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All of the G10 currencies weakened against the dollar last week, and six fell by more than 1%. With the help of an explicit threat to intervene by Japan's Ministry of Finance, the yen bounced almost 0.7% before the weekend and lifted off the 10-month low. The Swiss franc was the weakest of the major currencies last week, losing about 1.75% against the dollar. It appears that the yen and Swiss franc replaced the dollar as the short leg of some carry trades. Meanwhile, the greenback's firmer tone did not coincide with higher or US interest rate. The odds of a December Fed cut slipped below 30% last week but after NY Fed President Williams' comments that he saw room for a "near-term" cut, the odds doubled at the end of the week in the Fed funds futures market. 

US labor data seems to be the key variable in the outlook for the Fed. Next week's economic reports include September retail sales and producer prices, house prices, and the Conference Board's measures of consumer confidence. The ADP new weekly estimate and weekly jobless claims probably do not have the heft to have much impact. US markets are closed for Thanksgiving on Thursday. The UK budget on November 26 may be among the most anticipated events. Chancellor Reeves has a difficult balancing act to achieve fiscal tightening in a way that does not alienate its base or provide fodder for the populist Reform UK party. Japan sees Tokyo CPI, which may have softened slightly and the first look at October industrial output that looks to have contracted again. Tensions between Tokyo and Beijing remain elevated and the economic tit-for-tat may not have run its course yet. The Reserve Bank of New Zealand is the only G10 central bank that meets. It delivered a 50 bp cut last month after three quarter-point cuts in April, May, and August. The RBNZ began the year with a 50 bp cut. The overnight target rate is at 2.50%. A quarter-point cut seems the most reasonable as it nears its terminal rate, which could be 2.0%. 

U.S.

Drivers: The Dollar Index pulled back by about 1.35% in the first half of November after reaching its best level since May on November 5. Expectations for a Fed cut next month have been pared with the encouragement of some official comments and appear to have lent the greenback support. However, the pendulum of Fed expectations swung back after NY Fed President Williams said he still thought a "near-term" cut was possible.At the close Friday, the Fed funds futures were discounting almost a 66% chance compared with 69% chance the day the Fed cut rates last month. 

Data: It may take some time for the government's data schedule to return to normal. The September PPI will be reported Tuesday. Still, in the holiday-shortened week, there are numerous regional Fed surveys (including Chicago, Dallas, Philadelphia, and Richmond). The Fed's Beige Book, prepared ahead of next month's FOMC meeting, is due in the middle of the week. Private sector data includes house prices, pending home sales, and the November Conference Board's consumer confidence survey. 

Prices: The Dollar Index reached almost 100.40 ahead of the weekend, a marginal new high for the month and its best level in five months. It settled above its 200-day moving average for the first time since March. The daily momentum indicators have turned up and the five-day moving average has moved back above the 20-day moving average. We have thought the rebound from the year's low (September 17, near 96.20) has run its course, but the price action suggests the risk of another leg higher. The 101.55 area is the next important technical target and corresponds to the (38.2%) retracement of this year's decline. It may require a break of the 99.60 area to weaken the technical tone. 

EMU

Drivers: The euro's sensitivity to interest rate changes has diminished. The rolling 30-day inverse correlation of changes in the euro and the two-year US yield peaked near -0.80 in mid-September and is now around half as much, which was last seen in early July. The rolling 30-day inverse correlation with changes in Germany's two-year yield reached this year's extreme in early October around -0.53. It is now almost zero. Recall that in the first four-and-a-half months this year, the correlation was positive and was almost at 0.50 in early March. The correlation between changes in the exchange rate and the S&P 500 (a proxy for risk) flipped from near 0.40 in early October to about -0.30 now. 

Data: It is light week for eurozone data. October money supply does not capture the market's attention as it once did. Still, the lending figures shed light on the financial conditions. At the end of the week, the ECB inflation survey results will be released. The one- and three-year expectations were at 2.7% and 2.5%, respectively in September. 

