Euro pressure persists

Fears over the AI-meme, which took the semiconductor index down more than 10% last week, has stabilized with the help of favorable earnings by Super Micro Computer and SpaceX. South Korea’s Kospi dropped 14.5% last week amid the anxiety. It rallied 3.3% today and is now higher on the week. On the other hand, the pressure in the European bond market continues. The French 10-year yield is edging closer to 5.00% and the premium over Germany is approached 160 bp. The widening of the peripheral premiums over Germany is seeing the euro underperform. 

The US and Canadian economic calendars are light today, and the foreign exchange session may take its cues from the stock and bond markets. The firm oil prices are lending support the Norwegian krone. The Australian dollar extended is gains and is at a new high for the month. The faster UK inflation boosted the market’s confidence of a BOE rate hike early next month and sterling is traded at its best level against the euro since May 2025. Tensions in US-Mexican trade talks keep the peso on the defensive. 

Prices

G10

The Euro rose slightly above $1.1260 yesterday and stopped shy of last week’s high recorded ahead of the weekend near $1.1270. It is trading subdued between about $1.1215 and $1.1240 so far today as the consolidative tone continues. Options for 4 bln euros between $1.1195 and $1.1200 expire today. 

The dollar continues to trade within the broad sideways trend against the Japanese yen seen this month. It traded in less than a half a yen range around JPY158.20 yesterday. Today, it has been confined to a JPY158.00-40 range. Options for $1.2 bln at JPY158 expire today. 

After a brief pause on Monday, sterling’s advance that began in the middle of last week from a little below $1.3140 continued yesterday. It reached almost $1.3410, its best level in more than a month. That met the (50%) retracement of sterling’s decline from the August high (~$1.3675). The firm CPI reading has helped underpin sterling today. It is trading firmly within yesterday’s range. The 200-day moving average is near $1.3435 and the next retracement objective (61.8%) is about $1.3470. 

The Canadian Dollar strengthened for the fourth consecutive session yesterday, though the two-year discount to the US widened for the first time in six sessions. With the greenback’s losses yesterday, it met the (50%) retracement of the rally that began from the CAD1.3760 area in early September. So far today, the US dollar has been confined to about a 15-tick range around yesterday’s CAD1.4060 settlement. The next retracement (61.8%) is found near CAD1.3965. Initial resistance is seen in the CAD1.4070-CAD1.4100 area. 

The Australian Dollar is trading at a new high for the month ($0.7030) in European turnover. It settled above the 20-day moving average (~$0.6975 today) for the first time since September 11. The $0.7025 area corresponds to the (38.2%) retracement of the Aussie’s losses since the early September peak (~$0.7240) and the 200-day moving average is near $0.7050. The (50%) retracement is around $0.7265. 

EM 

The Mexican peso continues to consolidate around its weakest level of the year. With minor exceptions, the US dollar remains confined to the range established on October 14 (~MXN18.3550-MXN18.6035). News that the US-Mexican trade talks have been stymied over tariffs on steel and aluminum be a new weight on the peso. This week’s high so far has been about MXN18.55. 

The Chinese yuan continues to grind higher. The dollar has risen against the offshore yuan in only one week since the end of August. Through September, the dollar rose in two months this year after it appreciated in three months in 2025. The roughly 4.5% appreciation of the offshore yuan against the greenback does not sound like much but it is one of the strongest currencies of the year. It has appreciated by 8.5% against the euro and 5.2% against the yen. It is flat today, consolidating inside yesterday’s range. The PBOC shaved the dollar’s fix today to CNY6.7192 (CNY6.7200 yesterday), a new four-year low. 

The Indian rupee continues to be squeezed higher by the central bank’s efforts to stabilize the currency. The Reserve Bank of India’s tightening foreign exchange rules spurred a seven-day rally before yesterday’s holiday. Since the high set October 7 (~INR96.85), the dollar fell almost 2.2% by the end of last week. The dollar was sold to INR94.4175 today, a new low since September 7. Last month’s low was slightly above INR94.27. 

Other markets

US equity indices recovered from early losses, but nervousness about the AI theme saw the Nasdaq underperform. However, favorable tech earning reports have helped lift the tone today. The large bourses in the Asia Pacific region advanced but Hong Kong, China, and India, with South Korea leading the way with a 3.3% rally. Europe’s Stoxx 600 is up for the first time this week (~0.5%). The Nasdaq 100 and S&P 500 futures point to a higher open. 

The US 10-year yield remains in the range set last Thursday (~5.03%-5.16%). It settled slightly above 5.07% last week and is near 5.13% now. In a volatile session yesterday, European benchmark 10-year yields finished lower but the French premium to Germany settled above 150 bp. European yields are 3-7 bp firmer and the peripheral premiums are wider.

Gold sulked to a three-day low yesterday, slightly below $4112. It looks heavy despite the pullback in rates and softer US dollar. It has edged down to almost $4106 today. Last week’s low was a little above $4073 and that appears to be the next technical target. Silver traded on both sides of Monday’s narrow range and reached a four-day high (~$58.60). It settled above Monday’s high but there has been no follow-through today. It has come back softer and was sold to about $57.10, as it trades softer but within yesterday’s range. 

December WTI traded in a wide range yesterday: ~$95.25-$101.35. It traded on both sides of the range of the past two sessions. It is trading firmly today and is recording session highs late in the European morning above $100. 

Data

Mexico reports August retail sales today. They fell in June (-0.4%) and July (-0.1%). Retail sales have averaged a monthly increase of 0.1% through July. In the first seven months of 2025, Mexican retail sales rose by an average of 0.3% a month. 

The UK CPI rose by 0.4% io September, lifting the year-over-year rate to 3.5% (from 3.1%). That is a new high for the year and a little firmer than expected. The core rate rose to 2.8% from 2.6%, where it had been stuck since May. The September reading is the highest since March. Service inflation accelerated for the first time since May. It has risen 3.7% year-over-year, up from 3.4% in July and August. The swaps market has had more than an 80% chance of a Bank of England rate hike discounted for the next meeting in early November since October 2. The odds have edged up to nearly 100%. Separately, the government’s finances show that British debt exceeded GBP3 trillion for the first time. The deficit in the April-September period widened to GBP97.8 bln, which is about GBP6 bln more than the Office for Budget Responsibility projected in March. This may intensify the challenges for the government when it presents the budget next week. 

There is a strong seasonal pattern for the Japanese trade balance to improve in September. There has been one exception (2014) in the last 20 years. True to form, the deficit fell to about JPY537 bln from JPY1.11 trillion in August. One cannot deduce Japan’s trade balance from the valuation of the currency. The OECD’s model of purchasing power parity has the yen almost 63% undervalued. Through September, Japan has recorded a JPY3.32 trade deficit compared with a JPY3.09 trillion shortfall in the first nine months of 2025 and a JPY4.23 trillion deficit in same period in 2024.