There is one fundamental driver today and that is the Middle East war. After finishing last week on a soft note, the greenback has rallied. It is up by 0.5% or more against most of the G10 currencies. The Canadian dollar, which often performs relatively better in a strong US dollar environment is off the by about 0.1% in late European morning turnover. The Swiss franc, a traditional safe haven, is off around 0.65%. April WTI, which settled near $67 surged to almost $75.35 initially and is now around $72. Equities are mostly lower.
The fog of war coupled with the decapitation blow to Iran makes the end-game difficult to envision now. The conflict is much broader than last June’s strike, which the US claimed had destroyed Iran’s nuclear capability. Reports suggest the White House is warning the war can continue for a few weeks.
Prices
G10
•The euro sold o slightly below $1.1700 at the end of the Asia Pacific session, after closing around $1.1810 before the weekend. It rebounded in early European turnover to almost $1.1750 before stalling. North American leadership is needed. A move above $1.1760-80 would help stabilize the tone, while a break of the $1.1670 area could signal a test on $1.1600.
•The dollar looked constructive against the Japanese yen at the end of last week. It spent little time below JPY156.00 today and rose to JPY157.25 in the local session. The low in the European morning was around JPY156.80. Options worth almost $600 mln at JPY157 expire today.
•Sterling forged a shelf in the $1.3435-40 area in recent action before it dropped to about $1.3315 today, its lowest level since mid-December. This marginally overshot the (61.8%) retracement of sterling’s rally since last November. It recovered to about $1.3410 in European activity. To solidify the recovery, it must overcome the $1.3450 area.
•After repeatedly testing the CAD1.37 are in recent days with little to show for it, the market appears to have given up ahead of the weekend. Late greenback longs were cut, sending it to CAD1.3625, a two-week low., which held today. The US dollar has been confined to mostly the pre-weekend range so far today, trading between about CAD1.3635 and CAD1.3685.
•The Australian dollar closed firmly before the weekend, slightly below $0.7120. Last month’s high was recorded near $0.7150. It was set back a little below $0.7035 today. Lasty week’s low was about $0.7025. The Aussie recovered to almost $0.7100 in Europe, where it stalled.
EM
•The dollar spent last week in the range it recorded against the Mexican peso last Monday (~MXN17.10-MXN17.30). Although the peso appears impressively resilient in the risk-off environment, we worry about the risks of a short-dollar squeeze that can see it test the MXN17.50 area. It spiked a little above MXN17.39 today in Asia Pacific turnover, backed off to around MXN17.22 before another run at the highs in Europe. It is below MN17.30 now.
•The market took to heart the PBOC moves at the end of last week that increased the incentives to short the yuan. The dollar reached CNH6.8875 today, the highest level since last Tuesday. Nearby resistance is seen around CNH6.90. The central bank set the dollar’s reference rate at CNY6.9236 today (CNY6.9228 last Friday). On a monthly basis, the last time the yuan’s fix increased was in September 2025 (0.04%).
•The dollar gapped sharply higher against the Indian rupee today. It settled last week near INMR90.9775. Today’s low was about INR91.2250. It reached INR91.4775 to close the gap created on the sharply lower opening on February 3. The record high was set in late January near INR92.0165. Foreign sales of Indian stocks weighed on the rupee.
Other Markets
•Equities are sell-off. Nearly all the markets in the Asia Pacific are in the red. There are two exceptions. China’s CSI 300 rose by about 0.4% and Australia’s ASX 200 was a little between that flat. Among the large bourses, Hong Kong’s Hang Seng was among the biggest losers, dropping 2.1%, while some smaller bourses were hit harder (Thailand -4%, Pakistan -9.8%). Europe’s Stoxx 600 is off around 1.5% (after rallying for the past five weeks). US index futures are down more than 1%.
•Benchmark 10-year yields fell in Asia, with the JGB yields off almost four basis points. However, yields are mostly 1-3 bp higher in Europe, and the 10-year US Treasury yield is up nearly three basis points to approach 3.97%.
•Gold gapped higher and reached a little above $5420. The pre-weekend high was almost $5281. Today’s low is around $5303.70. Silver gapped higher and reached nearly $100 but came back to fill its opening gap that extended to the pre-weekend high of about $94.15.
