The US dollar weakens more than most G10 currencies. Yesterday’s losses rose. Except for the stable Norwegian krone. The dollar is weaker than most developing market currencies. Despite Britain and France deploying aircraft to secure Polish airspace in response to recent drone incursions and Warsaw’s refusal to reopen the Belarus border, a key route for Chinese goods into Europe, central European currencies, particularly the zloty, remain strong. A year-high Chinese yuan has been attained.

The S&P 500 and Nasdaq set record highs Wednesday, sending most Asia Pacific stock markets higher. Taiwan and South Korea led the market rise, reaching 1%. Only Hong Kong and China’s CSI 300 fell. European stocks fell. Today, Central European indices and the Stoxx 600 fell. Index futures in the US are rising. After the employment report, Europe’s 10-year Gilt yield rose two basis points. US 10-year Treasury yields 4.04%. After a good day yesterday, gold hit $3698. October WTI is trading inside yesterday’s and Friday’s levels. The cost is around $63. The Dollar Index fell below 97.00 in late European morning trade yesterday, its lowest settlement since late July. The break suggests the July 1 multi-year low of 96.40 may be challenged. Miran and Cook may attend the two-day FOMC meeting, which will disclose US retail sales, import/export prices, and industrial output statistics. Retail sales—excluding vehicles, gas, food services, and building materials—are expected to rise 0.4% despite a 2.1% drop in vehicle sales.

The first seven months averaged 0.3%, matching January–July 2024 levels. Import prices may have dropped 0.2%. Third drop in four months. This shows oil price drop. When gasoline is omitted, import costs were expected to rise 0.1%, reflecting a virtually constant trend over the last four months. Export prices may have dropped 0.1%, reversing July’s rise. Industrial production may fall for the second month in a row, the first time in 2023. Atlanta Fed GDP tracking for this quarter is 3.1% and will be updated later today. Bloomberg’s poll median predicts half the speed. Today, the euro crossed $1.18 for the first time in two months. Options worth 1.6 billion euros expire today. The price may hit July 1’s multi-year high of $1.1830. Fitch’s downgrading of France, which hasn’t hurt France, and the shrinking US two-year yield premium relative to Germany have helped the euro appreciate. After Fed Chair Powell’s Jackson Hole speech, the US premium fell 30 basis points to 151 basis points, the lowest since September. Eurozone industrial production rose 0.3%, offsetting June’s revised 0.6% fall.

After a 1.3% gain in Q1, industrial production fell 0.7% in Q2. Avoiding US tariffs made the latter the best performance in 2020. The former performed worse since Q3 23. In September, Germans’ economic outlook fell for the second month in a row, to -76.4, the lowest level since May. August’s decrease in expectations was partially offset by expectations rising to 37.3 from 34.7. After hitting a yuan low, the dollar is stabilizing. It hit its year-low of CNH7.1120 last week and exceeded it today at CNH7.1090. The People’s Bank of China set the dollar’s reference rate at CNY7.1008 on Tuesday, the lowest of the year. Recent weeks have seen the PBOC’s dollar fix movement slow, although it’s still greater than earlier this year. Yesterday’s dollar fix was CNY7.1056; today’s was CNY7.1027. The reference rate was below CNY7.11, however four of six banks anticipated today’s fix over CNY7.1150. The major takeaway? The dollar fell from last Thursday’s range, affecting the exchange rate on Friday and yesterday. Today’s high was JPY146.70. This month, JPY146.30–JPY149.15 has been the range. The range last month was JPY146.20–150.90. Late last week, the Bank of Japan met. Governor Ueda said the BOJ may raise rates this year if the economy performs well. The swaps market expects a 15-basis-point tightening by year’s end. About 17 basis points were discounted in August and 18 were integrated into the swaps market in July.

For the first time since July 10, sterling closed only 1/100 cent below $1.3600 yesterday. Gains continued to $1.3650 today. The multiyear high on July 1 was over $1.3790, with $1.3680 as the next objective. Along with the Bank of England’s Thursday meeting, the UK will disclose economic statistics this week. The UK research firm reported average weekly earnings of 4.7% in July, down from 4.6% in June. Excluding bonuses, earnings were 4.8% vs 5.0%). The ILO unemployment rate remained at 4.7%. Payrolled employment fell for the seventh month in a row, falling 8k compared to 17.5k in the preceding six. Tomorrow, the UK releases its August CPI. Considering the base impact, a 0.3% growth is expected, keeping the year-over-year rate at 3.8% and ahead of the G10. Core and services measures should moderate by 0.2% to 3.6% and 3.8%, respectively. With no change expected this week, the swaps market is pricing in a 33% drop for the year. Gilt sales may be reduced at this week’s BOE meeting. The US dollar fell below CAD1.3770 yesterday and continues to fall to about CAD1.3760 today. Nearby goals include CAD1.3740 and late August lows around CAD1.3725. Statistics releases the August Consumer Price Index today before tomorrow’s Bank of Canada meeting. The headline measure is likely to rise 0.1%, while the base effect may have raised the year-over-year rate to 2.0% from 1.7%. Core rates stay at 3.0%-3.1%. The swaps market expects a rate cut this week, like the US, motivated by the economy’s performance and prospects rather than inflation. The 2-10-year Canadian yield curve’s three-month range bottoms at 67 basis points. The US curve’s six-week range bottoms at 50 basis points.

The Australian dollar peaked at $0.6675 this year. A breakthrough might boost gains to $0.6700-15. Australian dollar may approach October’s high of $0.6940 in the fourth quarter. Australian employment report on Thursday is the main focus. Full-time employment in Australia rose 60.5k in July, the most since February. RBA Governor Bullock said high demand might change the central bank’s course. The swaps market expects two more rate cuts this cycle, down from three months earlier. Given softer market rates and the Federal Reserve’s easing efforts this week, short dollar carry bets involving Latam currencies seem tempting. On Tuesday, the Mexican peso, Brazilian real, and Colombian peso hit year-highs. Yesterday’s low saw the dollar drop to MXN18.33 and consolidate. MXN18.51 prevented dollar falls until late last week. Our next goal is MXN18.18-20. The dollar fell below BRL5.31 yesterday after falling below BRL5.38 the week before. A major breach might target BRL5.18–BRL5.20. After trading below COP3900 last week, the dollar reached COP3884 on Tuesday before rebounding. A little above COP3900. In the spot market yesterday, the Brazilian real rose 16.1%, the Mexican peso 13.4%, and the Colombian 12.8%. Dollar-based investor carry returns are 27.5%, 20.9%, and 20.3%.