Yen drops to 40-year lows and drags others down

The Yen has been pushed to its lowest level in 40 years, and this appears to have helped drag most of the other major currencies lower against the dollar today amid month-end and quarter-end considerations. Japanese officials did not appear to have stepped up their verbal defense of the yen and the market pressed ahead. The dollar has traded as high as JPY162.40, while $1.9 bln options at JPY162.50 expire today. The euro has been sold through $1.14, where options for 3.9 bln euros expire today. 

Expectations for a firm US jobs report on Thursday (110k-115k increase in nonfarm payrolls) and bargain hunters emerging after a five-day drop in the S&P 500 and Nasdaq may be helping the greenback. The Supreme Court ruling that Federal Reserve Governor Cook can retain her post while she challenges her dismissal by the president seemed to minimize a tail risk. Chair Warsh speaks alongside other central bankers tomorrow at the ECB gathering in Sintra.

Prices

G10

The euro has come back softer today after yesterday’s consolidation. Before the weekend it neared $1.1435, the (38.2%) retracement of the decline from the mid-June cap near $1.1620. It held yesterday, and after holding today, the euro returned toward yesterday’s low ($1.1380). While there may be support around $1.1365, last Friday’s low (~$1.1355) may be more important. There are options for nearly 3.9 bln euros at $1.1400 and another stack for almost 1.5 bln euros at $1.1420 expire today. 

The dollar crept closer to JPY162 yesterday but made the pushed through JPY162 in the local session today and has reached a 40-year high near JPY162.40. Since the high was recorded, the greenback has held above JPY162.10. Japanese officials reiterated their preparedness to take action, if necessary, but given that no action was taken, one can only conclude officials did not think it was necessary. Options for $1.9 bln at JPY162.50 expire today. 

Sterling recorded a marginally new five-session high yesterday near $1.3260. It is still in the lower end of this year’s range. A move above $1.3265 targets the $1.3300-20 area. However, it retreated to almost $1.3220, as it consolidates within yesterday’s range. Support now is seen in the $1.3200-15 area. 

Rising oil prices and equities did little to blunt the widening of the US-Canada two-year interest rate differential (137 bp vs 123 bp at the end of May and around 92 bp at the end of April) to drag the Canadian dollar lower. The Canadian dollar rose in the last two sessions last week to snap ten-day slide. The greenback settled firmly yesterday and approached last week’s high, slightly shy of CAD1.4250, its highest level since April 2025. The next technical target is around CAD1.4290. The US dollar held CAD1.42 today, where options for $400 mln expire today. 

The Australian dollar also consolidated with a slightly softer bias yesterday. It slipped to a new low today near $0.6865. Last week’s low was near $0.6875, which held above narrowly yesterday and corresponds to the generous measuring of the head and shoulders top pattern we have been monitoring. It has held below $0.6900 today, where options for almost A$500 mln expire today. The 200-day moving average, which the Aussie has not traded below since last November, is slightly below $0.6865. A retracement objective and the March low are a little lower (~$0.6850). 

EM 

Although the Mexican peso has rebounded off the ~2.5-month low set in the middle of last week, the price action has not boosted our confidence that a peso’s low is in place. The US dollar reached MXN17.6765 last week, its best level since Apri 8. It pulled back to MXN17.4315 before the weekend and traded above it yesterday. The greenback is consolidating within yesterday’s range today. The five- and 20-day moving averages are still trending up, and pullback in spot held a technical retracement target. 

The dollar has eased below the range set last Wednesday against the offshore yuan (~CNH6.79-CNH6.82) that it has been consolidating within and reached CNH6.7865 today. As we have acknowledged, even though Beijing manages the exchange rate, it does not appear capricious. The rolling 30-day correlation of the changes in the dollar against the offshore yuan is around 0.66, which is roughly the same as the DXY’s correlation against the Canadian dollar and more than the yen (~0.50). That said, there may been a change in the PBOC’s dollar fixes, which we continue to understand as an important signal of policy. It had been sanctioning a strong yuan/weaker dollar, but this has changed in recent days. In six of the past seven sessions, coming into today, it has been fixing the yuan lower and dollar higher. Today, the dollar’s fix was lower (CNY6.8109 vs CNY6.8175 yesterday). Motivations will be projected, if this leg up in the yuan’s appreciation against the dollar is truly over rather than a pause. The simplest explanation (Occam’s Razor) would be based on domestic economic considerations. Typically, central banks want their current to go in the same direction as interest rates. It appears as the PBOC adopted policy rate (overnight reverse repo) it may have signaled a small cut in rates. The recent economic data have disappointed. 

The rise in oil prices did the Indian rupee no favor after recorded its best level since early May at the end of last week. The greenback gapped lower and reached nearly INR94.14 ahead of the weekend. The top of the gap is INR94.5975 (last Thursday’s low). The gap was filled today and the US dollar reached INR94.7575. Still, this is the first quarterly gain, albeit barely (~0.2%) for the rupee since Q1 25.

