USD trades heavier and look for North America to follow suit

Tomorrow is the 55th anniversary of the end of Bretton Woods. R.I.P.  It was an economic agreement, pegging the dollar to gold and the other currencies to the dollar, and establishing the World Bank, and the International Monetary Fund. Ultimately, however, it was political in nature.  It was an exercise in the Golden Rule.  He with the gold makes the rules.  The US, the world’s only meaningful creditor in 1944 and the US fashioned the rules to suit it.  The debtors were capably represented by none other than John Maynard Keynes. But outcome was not decided by who had the better economic argument but by the power relationship.  And at the risk of over-simplifying, the fact that we are not at or close to a unipolar moment, a new Bretton Woods agreement seems highly unlikely. 

The end of Bretton Woods and the initial attempts to resurrect it ushered an era of floating, which sometimes seems an official euphemism for volatile, exchange rates.  This week has been relatively quiet in the foreign exchange market. The dollar is softer against the G10 currencies today, though it is mixed on the week.  The yen is the weakest, losing almost 0.9% this week, followed by the Swiss franc’s nearly 0.7% loss.  The strongest has been the Norwegian krone’s almost 0.5% gain, even though the central bank softened its outlook for tighter monetary policy, and the Canadian dollar, which has gained about 0.35%. 

Prices 

G10

The euro recovered from a seven-day low in Europe yesterday, slightly above $1.1510 and reached $1.1545 in the North American morning. Follow-through buying today has lifted it to almost $1.1560, which is around where it settled last week.  Options for 1.2 ln euros at $1.1550 expire today. Recall that after the disappointing US jobs data at the end of last week, the euro reached $1.1580.  It was hardly challenged this week despite softer inflation gauges, and the reduced expectations for a Fed hike next month. 

The dollar initially was sold to session lows in early North American turnover yesterday against the yen. It held slightly above JPY159 and recovered to make new session highs, a little above JPY159.55 in the NY afternoon. This is the highest level since the intervention.  The greenback is trading between about JPY159.05 and almost JPY159.55 today. 

Sterling recorded a new low for the week yesterday near $1.3475. It stabilized but still settled below the five-day moving average for the first time since the day before the loss of US jobs were reported last Friday. Sterling has come back better bid today and reached session high near $1.3530 in late European morning turnover. Recall on Wednesday, sterling was turned back from almost $1.3545, its best level since July 16.  

After holding support near CAD1.39 on Wednesday, the US dollar recovered to approach CAD1.3960 yesterday. It stalled in front of the week’s high, recorded Monday (~CAD1.3965 and met sellers who pushed it back slightly below CAD1.3930. The US dollar has been sold to almost CAD1.3885 today, its lowest level since June 5. The CAD1.39 area was the (50%) retracement of the US dollar’s rally in May and June.  The next chart area of note is the 200-day moving average around CAD1.3850 and the (61.8%) retracement near CAD1.3815. 

The Australian dollar pulled back to about $0.7045 yesterday after approaching $0.7100 on Wednesday, its best level in two months.  Although the Aussie recovered, it still settled below Wednesday’s low (~$0.7055).  The Australian dollar has recovered and in late European morning activity reached almost $0.7080. Options for about A$670 mln at $0.7100 expire today, and another stack for ~A$455 mln expires there Monday.

EM 

The dollar consolidated inside Wednesday’s range against the Mexican peso, when it fell to new two-year lows (MXN17.0160).  Yesterday’s range was roughly MXN17.0250-MXN17.0805. Recall that the previous low was recorded in mid-February near MXN17.0865. The greenback drew a little closer to MXN17.00 today, slipping below MXN17.01. There is little on the charts until around MXN16.92. 

