US Dollar Finishing Week Softly but Within Consolidative Ranges

[Ben Graham]

The US dollar is softer against all the G10 currencies, but the general consolidation seen this week continues. Japanese officials continued their verbal intervention, and with the US holiday on Monday, the risk of material intervention is seen as greater, and some yen shorts have covered. News that Machado has given the Nobel Peace Prize she was awarded to President Trump is being broadly criticized. 

Meanwhile, the US aggressive nationalism seemed to encourage the EU earlier this week and Canada yesterday to seek to mend some trade ties with China. Ford Motor Company seemed to get in the act too, who reportedly is in talks with China’s BYD to provide batteries for hybrid vehicles it produces outside the North America. President Trump told the Detroit Economic Club that he would welcome Chinese direct investment in the auto sector. US December industrial output is on tap and manufacturing production is expected to have fallen. It has not risen since July. Boston Fed President Collins speaks today as does Governor Jefferson, but more interest is in Governor Bowman, who speaks at 11:00 ET, as she is seen as among the most likely to dissent with Miran at the upcoming FOMC meeting in favor of a cut. 

Prices 

G10

• The euro was sold slightly through $1.1595 yesterday, its lowest level since the end of November. It held above the 200-day moving average (~$1.1590 today). It has not closed below it since last March. It is holding above $1.1600 so far today but has not been able to recover above $1.1625. Options for 2.4 bln euros at $1.16 expire today. A weekly close below $1.1600 may target $1.1550 next. 

• The yen stabilized yesterday and has strengthened a little more today as Japanese officials extended their verbal intervention, threatening material action. The greenback frayed JPY158 for the first time in three sessions. Options for $2.12 bln at JPY158 expire today. There is some speculation that intervention could materialize Monday when the US is on holiday. We are skeptical as the verbal intervention has arrested the yen’s slide. 

• Sterling slipped through $1.3365 yesterday, a level not seen since December 19. It met a (38.2%) retracement objective of the rally from the November 21 low (~$1.3040). It has come back better bid today and is trying to re-establish a foothold above $1.3400 in the European morning. There are GBP800 mln of options at $1.3425 that expire today. A push through $1.3440 would lift the technical tone. Otherwise, the next retracement target is near $1.33.

• The US dollar approached last week’s high against the Canadian dollar yesterday, reaching CAD1.3920. That is slightly shy of the (61.8%) retracement of the greenback’s slide since November 21 (~CAD1.4130). The retracement is found near CAD1.3945, just inside the upper Bollinger Band. The greenback is consolidating in about a 15-tick range so far today below CAD1.3900. Yesterday’s low was slightly below CAD1.3880 and a close below it would be the first sign the US dollar rally off the CAD1.3645 area on Boxing Day may be tired. 

• The Australian dollar’s base around $0.6660 held yesterday, and the Aussie recovered to settle near Wednesday’s high. The outside up day is seen as a bullish technical development. The Australian dollar’s high today, recorded in the European morning is near $0.6710. The high settlement this week was posted on Monday slightly above today’s high, while the week’s high was recorded on Tuesday slightly above $0.6725. The high set on January 7 (~$0.6765) was the best since October 2024. 

EM

• The Mexican peso is on fire. With little fanfare, it has reached its best level since July 2024. The greenback was sold to MXN17.62. The dollar is struck in yesterday’s trough and has barely traded above MXN17.67. Our MXN17.60 target is within reach. Below there, we see potential initially to MXN17.38. The low before the run-up to Mexico’s election that year was near MXN16.26.

• The offshore yuan edged to a new high today as the dollar traded near CNH6.9610. However, a consolidation phase is threatening to emerge. The PBOC’s dollar fix has approached CNY7.0 this week. After setting it at CNY7.0064 yesterday, the reference rate was set at CNY7.0078 today. Given the 2% band, the US dollar is allowed to trade away from the fix, a CNY7.00 fix allows for CNY6.86. 

• The Indian rupee slid to a new low since the mid-December record low. Foreign investors liquidation of Indian equity holdings and the apparent absence of the central bank weighed on the rupee. The dollar rose to INR90.8750. The local markets were closed yesterday. The rupee has not risen since January 7. The dollar’s record high was seen on December 16 near INR91.0840.  

Other Markets

• Equities:  Outside of Japan, China, and Hong Kong, most bourses rallied in the Asia Pacific region, led by Taiwan’s nearly 2% gain. Taiwan and the US appear to have reached an agreement and TSMC was bolstered by favorable guidance. Europe’s Stoxx 600, which gained almost 0.5% yesterday is struggling to maintain the upside momentum today and is off slightly. US index futures are looking to extend yesterday’s gains. 

• Benchmark 10-year yields: The 10-year JGB yield rose almost three basis points to a new high, slightly above 2.17%. European yields are almost slightly firmer, while the 10-year US Treasury yield is little changed near 4.17%. 

• Gold is trading inside yesterday’s narrow range but is continuing to straddle the $4600 level. Silver stalled yesterday near $93.75 and is consolidating today. While it has traded to almost $89.50, it is above $90.50 in late European morning turnover.

• March WTI is firm after falling to about $58.75 yesterday. It is knocking on $60, almost $1 above last week’s settlement.  

Data

• The US reports December industrial production figures today. The median forecast in Bloomberg’s survey is of a 0.1% increase after a nearly 0.2% gain in November. Despite the tariffs that were to help boost domestic manufacturing, factory output rose by an average of 0.1% a month, and a 0.1% decline in December, which economists have forecast would translate into the first contracting quarter since Q3 24. The modern automated and increasing robotic manufacturing means increased output will not necessarily translate to increased employment. Last year, US lost 72k manufacturing jobs.

• Canada’s December housing starts and November portfolio capital flows are due today. Housing starts are expected to have risen for the second consecutive month, and through November are up about 4% for the year. Meanwhile, the foreign appetite for Canadian stocks and bonds waned in 2025. In the first 10 months of 2025, foreign investors bought about C$100.5 bln of Canada’s paper assets compared with C$165.7 bln in the Jan-Oct 2024 period.

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