Other markets

Month- and quarter-end portfolio adjustments appeared to see bottom pickers emerge some battered equity names in the tech and AI space. Both the S&P 500 and Nasdaq snapped five-day slides yesterday. Most of the large bourses in the Asia Pacific rose today, though there were notable exceptions, including Hong Kong, Australia, Singapore, and India. Europe’s Stoxx 60 is up almost 1%, which if sustained would be the largest in two-and-a-half weeks. US index futures enjoy a slightly firmer bias. 

Benchmark 10-year yields were little changed net-net yesterday in Europe and the US. In Europe, it was striking that Greek, Italian, and British 10-year yields were the only ones to experience slightly softer yields. Italian and Greek yields (3.58% and 3.52%, respectively) fell to new three-month lows, while the UK’s 10-year yield recorded its three-month low last week (~4.67%). Yields have edged a little lower today, except in Japan, where the benchmark yield rose nearly four basis points. European rates are mostly 1-2 bp lower, while the 10-year Treasury yield is fractionally low at 4.37%. 

Gold closed firmly before the weekend, a little below $4090 and never traded higher on the day on Monday. It returned to almost $4000 yesterday, which had seemed to have brought in some demand when it was violated last week. Yet, it sunk to nearly $3943 today, a new low for the year, before rebounding. It is above $4025 in late European morning turnover. Silver’s tale of woe is similar. It posted an outside up day before the weekend but saw no follow-through yesterday, which reinforces the technical importance of the $60 cap. 

Despite the deadly geopolitical dance between the US and Iran, August WTI was well behaved yesterday. It traded inside the pre-weekend range. The contract gapped lower on June 15 and fell through $80 and has not looked back. The momentum stalled after falling below $70. It has also been chopping back and forth of around the 200-day moving average (~$70.15). The contract is firm today but remains within last Friday’s range (~$68.55-$71.85). 

Data

Before turning to the US jobs data, which are really the focus this week, the US sees houses prices and the Conference Board’s consumer confidence. The signal from the FHFA house price index is that the dramatic appreciation seen in recent years has slowed considerably. In Q1 26, the house prices rose at an annualized rate of about 0.8%. In Q1 25, the annual pace was 2.6%. In the previous two years, house prices rose at an annualized rate of around 5.2% in the first three months of the year. The Conference Board’s measure of consumer confidence is expected to have ticked up slightly. Before last weekend that is what the University of Michigan’s survey found. And finally, the May JOLTS report is expected to show a decline in job openings. Tomorrow’s ADP private sector jobs report is projected to be little changed from the May reading of 122k. 

Canada reports April GDP. It is likely to have recovered from the 0.1% contraction in March. The Bank of Canada has played down the rule-of-thumb that two consecutive contracting quarters mark a recession. The Canadian economy contracted at an annualized rate of 1.0% in Q4 25 and 0.1% in Q1 26. Growth is seen rebounding to almost 2% in the quarter that ends today. 

Ahead of tomorrow’s preliminary eurozone CPI, we have a few national reports. Spain reported yesterday that its EU harmonized measure rose 0.6% in June but given the base effect, the year-over-year rate was steady at 3.6%. France’s EU harmonized measure of CPI fell 0.3% in June, which brought down the year-over-year rate to 2.0% from 2.8%. Italy’s rose 0.1%, which was sufficient to bring the year-over-year rate to 3.1% from 3.2%. German states have reported and the EU harmonized measure may have eased to 2.6% from 2.7%. Separately, Germany reported a 1.1% jump in May retail sales. The median forecast in Bloomberg’s survey was for a flat reading after the 0.4% decline in April. 

The UK confirmed 0.6% quarter-over-quarter growth in Q1 26. The British economy appears to have slowed here in Q2. 

The minutes from the Reserve Bank of Australia’s meeting earlier this month were released earlier today. There were no significant surprises. After three rate hikes this year, it is expected to let the hikes work their way through the economy. However, another hike before the end of the year cannot be ruled out. The central bank warned that inflation expectations remain too high. The 0.7% rise in May’s private sector credit extension shows little impact from the tighter stance. The year-over-year pace has been largely around 8% for the past three months. It reached 8.2% in May. 

Japan reported steady unemployment in May (2.5%) and a tick down job-to-applicant ratio (1.17 vs.1.18). Separately, the preliminary estimate of May’s industrial output matched the April’s 0.5%. Still, after accelerating to 1.8% annualized growth in Q1 26 (from 0.7% in Q4 25), Japan’s growth looks to have slowed in recent months. 

China’s June PMI slightly better. The manufacturing PMI edged up to 50.3 (from 50.0), while the non-manufacturing PMI ticked up to 50.2 (from 50.1). The composite PMI stands at 50.6 (from 50.5).