Euro marked down, China's GDP firmer than expected, AI equities stabilize

The US Dollar is mixed against the G10 currencies to start the new week. The dollar-bloc and Scandis are firmer, while the euro, Swiss franc, sterling and yen are softer.  The euro is weakest after being marked down initially on the social strife in Europe, especially France, the weekend.  Peripheral premiums have widened against Germany and is a drag on the euro. On the other hand, equities, including some AI-related names stabilized today. South Korea’s Kospi, which was tagged for nearly 14.5% last week, settled 1.75% higher today, and the Nasdaq 100 futures are up 1%. 

China’s Q3 GDP was reported a little stronger than expected (1.2% quarter-over-quarter vs. 0.9% in Q2), though the growth in retail sales (used as proxy for consumption) lagged behind industrial output (used a proxy for exports). The PBOC set the dollar’s reference rate at a new multi-year low.  The highlight today’s North American session is Canada’s September CPI and Alberta referendum, where the secessionists appear likely to lose. The Canadian dollar is around a three-and-a-half week high. 

Prices 

G10

After approaching a key retracement objective near $1.1110 in the middle of last week, its lowest level since May 2025, the euro recovered to almost $1.1270 before the weekend, an eight-day high. The euro was marked down to slightly below $1.1185 in early trading as the French protests over the weekend took a toll.  It recovered to about $1.1235 before European markets opened. It as sold back to $1.1185 as the peripheral yields widened over Germany. It is hovering near $1.12 where options for 1 bln euro expire today.   We note that the US two-year premium over Germany has narrowed from a little more than 175 bp earlier this month, the most since August 20325 to about 160 bp before the weekend. 

The dollar recorded an inside day against the Japanese yen before the weekend. It was in roughly a 30-tick range on both sides of JPY158. It remains within that range today. The key still appears to be changes in US rates. The US two-year yield fell for the third consecutive week, the longest pullback in two months. The US 10-year yield fell for the second consecutive week, which was the first back-to-back decline since the end of H1. 

Sterling traded slightly above $1.3370 ahead of the weekend, which was its best level in almost four weeks. It settled well off its high but still posted its highest close since September 22.  It is trading quietly between about $1.3305 and $1.3340 today. A move back below $1.3280 would be disappointing. 

The US dollar peaked at CAD1.43 in the middle of last week and pulled back to about CAD1.4135 before the weekend.  It settled below the 20-day moving average for the first time since September 10. It looks like a downside break and previous support (CAD1.4200) may now offer resistance. US rates softened and the premium narrowed to approach 150 bp after peaking near 160 bp.  Speculation that Alberta secessionists will lose today’s referendum saw the Canadian dollar extend its gains today. The greenback fell to slightly below CAD1.4090 and remains near its lows near midday in London. 

The Australian dollar penetrated both sides of this month’s $0.6900-$0.7000 range last week and settled near the middle of it.  It is trading in a narrow range of roughly $0.6950-$0.6980.

EM 

The Mexican peso has a six-week slide in tow, coming into this week. It is the longest drop since July-August 2019. And the price action warns that a low has yet to be forged. The peso was resilient to the unwind of yen carry trades but has fallen victim to the unwinding of US dollar-funded carry trades and the unexpected dovishness of the minutes from the recent central bank meeting.  The US dollar found support in the second half of last week around MXN18.34-MXN18.35. A convincing push below there would seem to be a prerequisite for any sense that a top is in place. The greenback is trading firmly and is and is above MXN18.50. Last week’s high was near MXN18.6030. 

The offshore yuan reached a new high since July 2022 at the end of last week. The greenback traded down to almost CNH6.6830. It edged a little closer to CNH6.68 today. Since the end of H1 26, the dollar has risen against the offshore yuan in only three of the 16 weeks.  The signal has been sent by the PBOC, which set the dollar’s reference rate before the weekend at CNY6.7220, its lowest level since July 2022. The fix was set at CNY6.7208 today. Since the end of H1 26, the dollar’s fix has risen on a weekly basis, twice. 

The Indian rupee rallied about 1.85% last week, the most in almost four years. The central bank has engineered a short squeeze the boosts the costs of selling the rupee. It is trading quietly today.  The greenback has been confined to INR94.7565-INR94.9675, inside the pre-weekend range. Initially, it appeared the restrictions applied to Indian banks, but the RBI clarified that the new capital requirements applied to deals for hedging foreign exchange risk, not the market-making function. Yet, raising the cost of hedging foreign investment in India may deter investors, perhaps more from bonds than equities. Through late last week, foreign investors sold about $32.7 bln of Indian equities this year and bought about $8.2 bln of Indian bonds.    

