Dollar sold broadly, while Yen soars on fear of joint intervention

The US Dollar came under strong selling pressure at the start of today’s trading. The fear of joint intervention after the pre-weekend Fed checking on rates, ostensibly on behalf of the US Treasury, and underscored by Japanese officials, including Prime Minister Takaichi. Meanwhile, another tragic ICE related death in Minnesota has sparked a threat from the Democrat Senators to block the funding bill that the House passed last week to keep the federal government open past the end of the month. ICE funding has been provided by the “big, beautiful bill” that has already been approved. After initially seeming to endorse the resolution of Canada and China’s trade dispute, which included a reduction in some Chinese tariffs on canola and a cut in the tariff levied by Canada on Chinese-made EV (49k vehicles), President Trump seem threatened 100% tariff on Canadian exports to the US. Treasury Secretary Bessent seemed to suggest the threat was over a comprehensive trade deal. 

The dramatic recovery in the yen suggests that actual intervention is not needed. The stepping up verbal intervention did the trick, and Japanese bond yields also softened. The greenback is broadly lower but off its lows. Some consolidation looks likely. The G10 central banks that meet this week and the central bank of Brazil are expected to stand pat. President Trump could announce his nomination to succeed Powell as Fed Chair.   

Prices  

G10

The Euro reached almost $1.1835 ahead of the weekend, helped by market talk of the Fed checking yen prices reportedly on behalf of the Treasury Department. It was the best level since September 18, the day after the Federal Reserve’s first rate cut when it reached almost $1.1920. The euro has not traded below last Friday’s high. Follow-through buying in early activity today was extended to almost $1.1900 before stalling. 

The Yen initially was sold after the BOJ held policy steady and Governor Ueda did not seem to be in a hurry to deliver another hike. Stepped up verbal intervention by the Japan’s finance minister had marginal impact, but news that the Fed checked prices and reportedly indicated it was doing so on behalf of the US Treasury spurred a more dramatic market response. In fear of actual material intervention, the dollar dropped to slightly below JPY 155.65, its lowest level since Christmas eve. The no-cost US tactic, tantamount to verbal intervention broke the back of what officials called a “one-way” market—ironically removing the justification for material intervention. Comments over the weekend by Prime Minister Takaichi underscored the escalated concerns about joint intervention. The greenback came under immediate selling pressure today. It gapped lower and has been sold to about JPY153.40 so far today, which it has not seen since early November. The next chart area of note is near JPY152.50, the halfway mark of the dollar’s run-up since September 17 and the Fed cut. 

Sterling began last week by falling to a one-month low near $1.3330 and finished with a two-day surge that took it to almost $1.3645, its highest level since September 18 (~$1.3725). The gains have been extended today to almost $1.3685. It settled slightly higher than three standard deviations about the 20-day moving average (Bollinger Bands are set at two standard deviations from the 20-day moving average). The three standard deviation mark is near $1.3690 today. 

The Canadian Dollar soared ahead of the weekend. The US dollar was sold slightly through CAD1.3700 for the first time since the end of December. Follow-through selling approached CAD1.3670 today. The stronger than expected November non-auto retail sales (1.7% vs. 1.0% expected) may have helped, but it was the broad sell-off of the greenback that was the key driver. The five-month low set in December was near CAD1.3645. News over the weekend that President Trump threatened 100% tariff on Canada if it struck a trade agreement with China, but Treasury Secretary Bessent seemed to suggest it was a warning against a broad trade deal (which would violate the USMCA). It is not clear under what authority the tariffs would be implement and with key imports from Canada, including oil, the tariff threat may go the same way as the one threatened for running a commercial late last year that showed former President Reagan critical of tariffs. They were not implemented. 

The Australian dollar has rallied for the past five sessions coming into today, and that includes almost a 2% gain in the past two sessions. It extended its advance to $0.6935 today, its best level since October 2024. Strong economic data, and increased speculation of a rate hike as early as next week provided the essential fuel, and greenback sharp sell-off in North America before the weekend provided an additional push. The Australian dollar settled higher than three standard deviations above the 20-day moving average. That mark comes in around $0.6940 today. 

