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The US dollar initially opened firmer, while Japan is on holiday. But news that the Justice Department served grand jury subpoenas to the Federal Reserve on Friday, over the renovations of the Fed’s headquarters roiled the markets. Fed Chair Powell issued a terse statement rejected the charges and said they were a “pretext” for dissatisfaction with the Fed’s interest rate policy. The dollar, US Treasuries and equities have been sold, and the yield curve steepened. 

These developments cut short what we had expected to be a further dollar recovery from its late November through late December slide. We anticipated it to be encouraged by the acceptable jobs report and this week’s anticipated firm CPI and improved retail sales and industrial production. Meanwhile, on the geopolitical front the continued protests in Iran threaten to topple the regime and this seems to have eclipsed Venezuelan developments.  
 

Prices:   

G10

• The Dollar Index is snapping a four-day advance today. Since Christmas eve day, it is the second losing session. It reached 99.26 before the weekend, its highest level since December 9. It has been sold to 98.70 today to ease back below the 200-day moving average (98.80). 

• The euro’s 0.40% rally through the European morning is the largest gain since December 22. Some buying may have been option-related as options for nearly 1.1 bln euros at $1.1650 expire today. The euro reached nearly $1.1700 in early European turnover. Intraday support is in the $1.1670-75 area. The pre-weekend high was high was slightly above $1.1660. 

• The dollar rose to a new high against the yen near JPY158.20 early today before it was broadly sold. It fell to almost JPY157.50. It tried to move higher against and set a lower high. The greenback has not been above JPY158 in European turnover. Options for $1.45 bln expire there in North America today. 

• Sterling is posting a potential bullish outside up day. It traded on both sides of last Friday’s range and is above it high (~$1.3450). It reached the session high near $1.3475 in the European morning. Resistance is seen in the $1.3480-$1.3500 area. 

• The greenback has been confined to the pre-weekend range against the Canadian dollar (~CAD1.3860-CAD1.3920). Support may be in the CAD1.3840 where almost $560 mln in options expire.  

• The Australian dollar has recovered from last Friday’s low near $0.6665 to nearly $0.6715. The intraday momentum indicators are stretched, but the upside potential may be extended to the $0.6730 area in North America.  

EM: 

• The dollar was turned back ahead of the weekend near MXN18.04. It settled below MXN18.00 and was sold to MXN17.8965 today. A shelf was forged in the first several days of the year near MXN17.87.

• The PBOC set the dollar’s fix today at CNY7.0108, a new low since October 2024. The greenback was sold to CNH7.9660 against the offshore yuan, a new low since May 2023. We suspect it can fall toward CNH6.80. 

• Reports indicate that the failure of Indian PM Modi to call President Trump has scuttled an early trade deal to ease the 50% tariffs levied on the world’s most populous country. The Indian rupee is little changed in quiet turnover. 

• Indications suggest the dollar initially rose by about 4.1% against the Venezuelan bolivar last week. It was the 23rd consecutive weekly gain. 

• The dollar slipped almost by almost 0.70% against the Argentine peso last week, its first weekly decline in five weeks. Treasury Secretary Bessent claimed victory; indicating that Argentina paid back what it had borrowed under the swap line and that American taxpayers made tens of millions of dollars. The Exchange Stabilization Fund no longer has peso exposure.  
 

Other Markets: 

• Equities: The large Asia Pacific bourses rallied today, led by a 1.4% rally in Hong Kong and a 1.9% gain in index of mainland shares that trade there. After advancing nearly 1% before the weekend, Europe’s Stoxx 600 is a nursing a small loss. US index futures are off 0.6%-0.80%. 

• European benchmark 10-year yields are narrowly mixed but mostly softer, while the 10-year US Treasury yield is up nearly three basis points to approach 4.20%.  

• Gold reached a new record high near $4600. Silver has also reached a new record (~$84.60)

• February WTI reversed lower after ticking above the pre-weekend high to $59.80. It is near $58.50 in late European morning turnover. 
 

Data:

• With the US labor market apparently not deteriorating quickly and still stuck in what Fed Chair Powell characterized as a low-hiring low-firing phase, the focus turns to the elevated consumer prices. December CPI will be reported tomorrow. The median forecast in Bloomberg’s survey is for a 0.3% rise in both the headline and core measures, which would put the year-over-year increase at 2.7%. The market accepts that the Fed is on hold and the futures market did not have a cut fully discounted until June. Richmond and Atlanta Fed Presidents speak today, but they spoke before the weekend as well. New York Fed President Williams also speaks today. Despite the unusual dispersion of view reflected in the Summary of Economic Projections, there does seem to be a wide consensus of the near-term Fed outlook. Note the Supreme Court hears the arguments about presidential authority to fire a Federal Reserve governor (Cook) next week. 

• The first thing tomorrow, Japan reports November’s current account surplus. Although the surplus widened in two of the past three Novembers, over the past 20 years, it has deteriorated in 16 years. Still, the median forecast in Bloomberg’s survey looks for a modest widening that can be fully accounted for by the improved trade balance. In the first 10 months of 2025, on a balance-of-payments basis Japan recorded an average monthly trade deficit of almost JPY153 bln. This is a bit less than half of what Jan-Oct 2024 average shortfall of JPY383 bln. 

• The 1.0% rise in Australia’s November household spending followed the 1.4% (1.3% initially) rise in October, and underscores why the central bank’s short monetary easing cycle is over. It is the strongest two-month increase in a few years. The six-month average through October was 0.6%, matching the best performance since early 2023. And this is within the context of elevated consumer inflation expectations (according to Melbourne Institute 4.7% in December vs. 4.5% in November) and firm CPI (November 3.4% headline and 3.2% trimmed mean). 

• India reported that the year-over-year rate of CPI nearly doubled to 1.33% from almost 0.7% in November. Food deflation eased as the base effects fade. Rising precious metal prices underpinned core inflation. Still, the impact of September’s cut in goods and services taxes continues to be felt. A new inflation series begins this month, and notably precious metals are replaced by jewelry. 

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