No kings but king Dollar

The surge in US rates continues to underpin the greenback. The market anticipates a more aggressive tightening cycle than the Federal Reserve’s recent Summary of Economic Projections suggested. The Atlanta Fed’s GDP tracker points to 5.1% growth this quarter, which would surely surpass China’s. Treasury Secretary Bessent announced a two-month tariff truce extension with China, which is a little shorter than had been floated.  Hopes of a settlement in the Middle East were dashed by Iranian comments threatening new escalation if the US or Israel strike again. Speculation that the US will impose a ban on diesel exports continues to unsettle the market. 

Three G10 central banks met today.  Norway’s Norges Bank increased the deposit rate by 25 bp to 4.5% and kept the door open to additional moves. The swaps market is pricing in another hike late this year or early next year. Sweden’s Riksbank kept its policy rate at 1.75% but indicated a hike this year was likely.  The swaps market has around a 90% chance discounted for the next meeting in early November. The Swiss National Bank maintained its zero-policy rate, dropped the language in its statement that threatened “increased willingness” to intervene to sell the franc, and tweaked up its inflation forecasts. 

Prices 

G10

US rates jumped after the stronger than expected preliminary September PMI and that succeeded in pushing the euro to $1.1370, a new low since July 28. The losses were extended to almost $1.1360 in Europe. It consolidates below $1.14, where options for 1.2 bln euros expires today. Indeed, the last session that the euro did not trade above $1.14 was on June 25, the day after it recorded the low for the year (~$1.1325). The July low was set slightly below $1.1355. 

Japanese markets opened for the first time this week and were greeted with the strongest dollar against the yen since September 3. The greenback reached JPY158.80, slightly above the 200-day moving average (~JPY158.45) in Europe today after mostly consolidated in the Asia Pacific session. 

Sterling was driven through the late July low (~$1.3275) and dropped to $1.3225 in the NY afternoon. It recorded a marginal new low today (~$1.3215) and still does not appear to have exhausted the selling pressure. Sterling settled well below the lower Bollinger Band (found near $1.3255 today) and has been capped there today. The next notable chart area is around $1.3200, where options for almost GBP660 mln of options expire today, though the low for the year was recorded on June 24, around $1.3140.   

The Canadian dollar fell by about 0.25% yesterday. It was the 10th decline in the past 11 sessions.  The greenback traded above CAD1.4100 for the first time since late July. For the fifth time in the past six sessions, the US dollar settled above the upper Bollinger Band (found ~CAD1.4120 today). Options for almost $1.7 bln at CAD1.4100 expire today. The US dollar has held above CAD1.4095 today. The next chart is around CAD1.4125-30. 

The Australian dollar fell by more than 1%, the most among the G10 currencies yesterday. Despite the disappointing flash PMI, the futures market marginally increased the likelihood of an RBA hike next week.  It was sold through the $0.7040-50 area, which held various technical retracement targets.  The Australian dollar settled well below the lower Bollinger Band (~$0.7040 today). Follow-through selling today scratched the 200-day moving average, which the Aussie had not traded below this year (~$0.7022 today). The $0.7000 area holds the (61.8%) retracement of the rally the late June low (~$0.6865) and options for about A$440 mln struck there, roll off today. 

EM

The Mexican peso lurched lower yesterday. It dropped about 1.15%, the largest single day drop since January. The greenback reached MXN17.6055 and took out the highs from the second half of July.  The US dollar settled above the upper Bollinger Band (~MXN17.49 today). The highs from late June/early July were around MXN17.6450-MXN17.6765.  For the part of the past two weeks, the dollar has mostly been rangebound against the Brazilian real (~BRL5.10-BRL5.18). It approached the upper end of the range yesterday and the 200-day moving average (~BRL5.1760). Maybe the proximity of the tight presidential election is dampening the movement.  Still, near-term risk may extend to the BRL5.20-BRL5.22 area. On the other hand, the greenback has jumped to its highest level against the Colombian peso since July 23. The dollar reached almost COP3309 yesterday. The next important chart area is around COP3325-COP3330. 

The dollar moved above its 20-day moving average (~CNH6.7110) against the offshore yuan yesterday for the first time since July 9. The greenback briefly traded above CNH6.7140, stalling slightly in front of last week’s high (~CNH6.7160). Follow-through buying today, lifted the dollar to CNH6.72. The month’s high is about CNH6.7265. The PBOC set the dollar’s reference rate higher for the second consecutive session (CNY6.7489 vs. CNY6.7468 yesterday). 

