1700 sent the euro to almost $11.645 yesterday. It has recovered to almost $1.1690 today as the previous support, $1.1700 now, may serve as resistance. The five-day moving average looks poised to cross below the 20-day moving average early next week, the daily momentum indicators have turned down, and the US two-year premium over Germany has widened to more than 160 bp to reach its widest in three weeks. 

CNY: The broadly US dollar gains helped lift it against the Chinese yuan. It posted a small weekly advance against the offshore yuan for only the third time since the end of July. The dollar traded above CNH7.14 for the first time in around three weeks and nearly reached CNH7.1500. It is trading quietly in a CNH7.1400-60 range. Rather than lead the price action, the PBOC's dollar fix seems to reflect the price action. The PBOC set the dollar's reference rate at CNY7.1152 (CNY7.1118 yesterday), which is the highest in a month. As a firmer greenback emerged, the yuan traded better against other currencies and was among the strongest emerging market currency this week. 

JPY: Last week, the US 10-year yield slipped on an intraday basis below 4.0%, a five-month low. It reached almost 4.20% yesterday, a three-week high. This helped lift the dollar to almost JPY150. That is the highest level since the August 1 high near JPY150.90. For the second consecutive session, it settled above the 200-day moving average (~JPY148.50) for the first time in seven months. It also above the upper Bollinger Band yesterday (~JPY149.55 today). The dollar is consolidating in a tight range above JPY149.60 and below JPY150. Tokyo's September CPI, which offers a robust signal of the national forces, surprised with steady prints after falling for the past three months. The headline and core rates were unchanged at 2.5%. The measure that excludes fresh food and energy slipped to 2.5% from 3.0%. Still, the weaker yen profile, and the two dissents for higher rates at the recent BOJ meeting has impacted expectations and the swaps market sees the greatest chance of a hike this year since late July, slightly below 80% and is little changed today after the Tokyo CPI.

GBP: Sterling's slide was extended to about $1.3325 yesterday. It surpassed the (61.8%) retracement of its rally since August 1 (~$1.3365) and set a new low for the month. It settled below its lower Bollinger Band (~$1.3345 today). It is trading between $1.3330 and $1.3370 today. Without a strong recovery today, it will be the second consecutive weekly loss for sterling, and the 0.80% setback would be the most in a couple of months. The daily momentum indicators are trending lower, and the five-day moving average crossed below the 20-day moving average in the middle of the week,

CAD: In the firm US dollar environment yesterday, the Canadian dollar performed best in the G10. It fell by about 0.35%. The greenback reached a new high for the month near CAD1.3950. It continues to trade firmly but in a narrow range, holding above CAD1.3925. Above yesterday's high, little stands in the way of CAD1.40, which also is around where the 200-day moving average is found. The US dollar has not settled above CAD1.40 since early April. The (38.2%) retracement of this year's USD dollar decline is found around CAD1.4020. Canada reports July GDP today. The monthly GDP contracted by 0.1% each month of Q2. The median forecast in Bloomberg's survey is for a 0.1% expansion in July. 

AUD: The sell-off that began in the middle of last week with a key downside reversal from the year's high slightly above $0.6705, was extended to $0.6525 yesterday to meet the (61.8%) retracement of the rally that began in mid-August. It remains pinned near the lows and has not been above $0.6545 today. The next immediate target is around $0.6480-$0.6500. The five-day moving pushed below the 20-day moving average yesterday for the first time since late August. The daily momentum indicators have turned lower. The Reserve Bank of Australia meets next week, and there is little chance of a change in the 3.60% cash rate target. 

MXN: As widely expected, Mexico's central bank delivered a quarter-point cut yesterday, which brought the overnight rate target to 7.50%. The dollar reached almost MXN18.5650 before the rate announcement. The dollar's gains were pared in late dealings and settled below MXN18.50. Recall that in July and August, the greenback forged a shelf near MXN18.51. The 20-day moving average is slightly above that now. The dollar slipped to about MXN18.45 before steadying today. It has mostly held below MXN18.51. Most Latam currencies fell in the wake of the greenback's recovery. The notable exception was the Argentine peso, which rallied for the fourth consecutive session as the promise of US assistance and the cut in the export tax on agriculture goods has spurred the buying. Its roughly 9.3% rally this week coming into today offset the losses of the past three weeks. The dollar is reached its lowest level against the Argentine peso since late August; peso's recovery appears to be stalling. Mexico reports its August trade figures today. Through July, it recorded an average monthly surplus of almost $203 mln. In the Jan-July 2024 period, the average monthly deficit was nearly $1.734 bln. In the first seven months of the year, Mexico's exports have risen by about 4.2% and imports have increased by 2%.

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