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Overview: The US dollar is trading with a firmer bias today but is mostly within yesterday's range. There are four developments to note. First, China's October data mostly disappointed, but the PBOC set the dollar's reference rate at a new low since October 2024. Second, the UK government reportedly has shifted strategies to focus on bracket thresholds and narrow tax increases rather than violate campaign promises. Sterling is trading in the middle of yesterday's ranges, while Gilts have been sold. Third, the numerous Fed officials that have spoken over the last couple of days have seen the market pullback expectations of a Fed cut next month to slightly less than 50%. Fourth, although the US administration has argued that the tariffs are not causing inflation, tariff cuts on common groceries could be announced today with the intention of reducing prices for coffee, bananas, beef, beans, and some citrus fruits. 

Stocks are under pressure. Several large markets in the Asia Pacific region have been tagged with more than 1% losses today, including the Nikkei, Hang Seng, China's CSI300, Taiwan, South Korea, and Australia. Europe's Stoxx 600 is off 1.1%, which if sustained, would be the largest loss in a little more than a month. US index futures warn of a possible gap lower opening. Bonds have also been sold. Benchmark 10-year yields in Europe are mostly 2-3 bp higher, with the 10-year Gilt surging eight basis points. The US 10-year Treasury yield is firm, 4.12%-4.13%. Gold is consolidating inside yesterday's range and is little changed. A new attack on Russian facilities has help lift oil prices and December WTI is above $60 after $58 held yesterday. 

USD: The Dollar Index was sold to almost 99.00 yesterday, its lowest level this month, and it is holding today. DXY also settled below the 20-day moving average, which it has mostly held below so far today (~99.35). The momentum indicators are turned down, and the five-day moving average looks set to cross below the 20-day moving average early next week for the first time since late September. The next downside target may be in the 98.55-75 area. With the longest government shutdown in US history over, the deluge of data is likely to begin next week. The futures market shaved the odds of a rate cut next month to a little less than 50% from around 66% at the end of last week. 

EURO: The euro set the session high yesterday in the NY afternoon near $1.1655, meeting the (38.2%) retracement of the slump since the year's high was recorded on September 17 near $1.1920. The next retracement (50%) is near $1.1695. The five-day moving average is crossing above the 20-day moving average today for the first time since the end of September. Still, the euro has been unable to extend yesterday's gains and is consolidating between about $1.1610-$1.1650. There are options for 1.6 bln euros at $1.1625 and another stack for around 955 mln euros at $1.1650 that expires today. A break below the $1.1585-$1.1600 area would disappoint. The eurozone's September trade surplus widened to 19.44 bln euros from 12.29 bln euros in September 2024. The monthly trade surplus average 14.06 bln euros in the first nine months of the year compared with an average of 15.06 bln euros in the January-September 2024 period. 

CNY: The greenback fell for the fourth consecutive session yesterday against the offshore yuan and the roughly 0.25% loss was the largest since August. The PBOC set the dollar's reference rate at a new low since October 2024 today at CNY7.0825 (CNY7.0865 yesterday). Despite the lower fix, the dollar stabilized against the offshore yuan after initially making a marginal new low for the month, near CNH7.0905. China's October real sector data mostly slowed sequentially and disappointed expectations. In its year-to-date, year-over-year way of reporting, retail sales slowed to 4.3% from 4.5%, the slowest since February and the fourth consecutive month of slowing. Fixed asset investment, excluding rural areas, contracted 1.7% after a 0.5% decline in September and was more than twice the decline expected. The contraction in September and October is the first since the pandemic and may reflect some effort by Beijing to discourage "involution" or over-investment. The pace of industrial production was slowed to 6.1% from 6.2%, though strictly on a year-over-year basis it slowed to 4.9% from 6.5%. Investment in the property sector continued to contract (-14.7% vs. -13.9%) and new and used house prices extended their declines. 

JPY: The firmer US yields did not prevent the dollar from pulling back against the yen yesterday, though it traded within Wednesday's range. In fact, it was the dollar's first decline in five sessions. So far today, the dollar remains within yesterday's range, trading between JPY154.30 and JPY154.75. The coiling looks constructive. Interestingly, the swaps market has downgraded the changes of a BOJ hike next month for the sixth consecutive session today. It is now around 33% after finishing last week slightly below 50%. Consistent with other data that showed the Japanese economy recovering after a poor August, Japan reported a 0.3% increase in the September tertiary industry index (services) after the 0.4% decline in August was revised to a 0.1% gain. Early Monday, Japan reports its first estimate of Q3 GDP. It is expected to have contracted by about 0.6% quarter-over-quarter or at a 2.4% annualized rate. In Q2, the economy grew by 0.5% and 2.2% at an annualized rate. A decline in inventories and net exports likely accounted for the bulk of the Q3 contraction. 

GBP: Yesterday's news that the British economy grew by a mere 0.1% in Q3 (0.3% in Q2) and was stagnant in September reinforces speculation that the Bank of England will cut rates next month. The swaps market handicaps the odds at around 80% compared with about 68% at the end of last month. Nevertheless, sterling bulls looked through it and bid it to a new high for the month, a little above a new high for the month a little above $1.3215. The 20-day moving average is near $1.3220, and sterling has not settled about it for nearly a month. It has held below $1.3200 today. Sterling is also holding above $1.3100, where options for GBP330 mln expire today. Next week's highlights include CPI, retail sales, preliminary November PMI, and government finances, which is the last until the Autumn budget on November 26. Reports now suggest that the initial plan to raise taxes and break the election promises has been reversed, with the focus shifting to cutting tax bracket thresholds and boost narrow taxes, like on gambling, and stamp tax on the sales of expensive properties. 

CAD: The Canadian dollar's exchange rate has been streaking lately. Yesterday, the greenback rose for the first time in five sessions, after rising in the previous six sessions. Still, as one might expect in the softer US dollar environment, the Canadian dollar struggled. The US dollar posted an outside up day yesterday, trading on both sides of Wednesday's range and settled above its high. Follow-through buying today extended its gains to CAD1.4045. Options for $1 bln in the CAD!.4025-30 area expire today. A move above the CAD1.4045-65 could see a retest on the CAD1.4100 area. Canada's manufacturing and wholesale sales, which will be reported today, typically do not excite the market. Next week's highlights include October CPI and September retail sales. The swaps market recognizes that there is a good chance that the Bank of Canada easing cycle is complete. It sees less than a 1-in-10 chance of a cut next month and through H1 26, there is less than a 35% chance of another cut. 

AUD: The better-than-expected employment report yesterday helped fuel Aussie gains to $0.6580. It stalled Europe and fell back $0.6525 in North America. Itis edged a little lower today, slipping below $0.6520. A break of $0.6500 weakens the technical tone. The week's low was recorded on Monday slightly below $0.6485. The two data highlights next week are the Q3 wage price index in the middle of next week and the preliminary PMI at the end. The key development that has taken place this week is the downgrading of the prospect of another rate. At the end of last week, the futures market had almost a 69% chance of a cut before the end of 2026. It now is about 25%.

MXN: Without much fanfare, the snapped a five-day decline against the Mexican peso and is a little firmer today. It reached almost MXN18.2530 yesterday, its lowest level since October 1, before it recovered and settled near MXN18.3165. It is firm above MXN18.35 in the risk-off mood. Initial resistance is seen in the MXN18.3750-MXN18.40 area, and then MXN18.45. The greenback reached a three-day high against the Brazilian real yesterday near BRL5.3055. Initial resistance is around BRL5.3250-BRL5.3350. The year's low was recorded at the start of the week by BRL5.2640. 

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