Prices: The euro traded below $1.15 before the weekend, which was a new low for the week. The low for the month, near $1.1470, was the lowest since early August, when it bottomed slightly below $1.1400. A break of $1.1400, and the 200-day moving average is a little above it, could signal losses toward $1.1240, the (38.2%) retracement of this year's rally. The US two-year premium over Germany has fallen to a new low for the year before the weekend, a whisker below 150 bp. This makes has more cautious about the euro's downside than technicals warn. A move above $1.1560 would help stabilize the technical tone and a move above $1.16 could spur speculation a low is in place. 

PRC

Drivers: The PBOC has been gradually lowering the dollar's reference rate, but the offshore yuan has been trading broadly sideways for the past two months. At the same time, three-month implied CNY volatility fell to an eight-year low earlier this month near 2.6%. There continues to be speculation that officials are guiding the dollar's reference rate toward CNY7.0. Despite complaints of the US China-hawk camp, recent negotiations did not appear to focus on the exchange rate. Moreover, US and China officials seem to have different accounts of what was agreed regarding rare earths, agriculture trade, and red lines, as the US first arms sales to Taiwan (~$330 mln) during the second Trump administration illustrates. Some new understanding may be published in the next couple of weeks, according to some reports. 

Data: China will report October industrial profits on Thursday. They improved in the August-September period to the best since late 2023 on year-over-year basis. The year-to-date year-over-year metric has also improved but lags. In September it was up 3.2%, the best since July 2024.

Prices: The dollar recorded the low for the year on the same day, September 17, when the Federal Reserve delivered its first rate cut of the year, near CNH7.0850. It approached the low in late October and again in mid-November. The upper end of the range was carved in the first half of October around CNH7.15. It stalled in the second half of last week near CNH7.12, not far from the middle of the range. Against the onshore yuan, the dollar recorded the low for the year on November 14 (~CNY7.0920). It reached slightly above CNY7.1180 last week before pulling back ahead of the weekend (~CNY7.1050). The dollar appears to be in a gradual downtrend channel now that approached CNY7.08 by the end of month, while the upper end of the channel finishes the month near CNY7.12. 

Japan

Drivers: The dollar-yen exchange rate is more sensitive to changes in the US rates than Japanese rates. The 30-day correlation with US 2- and 10-year yields is in the 0.45 area, while the correlation with Japanese rates is around half as much. The 30-day correlation between changes in the exchange rate and the S&P 500 is near 0.45, the highest in five months. The 30-day correlation of changes in the exchange rate and gold spent the last six months inverse, reaching -0.80 in late May. It is now positively correlated by about 0.12, the most since February. 

Data: It is a busy week for Japanese data beginning in the middle of the week with October's services PPI, and Thursday's employment report retail sales, industrial production, and Tokyo's CPI. Japan's GDP contracted in Q3 by 0.6% quarter-over-quarter (-2.4% annualized), but it appears to be recovering in Q4. Nevertheless, the swaps market has downgraded the probability of a hike next month to about 32% from 50% as recently as November 4. 

Prices: The dollar reached almost JPY157.80 on November 20, its best level since the middle of January. Japanese verbal intervention has escalated, and Finance Minister Kstayama threatened material intervention, acknowledging the US-Japanese "finance ministers' paper in September clearly included foreign exchange intervention, that's naturally something we can consider."BOJ Governor Ueda told the Diet before the weekend that the weaker yen raises import costs, which can push inflation higher. Still, the swap market continued to push the next hike into next year. The probability of a hike next month was halved to about 16% last week. The odds were cut in 10 of the past 11 sessions. Previous resistance around JPY155 may now act as support. The 20-day moving average, which the dollar has not settled below since October 3 begins the news week near JPY154.65.We continue to suspect the bar to actual intervention is high, with a rate hike being the first line of defense. 