Other markets

AI-related equities were a drag last week. They are part of the reason South Korea’s Kospi fell almost 14.5% last week. It is off a little more than 20% this month. The Nasdaq Composite was off about 4.5% last week, its second biggest decline since the first week of April 2025 (“Liberation Day”). Europe’s Stoxx 600 gained a little more than 2% last week.  Stocks are firmer today, though Japan was narrowly mixed (Topix up, Nikkei down).  China, Hong Kong, South Korea and Australia advanced.  Europe’s Stoxx is threatening to snap a three-day rally, while US index futures are higher, led by a 1.1% bounce in the Nasdaq futures and 0.50% in S&P futures. 

Benchmark 10-year yields fell last week.  Japan and Australian rates fell 8-9 bp.  In Europe, they were mostly 5-10 bp lower, and the peripheral premiums narrowed a little. The 10-year Treasury yield slumped almost 17 bp, which is the largest weekly decline since last April.  Although the10-year JGB yield slipped, European bond yields are higher, with the 10-=year French yield up nearly 10 bp and Italy up seven.  The 10-year German bund yield is up one basis point.  The 10-year Treasury yield is little changed, near 5.08%. 

Ahead of the weekend, gold traded above the 20-day moving average on an intraday basis for the first time since early September. The 20-day moving average is around $4183 today. The yellow metal has not settled above $4200 since September 25. It is trading quietly between about $4161 and $4190. Silver was sold as it approached its five-day moving average before the weekend. It is found a little below $57.90 today.  Silver was sold to a three-month low last week, near $55.40. The low for the year was recorded in mid-July slightly above $54.75. In subdued trading, it has been confined to ~$57.25-$57.85 so far today. 

December WTI rallied nearly 7.5% between last Thursday’s low (~$92.45) to Friday’s high ($99.35). It set a new contract high and settled above the upper Bollinger Band for the second consecutive session ($97.95 today).  It is consolidating between about $96.70 and $99.25 today. According to AAA, the average retail price of gasoline has fallen this month by about 17-cents a gallon to $4.30, and the average price of diesel has fallen by about 12-cents a gallon to $6.33. 

Data

It is a light week for US data.  The main feature is September housing starts and pending home sales. Fed officials are in the pre-meeting blackout period. Despite the firm CPI print last week, that derivatives market sees around a 20% chance of a hike next week, but has the next move fully discounted for the December meeting.  Another hike is priced in by the end of Q1 27 and one more is nearly fully discounted by the end of Q2 27. 

Canada reports September CPI today. The Bank of Canada has noted upside risks to inflation and downside risks to growth. The latter may be materializing after the economy shed 70k full-time positions in August-September and unemployment rose to a three-month high (6.5%).  The swaps market sees a little more than 10% chance of a hike next week and about an 85% chance of a hike before the end of the year. Two hikes are fully discounted before the end of Q1 27. Alberta holds its referendum today. The surprise would be if there was majority support for the beginning of a legal process for secession, and that would likely be expressed by sales of the Canadian dollar.  However, the impact of preferring the status quo would likely have negligible impact.  

The eurozone reports August current account tomorrow.  Despite ongoing anxiety over China Shock 2.0, the current account surplus is holding up rather well this year.  The average monthly surplus this year through July is about 22.7 bln euros.  In the first seven months of 2025, the average monthly current account surplus was about 23.5 bln euros. In the same period in 2024, the average monthly current account surplus was a whopping 36.4 bln euros and in 2023, the average through July was a lowly 16.8 bln euros. 

Japan reported at the end of last week that August industrial output was weaker than it has initially estimated. Industrial production fell 2.4% instead of -1.7%. And earlier today, it reported that its service sector (tertiary industry index) fell by 0.1% and the July gain of 0.4% was revised to 0.2% (0.4% in July).  The swaps market is pricing in about a 5% chance of a rate hike by the BOJ next week.  The market’s confidence of a hike in December has been pared back a bit. The swaps market still has about an 80% confidence of a hike in December and at least two more moves next year. 

China reported Q3 GDP rose 4.5% year-over-year (4.3% in Q2). The quarterly pace edged up to 1.2% from 0.9% in Q2. The September details were mildly encouraging. Retail sales and industrial output appear to accelerate slightly, but fixed asset investment and property investment continued to contract.  Given the campaign again involution, the decline in capex may be desired.  Recall, several stimulus measures, mostly, apparently on the supply side, were announced over the past couple of weeks.