The offshore yuan has been steady this week. The US dollar has been confined to last Friday’s range of about CNH6.74 and CNH6.75. If it were a less managed currency, the price action would look like a base, especially given momentum indicators.  On a monthly basis, the PBOC has lowered the dollar’s reference rate for the last 10 months, which is to say the last time it was lifted was September 2025.  Yet, there seems to be a slightly different cadence this month and recall that the last dollar fix in July was at CNY6.7894. It was set at CNY6.7878 today. While conventional wisdom warned that Beijing would allow the yuan to depreciate in the face of the US tariffs, we were among the small minority who anticipated yuan strength. By all reckoning, except the performance of the other currencies in the region, and interest rate differential, the yuan’s appreciation has been modest (~3.65% year-to-date).  Our observation is similarly modest, the PBOC pausing its efforts that have gradually lifted the yuan. 

The dollar was little changed against the Indian rupee today and finished the week with about a 0.25% gain.  It was the first dollar gain in three weeks.  Reports suggest the central bank continued to intervene to support the rupee. Nevertheless, the price action looks dollar supportive. The greenback finished the week at INR95.4350, slightly above last week’s high.

Other markets

The S&P 500 reached a new record high yesterday, and the Nasdaq composite reached its best level since early June. Japan, China and South Korea equity markets rose today while most of the other large bourses in the region rose. The MSCI Asia Pacific Index rose by around 2% this week, its fourth consecutive weekly gain. Europe’s Stoxx 600 is edging higher for the first time in three sessions. It is nearly flat this week.  US index futures are narrowly mixed. 

The US 30-year bond auction produced a small tail (the yield was slightly lower in the when-issued market) but there was no concession as US note and bond yields fell yesterday after a softer PPI and lower oil prices. The yield on the 10-year Treasury fell to a new low for the week near 4.61% and settled below the 20-day moving average (4.65%). 10-year yields. A weaker yen may have kept the 10-year JGB under pressure today.  It has risen a little more than 6 bp this week. European rates have softened this week but are about 2-3 bp higher today.  10-year US Treasury yield has fallen by about five basis points this week, after taking into account today’s one basis point increase (to 4.65%). 

Gold posted a potentially bearish key reversal yesterday. It reached almost $4450, its best level since early June before the bears took control and pushed it to nearly $4351. The losses were extended to almost $4311 today before buyers emerged and lifted the yellow metal to almost $4360 in Europe.  Silver fell to a three-day low yesterday and settled below the five-day moving average (~$65 today) for the first time since August 3. It retreated to almost $63.50 today before recovering to almost $65. 

October WTI was sold to a three-day low yesterday, near $79.30 in the North American morning. It fell for the first time in six sessions.  It rallied nearly 11% over the run and retreated by 2.2% yesterday. It is trading within yesterday’s range today and has mostly traded between $81 and $82 today.  It settled at $77.15 last week. 

Data

The US is expected to report a small rise in July retail sales. Partly lifted by the rise in prices, retail sales rose by an average of 0.8% a month in H1. They rose by an average of 0.6% a month in Q2 and may begin Q3 with a relatively paltry 0.1% gain, according to the median forecast in Bloomberg’s survey. The core measure, which excludes autos, gasoline, building materials and food services, rose by an average of 0.6% in Q2 after a 0.8% average in Q1. The median forecast in Bloomberg’s survey is for a 0.3% increase. The preliminary University of Michigan’s August consumer confidence will be reported as well today.  The market anticipates a small decline in sentiment with the inflation expectations steady at 4.2% and 3.3% for the one-year and 5-10-yr, respectively. 

The eurozone confirmed that Q2 GDP expanded by 0.4%. The details included slightly slower household consumption and government spending, but stronger capex was a bright spot.   Recall that GDP stagnated in Q1 26.  Note that the eurozone reported a seasonally adjusted trade deficit in Q2, the first since Q1 23. 

Japanese investors continued to buy foreign assets last week (through August 7) according to the weekly Ministry of Finance data. In fact, last week’s JPY1.63 trillion purchases of foreign bonds were the most since early May. Japanese investors also bought JPY963.5 bln of foreign stocks. A week after the intervention, Japanese investors bought the most foreign assets in more than two years.