The dollar stabilized today following yesterday’s CPI and weekly jobless claims losses, despite slight increases. US rates remain stable. The 10-year yield hit 4% and has remained above it for the first time in five months. Up a few basis points to 4.04%. This week is stable. The strengthening US dollar benefits Canada, which is down less than 0.1%. The yen is the weakest in the G10, down 0.5%, with the dollar pushing against JPY148. Currencies in emerging markets vary. The MSCI emerging market currency index has risen 0.35% for the third consecutive week, and the JP Morgan index has increased slightly for the first time in three weeks.

S&P 500 and Nasdaq hit record highs after four days of gains. Index futures slightly down. Asia Pacific markets were close, but China surged. Hong Kong, South Korea, Taiwan, and several other markets rose over 1% today, with the Nikkei reaching new highs. Europe’s Stoxx 600 is slightly down but has gained 1% this week, marking its first increase in three weeks. European benchmark 10-year rates are up 2-4 bp, reaching weekly highs. Fitch might downgrade France today, yet its premium over Germany stays steady from last week despite today’s slight narrowing. Gold prices dropped by ~0.2% yesterday but bounced back today. It reached $3675 on Tuesday and is currently at $3645. October WTI, which traded near last week’s low earlier today, saw bids lift it above $62.85. It fell under $62.00 last week.

The Dollar Index fluctuated within Wednesday’s range and ended below its low, though selling remained subdued. Minor weekly adjustments. DXY ended Friday at 97.77 following the employment data. The week wraps up quietly with the preliminary September University of Michigan survey. Softer inflation estimates are anticipated. Next week’s FOMC meeting is the key focus following preliminary benchmark employment growth, PPI, and CPI. Following yesterday’s CPI and the surprising increase in weekly jobless claims to a four-year high, the implied year-end effective Fed funds rate has decreased from nearly 3.75% prior to the August jobs report to 3.60%. If verified, Miran may support a 50 bp cut rather than a quarter point. A presidential majority on the Board of Governors could heighten concerns about Fed independence. By Monday, the Justice Department seeks an appeals court to halt Governor Cook’s stay in office amid her legal appeal. Acknowledging that most governors could impact regional Fed presidents, who need reappointment by March. Governors Waller and Bowman abstained while the board confirmed Chicago Fed President Goolsebee.

The euro rose yesterday. After a slight rise to $1.1750 today, selling pushed it below last week’s settlement of $1.1715. If it closes above there today, it will mark the sixth consecutive weekly advance. The French 10-year premium over Germany remains stable (~ <80 bp) compared to previous weeks, though Fitch may downgrade France from AA- later today. Fitch views Portugal’s A- rating positively. S&P upgraded Portugal last month. The ECB held its position yesterday, as anticipated. One cut if easing persists. Swaps market reflects a 10 bp discount, indicating a 40% chance of further decline next year. Staff forecasted higher inflation for this year and next, with a reduction for 2027. CPI this year is 2.1%, an increase from 2.0%. Next year’s estimate is 1.7%, an increase from 1.6%. The 2027 CPI forecast decreased from 2.0% to 1.9%. This year’s growth was revised up to 1.2% from 0.9%, while next year’s GDP projection was lowered to 1%. GDP remained at 1.3% in 2027.

Yesterday, the dollar fell against the yen. It exceeded JPY148.15 for three days. In the North American afternoon, it straddled JPY147, the rally’s retracement from Tuesday’s low at JPY146.30. The dollar bounced back to JPY148 today. The dollar has remained between JPY146.90 and JPY148.80 since August 1. Japan’s July industrial production dropped 1.6% to -1.2%, reversing much of June’s 2.1% increase. In Jan-Jul, the monthly increase was 0.2%. Last year’s first seven months decreased by 0.3%. Japan’s August trade balance is set to be released next week. May could see a decline this year. August CPI is also reported, but Tokyo’s earlier numbers suggest a drop to 2.8% (from 3.1%), the lowest since October. BOJ meets next week, but action is unlikely. This year, the swaps market reflects a 15.5 bp increase, rising 3.5 bp this week but lower than August.

Outdoor sterling rose yesterday. It reached a three-day low of $1.3495, then climbed to $1.3585 amid the dollar sell-off. July’s second half and mid-August highs were $1.3600; Tuesday’s was $1.3590. Sterling will close at a $1.35 handle for the seventh week unless it increases today. Sterling hasn’t crossed $1.3600 since mid-July. The UK economy stalled in July following a 0.4% increase in June. Services increased by 0.1%, while industrial fell by 0.9%. Construction increased by 0.2%, but the trade imbalance deteriorated. Chancellor Reeve faces worsening fiscal troubles amid weak growth. UK to release August CPI and a deteriorating labor market ahead of the September 18 Bank of England meeting. In July, UK consumer inflation reached 3.8%, the highest among the G10. BOE policy changes seem improbable. Year-end swaps market discounts may be below 40%. Swaps forecasted 3.50% by year-end in late April/early May. Just over 3.87%. The dollar reached CAD1.3890 on Wednesday, marking its peak since Powell’s Jackson Hole speech on August 22. Sale reverted to over CAD1.3825. This matched the 38.2% rally retracement from the low of CAD1.3725 on August 29. The US dollar stayed above Wednesday’s low (~CAD1.3830), though technical purists might remain unaffected. It closed at CAD1.3830 last week. The dollar is strengthening under CAD1.3850 today. Canada’s July building permits and Q2 capacity utilization won’t impact the exchange rate. The US dollar’s path is significant. The Bank of Canada might reduce rates by 25 bp shortly before the FOMC. Following two Q1 declines, the overnight lending rate stands at 2.75%. Speculation arose for rate cuts following disappointing Q2 GDP and August employment data. The August CPI will be released the day before the Bank of Canada convenes. Swaps market sees a 65% likelihood of another cut by year-end.

The Australian dollar reached a new yearly high of $0.6665 yesterday and $0.6670 today before stabilizing. Before Powell’s Jackson Hole speech on August 22, it rose 3.7%. The top G10 currency today. Additionally, surpassed all emerging market currencies. The significant rise in Chinese equities might be the cause. 30-day correlation of differences is 0.40, up from 0.10 on August 21, and inverse from late May to late June. Support begins at $0.6625. Australians have seen gains for three consecutive weeks from April to May. Next week’s key data point is August’s employment report on September 18. Futures market predicts a 3.30% year-end rate, with 60.5k full-time job growth, the highest since February 2024. Mexico’s industrial production fell 1.2% in July, with June’s figure revised from 0.1% to -0.3%. Banxico might cut rates again by month-end. The weak dollar pushed the exchange rate to a year-low of MXN18.4525. A breakthrough could hit MXN18.40. The dollar remained steady but encountered resistance at MXN18.50.