Greenback Mostly Consolidates, while Yen Gyrations Point to Nervous Market

[Ben Graham]

The greenback is mostly softer against the G10 currencies today. Initial gains had carried the dollar to almost JPY154.90 before a large order, market nervousness over intervention saw a quick drop in early European turnover through yesterday’s lows (~JPY153.30) to about JPY153.20 before steadying. Dollar sentiment is poor amid fear of intervention and a new Plaza-like agreement. We suspect such talk is widely exaggerated and the success of verbal intervention means that material intervention is not needed. Technically, the dollar looks stretched, and tomorrow’s conclusion of the FOMC meeting has often been a source of volatility. 

President Trump’s threat of 25% tariffs on South Korea, where the parliament has not approved last year’s trade/investment pact, initially weighed on won and Korean equities. However, the market concluded it was likely rhetoric as the 100% tariff threat on Canada a few days ago, and the tariff threaten for those who trade with Iran, and on several European countries for opposing the US acquisition of Greenland. 

Prices  

G10

• The euro rose for the third consecutive session yesterday and recorded the session high slightly above $1.1905 in the North American morning. It stopped slightly short of last year’s high recorded on September 17 when the Federal Reserve delivered its first rate cut of the year (~$1.1920). It is in the half of a cent range today below $1.1900. It spent most of yesterday above the upper Bollinger Band, which is found near $1.1865 today. The low in North America yesterday was about $1.1835. Position adjusting ahead of tomorrow’s FOM meeting outcome could see this taken out. 

• The fear coordinated intervention drove the dollar to almost JPY153.30 yesterday. After approaching JPY154.90 in late Asia Pacific turnover today, the dollar inexplicably dropped to the session low near JPY153.20. Some attributed it to a rate check or actual intervention, but we suspect it reflects market nervousness. It quickly recovered to around JPY154.20 before stalling. In fact, the sharp drop, to the dollar’s lowest level since last November, shows verbal intervention to have been effective and reduces the chances of material intervention. BOJ data yesterday showed no evidence of actual material intervention.  Tomorrow, Japan auctions 40-year bonds and the foreign exchange market may be sensitive to the results. 

• Amid the dollar’s sell-off in the North American saw sterling briefly traded above $1.37 for the first time since last September 17 (Fed Day). It reached almost $1.3715 yesterday. Last September’s high was about $1.3725. It is straddling $1.3700 in late London morning turnover. It has not been much below $1.3665 today. As it did before the weekend, sterling briefly traded more than three standard deviations above the 20-day moving average yesterday. Although settled back below it, sterling remains well above the upper Bollinger Band, set at two standard deviations above the 20-day moving average, found near $1.3660 today. Yesterday’s low was around $1.3635 area.

• The Canadian dollar reversed early gains and was one of the few G10 currencies that finished lower against the US dollar yesterday. The market seemed to accept that the 100% tariff that the US threatened was like the bluster around the tariff threat over the commercial showing former President Reagan critical of the use of tariffs. The US dollar bottomed in Europe yesterday near CAD1.3670 and reached CAD1.3725 in the North American afternoon. A bullish hammer candlestick may have been forged yesterday. Follow-through greenback buying today initially saw almost CAD1.3740 before selling pressure in early European turnover today pushed it back to almost CAD1.3700. A move above CAD1.3740 could spur corrective upticks in the CAD1.3770-CAD1.3800 area.

• The Australian dollar reached $0.6940 yesterday and stopped 1/100 of a cent from the September 2024 highs. There is not much on the charts now until the psychological $0.7000 level. However, the 2.5-cent rally in six sessions has stretched it. It frayed the three-standard deviation (from the 20-day moving average) mark and settled above the upper Bollinger Band for the fourth consecutive session. It is consolidating so far today, holding above $0.6900 and recorded session high in in late European morning activity slightly above $0.6930. 

EM

• The dollar was sold below MXN17.25 near midday in NY yesterday before recovering back toward the session high, a little below MXN17.40. The greenback settled slightly higher on the session, for only the second time in 11 sessions. It is trading quietly between roughly MXN17.3165 and MXN17.3640 today. The five-day moving average is slightly above MXN17.40 and the dollar has not settled above it for more than two weeks. 

• The dollar recorded a new low against the offshore yuan yesterday near CNH6.9440 and is consolidating today. It hardly traded above CNH6.9565. The PBOC set the dollar’s reference rate at CNY6.9858 (CNY6.9843 yesterday), the first higher fix in three sessions. 

• Indian markets re-opened from yesterday’s holiday and news of a trade agreement with the EU and a softer dollar since last Friday, saw the rupee consolidate. The US dollar set a record against the rupee at the end of last week near INR91.97. It is trading between INR91.6535 and INR19.8950 today. 

Other Markets 

• Global equities are higher. The MSCI Asia Pacific Index reached a record high today as most of the bourses were higher, though China was narrowly mixed. After a weak start on the back of US threats of 25% tariff on South Korean imports due to the slow walking of approval of the trade deal, the Kospi recovered and settled 2.7% higher, as many suspect bluster. Europe’s Stoxx 600 recovered from early weakness yesterday and settled 0.2% higher. It is up about 0.4% today. The S&P and Nasdaq futures are 0.25%-0.60% higher, respectively, but the Dow futures are off about 0.2%. 

• Benchmark 10-year yields firm today. In Japan, the 10-year yield rose five basis points, and the longer-term bond yields are 3-5 bp higher. European yields are slightly higher, as is the 10-year US Treasury near 4.22%. The US sells $70 bln of five-year notes today and $90 bln of six-week bills. 

• Gold remains firm, though below yesterday’s $5111 record. It has held mostly above $5014 today. Silver is similar. It is holding below yesterday’s record (~$117.70) and held above $103.

• March WTI found support earlier today near $60 and traded slightly above $61 in Europe.

Data

• With FOMC meeting concluding tomorrow and another government shutdown possible at the end of the week, today’s US data seems of marginal importance. The weekly ADP estimate might receive some passing notice, while the early estimates for next week’s January nonfarm payrolls are around 80k. House prices, the Richmond and Dallas Fed surveys, which barely elicit a response in the best times, are due. The University of Michigan already reported stronger US consumer confidence and the Conference Board’s measure is expected to show the same. 

• Mexico reports December trade figures today. It is the last important data point before the first estimate of Q4 GDP is released at the end of the week. Despite the disruption emanating from the US, Mexico’s trade deficit fell sharply in the first 11 months of 2025 (~-$1.66 bln vs ~-$20.40 bln in the first 11 months of 2024). Exports rose by about 6.7%, while imports rose by about half as much. The median forecast in Bloomberg’s survey is for a 0.6% quarter-over-quarter expansion in Q4 after a 0.3% contraction in Q3. 

• Australia reports December and Q4 CPI first thing tomorrow. December inflation is expected to have accelerated to 3.6% from 3.4% in November. It peaked at 3.8% in October. Officials put more weight on the quarterly reading. Australia’s CPI is seen rising 0.6% in the quarter for a 3.6% year-over-year pace (3.2% in Q3). The underlying measures (trimmed mean and weighted median) are also expected to have risen. The recent string of firm data and hawkish comments by the central bank’s leadership has spurred speculation of a hike as early as next week. The futures market is implying about a 56% chance. 

• While China may be the factory of the world, profitability has been a challenge. Still, the campaign against “involution” appears to be yielding results. Chinese industrial companies reported their first annual increase in profits since 2021. Profits rose 5.3% in December, year-over-year, rising for the first time in three months and recovering from a 13%+ drop in November.  For the full year, profits rose 0.6%. 

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