The dollar gapped higher against the Indian rupee today, and despite reports of onshore intervention, the dollar settled near its highs. It reached INR95.9660, its best level in five sessions.  Higher oil prices and the greenback’s broad gains weighed on the rupee. This month’s high is near INR96.0965. 

Other markets

Yesterday’s decline in US equity indices lent a sour tone to today’s activity. The Nikkei 225 gained, but the other Japanese equity indices fell as the markets re-opened.  Outside the South Korea and New Zealand, most of the bourses in the region fell.  India and China fell by more than 1.5%.  Europe’s Stoxx 600 is off a little less than 0.5%, the same as yesterday.  US index futures are heavy and underscore the risk of gap lower openings. 

Benchmark 10-year yields jumped 9-15 bp in Europe and North America yesterday, mostly after the stronger than expected preliminary US PMI.  Asia Pacific markets played catch up today, with the 10-year JGB surging almost 11 bp as domestic markets re-opened from the extended holiday weekend.  European yields are mostly 2-4 bp higher. The 10-year US Treasury yield is up around 2.5 bp to 5.14%. The US will buy up to $6 bln of longer-dated US Treasuries today. In the previous operation, when it also said it would buy up to $6 bln of 10-to-20-year bonds, it ended up accepting the offers for $5.2 bln. Yesterday’s $70 bln five-year note sale was poorly received, and it produced a large tail (higher auction yields than in the when-issued market). The bid-to-cover was weaker though the yield was around 64 bp higher than the last five-year sale. The US sells $44 bln of seven-year notes today. 

The rise in yields and the dollar did the precious metals no favor.  Gold, which had approached resistance around $4400 before the weekend, was sold to almost $4275 yesterday and $4250 today, a five-day low. Silver’s ostensibly bullish outside up day on Tuesday went for nought yesterday.  Silver was sold through Tuesday’s low and recorded the session low near $64.25 in the NY afternoon. It has been sold slightly below $63.50 today. Last week’s low was around $62.30. 

November WTI snapped a five-day decline yesterday and rose by about 2.4% and peaked slightly north of $93.  It extended the gains to almost $94.70 today as bellicose rhetoric from Iran suggests a deal is not at hand. The $95.20 area is around the halfway mark of the sell-off since the September 15 high (~$101.70). President Trump reportedly indicated he was pushing for a 90-day ban on diesel exports saw prices for the fuel surge.  US diesel exports reached a record near 2 million barrels a day in August. 

Data

US weekly jobless claims are likely to have bounced back last week after dipping below 200k during the Labor Day holiday week.  August new home sales are expected to have edged up after dropping 10.5% in July.  August building permits, initially estimated to have fallen by 2.7%, are subject to revision.  The Q2 current account deficit will also be reported.  It is expected to have widened from almost $227 bln in Q1 to around $257 bln.  In the first quarter, the TIC data showed foreign investors bought about $275.5 bln of US financial assets.  In Q2, the TIC data showed foreign investors accumulated another $344 bln of US stocks and bonds. Several Fed officials speak as well but we have already heard from Williams and Barkin. Hammock and Paulson are new, post-FOMC rate hike decision, and Summary of Economic Projections. 

Canada reports the establishment employment survey for July today. It follows a 4.8k increase in June.  The markets tend to respond more to the household survey, but even that is often overshadowed by the US report. More importantly, July retail sales are due, and the median forecast in Bloomberg’s survey is for a 0.8% decline. It would be the first decline of the year and the largest since last September. Excluding autos, retail sales may have fallen by 0.5%, which would also be the first decline this year. 

Mexico reports its IGAE activity report for July, which functions like a monthly GDP. It fell in May and June, the first back-to-back monthly decline since March-April 2025. Separately, the CPI for the first half of September is due, and both the headline and core measures are likely to slip marginally.  The session highlight is the central bank meeting.  The overnight target rate is expected to be held steady at 6.50%.  

Australia grew 39.5 jobs in August. It lost almost 16k jobs in July. However, it lost full-time positions (6.3k) for the first time since April. The unemployment rate rose to 4.6% from 4.5%. It is the third consecutive monthly increase, and it is the highest since late 2021. The participation rate rose to 67.1 from 66.9%. It is the first reading above 67% since April 2025. The futures market is undeterred and is discounting around a 90% chance of a hike next week.

Japanese markets re-opened for first time since last week.  Japan’s preliminary September PMI, which typically does not spur much of a market reaction, was reported. For the record, the manufacturing PMI stands at 54.1 from 54.9, and the services PMI fell to 51.6 from 52.5.  The composite PMI eased to 52.5 from 53.5.