After the yen, the Swiss franc was the strongest currency among the G10, rising almost 1.2% against the dollar before the weekend. The greenback tumbled slightly below CHF0.7790 to its lowest level since January 2015, when the Swiss National Bank lifted its cap on the franc against the euro, catching most in the market terribly wrong-footed (~CHF0.7400). Last year’s low was recorded on September 17 (~CHF0.7830) when the Federal Reserve delivered its first of three rate cuts in 2025. The dollar has been sold to CHF0.7740 today, where the third standard deviation from the 20-day moving average is found. 

EM

The Mexican peso continued its bull run last week and settled at is best level against the dollar since June 2024 (~MXN17.3590). The recovery of the yen, and Swiss franc gains did not undermine the peso, suggesting that the greenback is the more important funding currency for the carry trade. Given the interest rate differential, long peso trades can weather a consolidative phase. The dollar fell to almost MXN17.3240 today before finding a bid and recovered to nearly MXN17.40 before consolidating. The next important technical area that may offer may be closer to MXN17.00.

The PBOC set the dollar’s fix below CNY7.0 (CNY6.9929) before the weekend for the first time since May 2023. It was set lower today at CNY7.9843. Officials appear to signal comfort with the gradual appreciation of the yuan, even if state-owned banks have reportedly bought dollars. A late push lower before the weekend saw the greenback settle below CNH6.95 against the offshore yuan for the first time since May 2023. The dollar slipped to CNH6.9440 today Until Chinese officials signal an end to this campaign, we suspect the risk extends toward CNH6.80-CNH6.85. 

The Indian markets are closed for the national holiday today. The rupee settled at a record low before the weekend (~INR91.96). Foreign sales of equities, the protracted trade negotiations over the US tariffs, and ineffective central bank intervention appear to be the main drags. The value of the central bank’s reserves has risen by about $14.5 bln this month after $10.4 bln in December. 

Other markets

Equities are mostly lower today, though there were a few notable exceptions in the Asia Pacific region, with Hong Kong, CSI 300, and Taiwan posting minor gains. Europe’s Stoxx 600 is off slightly, and US index futures are trading a little lower. 

Benchmark 10-year yields are lower. The 10-year JGB yield eased almost two basis points, while the 30- and 40-year yields were also slightly lower. European yields are mostly 2-5 bp lower. The 10-year US Treasury yield that traded above 4.30% last week for the first time since last September is off a couple of basis points to about 4.20%. 

Gold broke above $5000 and poked above $5110 before steadying. It trades near $5085 in late European morning turnover. Silver, no slouch traded slightly above $110 and is a little below it now. 

March WTI is trading with firmer bias today and reached $61.70, its best level since the month’s high was recorded on January 13 near $62.20. 

Data

The US reports November durable goods orders. They are seen recovering sharply after a 2.2% drop in October. They will likely be flattered by strong Boeing orders (164). Excluding transportation, a minor 0.3% increase is expected following a 0.1% gain in October. Nevertheless, with the economy expanding above trend for the third consecutive quarter, and price pressures still firm, there does not appear to be a compelling case for a rate cut at this week’s FOMC meeting. The Atlanta Fed’s GDP tracker will be updated after the durable goods order report, but as of last Thursday, its projection for Q4 GDP was 5.4%.

Mexico’s December unemployment rate is due. The median forecast in Bloomberg’s survey is for a 2.52% rate, which if accurate, would be the lowest since the end of Q1 25. After contracting by 0.3% in Q3 25 (quarter-over-quarter), the economy appears to have stabilized, and with a second consecutive contraction avoided, Banxico is seen on hold. It meets next on February 5. 

Germany’s January IFO survey was mixed. The current assessment rose for the third consecutive month. It edged up ever so slightly, to 85.7 from 85.6, but sufficiently to be the best since last August. The expectations component slipped for the third consecutive month to 89.5 from 89.7. The overall business climate was unchanged at 87.6. It has improved once since last August. Recall that the January ZEW survey and preliminary composite PMI also rose in January. The German Stats office estimated the economy grew by 0.2% in Q4 25 after a flat Q3.