•April WTI gapped sharply higher. It finished last week slightly above $67 and reached $75.33 before stabilizing. It traded mostly between $71.30 and $72.50 in Europe.
Data
•The final February US manufacturing PMI will contain little new information (51.2 flash vs 52.4 in January). Instead, the market has greater interest in the ISM manufacturing report. A slowing of headline activity is expected, with a decline in forward-looking new orders and firmer prices. The employment report on Friday is the highlight of the week and the median forecast in Bloomberg’s survey is for a 60k increase.
•Canada sees its February manufacturing PMI. There is no preliminary estimate, and in January it stood at 50.4.
•Mexico’s February manufacturing PMI is not expected to have changed much from January’s 46.4, and the same is true of the IMEF surveys. Mexico’s economy is struggling to find forward momentum. January worker remittances also are on tap. They slowed by about 4.5% last year, but at nearly $61.8 bln remains a primary source of hard currency inflows.
•The eurozone aggregate February manufacturing PMI unchanged from the preliminary estimate of 50.8, the best since 2022. All of the big four (Germany, France, Italy, and Spain) readings were at or above the 50 boom/bust level. Separately, German’s January retail sales disappointed, falling by 0.9%, but the sting was lessened by the sharp upward revision in the December series to 1.2% from 0.1%.
•The UK’s January consumer credit and mortgage lending figures were largely in line with expectations, and the final February manufacturing PMI stands at 51.7 rather than the 5.20 flash reading. The odds of a rate cut late this month in the swaps market was downgraded to about 68% from around an 85% chance before the weekend.
•Australia’s final February manufacturing PMI stands at 51.0, down from the preliminary estimate to 51.5 from 52.3 in January. It stood at 50.4 in February 2025.
•Japan’s final February manufacturing PMI rose to 53.0 from 52.8 reading of the flash estimate. It is the fourth consecutive monthly improvement. Japan’s industrial output fell in November and December 2025 before recouping the bulk of the decline in January was a 2.2% increase.
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There is one fundamental driver today and that is the Middle East war. After finishing last week on a soft note, the greenback has rallied. It is up by 0.5% or more against most of the G10 currencies. The Canadian dollar, which often performs relatively better in a strong US dollar environment is off the by about 0.1% in late European morning turnover. The Swiss franc, a traditional safe haven, is off around 0.65%. April WTI, which settled near $67 surged to almost $75.35 initially and is now around $72. Equities are mostly lower.
The fog of war coupled with the decapitation blow to Iran makes the end-game difficult to envision now. The conflict is much broader than last June’s strike, which the US claimed had destroyed Iran’s nuclear capability. Reports suggest the White House is warning the war can continue for a few weeks.
Prices
G10
• The euro sold o slightly below $1.1700 at the end of the Asia Pacific session, after closing around $1.1810 before the weekend. It rebounded in early European turnover to almost $1.1750 before stalling. North American leadership is needed. A move above $1.1760-80 would help stabilize the tone, while a break of the $1.1670 area could signal a test on $1.1600.
• The dollar looked constructive against the Japanese yen at the end of last week. It spent little time below JPY156.00 today and rose to JPY157.25 in the local session. The low in the European morning was around JPY156.80. Options worth almost $600 mln at JPY157 expire today.
• Sterling forged a shelf in the $1.3435-40 area in recent action before it dropped to about $1.3315 today, its lowest level since mid-December. This marginally overshot the (61.8%) retracement of sterling’s rally since last November. It recovered to about $1.3410 in European activity. To solidify the recovery, it must overcome the $1.3450 area.
• After repeatedly testing the CAD1.37 are in recent days with little to show for it, the market appears to have given up ahead of the weekend. Late greenback longs were cut, sending it to CAD1.3625, a two-week low., which held today. The US dollar has been confined to mostly the pre-weekend range so far today, trading between about CAD1.3635 and CAD1.3685.
• The Australian dollar closed firmly before the weekend, slightly below $0.7120. Last month’s high was recorded near $0.7150. It was set back a little below $0.7035 today. Lasty week’s low was about $0.7025. The Aussie recovered to almost $0.7100 in Europe, where it stalled.