UK

Drivers: Sterling also has become less sensitive to US interest rate changes. The 30-day correlation of changes in the exchange rate and the US two-year yield was around -0.67 in mid-September, and is now -0.25, the least in six months. The rolling 30-day correlation between the exchange rate and the two-year UK yield is slightly positive for the first time since August. The 30-day correlation of changes in the exchange rate and UK 10-year Gilt yield reached a five-year extreme in early October (~-0.71) but is now near -0.15. It was positively correlated for most of March and into April. Although sterling has fallen to two-and-a-half year lows against the euro, the rolling 30-day correlation between the two exchange rates is about 0.70. This year's range was forged in June (~0.92) and July (~0.65).

Data: The light economic calendar means there is little to rival the budget on November 26 for the market's attention. The issue is that government needs to raise an estimated GBP30 bln, and it is hamstrung by campaign promises, a market that seems skeptical, and the challenge posed by Farage's Reform UK party. Initially, Chancellor Reeves looked to be willing to break the campaign manifesto but has since reportedly shifted strategies to allow bracket creep and focus on narrowly drawn taxes, such as gambling and the tax on high-end properties. 

Prices: Sterling appeared to forge a low in the past three sessions around $1.3040. Still, it has shown little enthusiasm to move higher. For the past six sessions, it has not managed to rise above the previous session's high. It settled below the five-day moving average every day last week. It begins the new week near $1.3100, which is around where the (38.2%) retracement of the pullback from this month's high is found. The month's low was set near $1.3010 and the (50%) retracement of this year's rally is near $1.2945. 

Canada

Drivers:The US dollar's exchange rate against the Canadian dollar has become less sensitive to the greenback's general movement against major currencies reflected in the Dollar Index. The rolling 30-day correlation reached the year's high in late August, near 0.80 and fell to around 0.30, the least since February. The sensitivity to changes in US interest rates (two- and 10-year yields) has lessened and the correlations with changes in the exchange rate near zero. On the other hand, the correlation between changes in the exchange rate and changes in Canada's two-year yield reached the year's high in early October above 0.40 and is now inverse by around -0.30, the most inverse since the end of April. 

Data: A slow week data is punctuated at the end of the week with September and Q3 GDP. The monthly GDP fell by 0.3% in August after a 0.3% increase in July, which was the first increase since March. The Canadian economy contracted by 1.6% at an annualized pace in Q2 (cumulative monthly GDP was -0.3%) and is expected to have risen by 0.5%, according to the median forecast in Bloomberg's survey. The swaps market sees the Bank of Canada on hold at least through Q1 26. Indicative pricing has less than a 25% chance of a cut.

Prices: The US dollar posted an ostensibly bearish outside down day last Tuesday, November 18. The greenback settled at its lowest level for the month. However, rather than signal a weakening of the tone, it was more of a US dollar bear-trap. The US dollar rallied in the following three sessions and reached CAD1.4130 before the weekend. The month's high, a seven-month high at that, was recorded near CAD1.4140. The CAD1.4165 area represents the halfway mark of this year's range. The next retracement (61.8%) is around CAD1.4315. The sharpness of the greenback's gains has turned the daily momentum indicators high and improved the technical tone. Still, the failure to make a new high makes the price action in the coming days more significant from a technical perspective. A break of the CAD1.4030 area would suggest a more important US dollar top is in place. 

Australia

Drivers: In an unusual turn over events, the rolling 30-day correlation of changes in the Australian dollar and the Dollar Index has flipped to positive for the first time since in almost five years earlier this month. Still, the correlation has returned to its more common inverse position (~-0.17). The Australian dollar's correlation with the euro, the largest component of DXY was inverse slightly for the first time in six years but has also returned to the more customary positive correlation (~0.12). Similarly counter-intuitively, the rolling 30-day correlation between changes in the Australian dollar and the two-year US yield is positive. While the correlation was positive from early March through late May, it is still unusual and around 0.50, the correlation is the most since early 2020. On the other hand, the Australian dollar seems more sensitive to changes in commodity prices. The 30-day correlation between changes in the exchange rate and the CRB Index has risen from -0.35 earlier this year, the most inverse in more than two decades, to about 0.47, a six-month high.