EM
• The dollar spent last week in the range it recorded against the Mexican peso last Monday (~MXN17.10-MXN17.30). Although the peso appears impressively resilient in the risk-off environment, we worry about the risks of a short-dollar squeeze that can see it test the MXN17.50 area. It spiked a little above MXN17.39 today in Asia Pacific turnover, backed off to around MXN17.22 before another run at the highs in Europe. It is below MN17.30 now.
• The market took to heart the PBOC moves at the end of last week that increased the incentives to short the yuan. The dollar reached CNH6.8875 today, the highest level since last Tuesday. Nearby resistance is seen around CNH6.90. The central bank set the dollar’s reference rate at CNY6.9236 today (CNY6.9228 last Friday). On a monthly basis, the last time the yuan’s fix increased was in September 2025 (0.04%).
• The dollar gapped sharply higher against the Indian rupee today. It settled last week near INMR90.9775. Today’s low was about INR91.2250. It reached INR91.4775 to close the gap created on the sharply lower opening on February 3. The record high was set in late January near INR92.0165. Foreign sales of Indian stocks weighed on the rupee.
Other Markets
• Equities are sell-off. Nearly all the markets in the Asia Pacific are in the red. There are two exceptions. China’s CSI 300 rose by about 0.4% and Australia’s ASX 200 was a little between that flat. Among the large bourses, Hong Kong’s Hang Seng was among the biggest losers, dropping 2.1%, while some smaller bourses were hit harder (Thailand -4%, Pakistan -9.8%). Europe’s Stoxx 600 is off around 1.5% (after rallying for the past five weeks). US index futures are down more than 1%.
• Benchmark 10-year yields fell in Asia, with the JGB yields off almost four basis points. However, yields are mostly 1-3 bp higher in Europe, and the 10-year US Treasury yield is up nearly three basis points to approach 3.97%.
• Gold gapped higher and reached a little above $5420. The pre-weekend high was almost $5281. Today’s low is around $5303.70. Silver gapped higher and reached nearly $100 but came back to fill its opening gap that extended to the pre-weekend high of about $94.15.
• April WTI gapped sharply higher. It finished last week slightly above $67 and reached $75.33 before stabilizing. It traded mostly between $71.30 and $72.50 in Europe.
Data
• The final February US manufacturing PMI will contain little new information (51.2 flash vs 52.4 in January). Instead, the market has greater interest in the ISM manufacturing report. A slowing of headline activity is expected, with a decline in forward-looking new orders and firmer prices. The employment report on Friday is the highlight of the week and the median forecast in Bloomberg’s survey is for a 60k increase.
• Canada sees its February manufacturing PMI. There is no preliminary estimate, and in January it stood at 50.4.
• Mexico’s February manufacturing PMI is not expected to have changed much from January’s 46.4, and the same is true of the IMEF surveys. Mexico’s economy is struggling to find forward momentum. January worker remittances also are on tap. They slowed by about 4.5% last year, but at nearly $61.8 bln remains a primary source of hard currency inflows.
• The eurozone aggregate February manufacturing PMI unchanged from the preliminary estimate of 50.8, the best since 2022. All of the big four (Germany, France, Italy, and Spain) readings were at or above the 50 boom/bust level. Separately, German’s January retail sales disappointed, falling by 0.9%, but the sting was lessened by the sharp upward revision in the December series to 1.2% from 0.1%.
• The UK’s January consumer credit and mortgage lending figures were largely in line with expectations, and the final February manufacturing PMI stands at 51.7 rather than the 5.20 flash reading. The odds of a rate cut late this month in the swaps market was downgraded to about 68% from around an 85% chance before the weekend.
• Australia’s final February manufacturing PMI stands at 51.0, down from the preliminary estimate to 51.5 from 52.3 in January. It stood at 50.4 in February 2025.
• Japan’s final February manufacturing PMI rose to 53.0 from 52.8 reading of the flash estimate. It is the fourth consecutive monthly improvement. Japan’s industrial output fell in November and December 2025 before recouping the bulk of the decline in January was a 2.2% increase.
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