Data: Australia reports October monthly CPI on Wednesday. In the past three months, the year-over-year rate has risen to 3.5% from 1.9% in June, the lowest since March 2021. This, coupled with guidance by the central bank governor, has persuaded the market that the central is on hold through at least Q1 26. The futures market is pricing in less than a 1-in-3 chance of a hike in the coming months. Australis also reports Q3 private capital expenditure. It was flat in H1 25, falling by 0.2% in Q1 and rising 0.2% in Q2. At the end of the week, October private sector credit growth is on tap. It has been running a little stronger than last year. The average monthly gain this year through September is about 0.6% compared with around 0.50% in the first nine months of 2024. On balance, the data is unlikely to lead to a significant reassessment of the trajectory of RBA policy. 

Prices:The Australian dollar sold off by around 2.4% from the high of the month recorded on November 13 near $0.6580 to nearly $0.6420 before the weekend. That is about a three-month low. The $0.6400 area is where the (38.2%) retracement of this year's rally is found. A convincing break could spur losses toward the (50%) retracement near $0.6310.However, the Aussie recovered to new session highs in North America near $0.6460, stalling at the 200-day moving average. A move above $0.6500-20 improves the technical outlook.  

Mexico

Drivers: Changes in the US dollar against the Mexican peso and the JP Morgan Emerging Market Currency index are inversely correlated by around -0.75 over the past 30 sessions, near the most extreme it has been over the past five years. The rolling 30-day correlation of changes in the exchange rate and the Dollar Index slackened from its highest in over a decade above 0.80 in late September. It fell below 0.10 earlier this month but rebounded to almost 0.35. Note that the correlation was briefly inversely in most of February. There also seems to be a risk-off element as well. Changes in the greenback against the peso and changes in the S&P 500 are inversely correlated by -0.45. The most extreme this year has been around -0.75 in late October. It has not been more inversely correlated since mid-2022. The powerful downtrend in the Japanese yen has renewed speculation of new yen carry trades. The 30-day correlation of the dollar against the yen and peso reached a four-year high in late September, which reflects the dollar move. However, since early October, the correlation has flipped and it is now inverse by about 0.20, the most inverse since February. 

Data: The market has yet to discount much of a chance of another rate cut when the central bank meets on December 18. The economy is weak (contracted by 0.3% in Q3 quarter-over-quarter) and inflation is elevated. This week's reports include the CPI reading for the first half of November. The headline rate stood at 3.5% at the end of October and the core rate was at 4.32% (the target is 3% +/- 1 percentage point). Despite the weaker economy, retail sales have held up better than one might have expected. They have risen by an average of 0.3% in the first eight months of the year. In the January-August 2024 period, retail sales fell by an average of 0.2%. September retail sales are likely to have softened after a 0.6% increase in August. Mexico also reports October's trade balance. Despite the roughly 13.8% appreciation of the peso this year, Mexico's trade balance has improved. The average monthly deficit in the first three quarters of 2024 was $2.16 bln, while this year's monthly shortfall averaged $325 mln. The deficit in Q3 25 averaged $1.45 bln a month compared with $2.85 in Q3 24. Exports have risen by 5% this year, while imports are up 3.6%. Note that worker remittances more than cover the trade shortfall. They have averaged about $5.08 bln a month this year, down from an average of $5.37 bln in the first nine months of 2024. Mexico's central bank releases its inflation report in the middle of the week, and it may help shape expectations for next month's meeting. The central bank has slashed its overnight rate target to 7.5% from 10% in January. The swaps market sees a terminal rate near 7% by the middle of next year. 

Prices: The dollar recorded this month's high near MXN18.77 on November 5 before it was sold to almost MXN18.25 on November 13. The greenback rose a little above MXN18.53 ahead of the weekend, a two-week high, and slightly surpassed the (50%) retracement of the losses since November 5. The daily momentum indicators have curled up and the greenback settled above its 20-day moving average. The next retracement (61.8%) is almost MXN18.5750. A move above there could target the month's high. 

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