The dollar experienced a rally in North America yesterday, and it appears that the foreign exchange market is poised for its leadership once more today. The greenback is holding steady against the G10 currencies, remaining within tight ranges close to yesterday’s peak without making further gains. The dollar shows a mixed performance against the major currencies, fluctuating within a narrow range of approximately 0.15%.

Emerging market currencies are showing a varied performance, with the majority of Asia Pacific currencies experiencing slight declines, while central Europe is seeing a modest strengthening. The flow of news is minimal. In addition to the surprising flat Tokyo September CPI, the market is processing a wave of new tariff announcements from the US. These encompass a full 100% on non-generic pharmaceuticals (with an exception for companies establishing facilities in the US), 25% on heavy trucks, 50% on kitchen cabinets and vanities, and 30% on upholstered furniture. The details and impacts are still being considered.

Equities in the Asia Pacific region experienced a significant decline, with South Korea leading the way with a nearly 2.5% drop, followed by Taiwan at 1.7%, and Hong Kong facing a loss of nearly 1.4%. European pharma could potentially benefit from the prior 15% levy agreement, while the Stoxx 600 is recovering approximately half of yesterday’s 0.65% drop. US index futures are showing a slight divergence. The yields on European benchmark 10-year bonds are down by 1-2 basis points, whereas the US 10-year yield remains relatively stable, just under 4.17%. As 4.0% signifies the lower boundary of the range (on a closing basis), 4.20% represents the upper boundary of the recent range. Gold is currently trading in a sideways pattern, maintaining its position within Wednesday’s range of approximately $3717 to $3779, similar to yesterday’s performance. November WTI reached a slight new high close to $65.40 before encountering sellers that drove it back down to approximately $64.80. The 200-day moving average is approximately $64.35. It closed at approximately $62.40 last week. If the almost 4% increase this week holds, it would mark the most significant weekly rise since June.

The Dollar Index remains strong. It absorbed offers close to 98.00. Breaking through resistance around 98.25 propelled it to the 98.60 region. The price is currently fluctuating within a tight range close to yesterday’s peaks, approximately between 98.30 and 98.55. The 98.70 area represents the (61.8%) retracement target of the decline that began on August 1. This aligns with the peaks observed since mid-August. Above, there could be a target of 99.30. DXY is set to achieve its first consecutive weekly gain since July. The US is set to release data on personal income, consumption, and deflators today. Income is projected to increase by 0.3%, while consumption is anticipated to grow by 0.5%. Nonetheless, the increase in consumption is primarily driven by elevated prices. In real terms, consumption expenditures have remained stagnant this year, with a monthly average of zero through July.

The Fed focuses on the headline PCE deflator, but the media continues to refer to the core deflator as the Fed’s “preferred measure”. Regardless, the CPI and PPI reports provide the signal, and the deviation of the PCE deflators from expectations is generally considered to be a minor discrepancy. Late yesterday, the US announced that effective October 1, there will be a 100% tariff on patented drugs (not generics), unless capacity is being built in the US, a 25% tariff on heavy trucks, 50% on kitchen cabinets and vanities, and a 30% levy on upholstered furniture. At this point, it appears that a partial federal government shutdown next week is becoming more probable, which could potentially interfere with economic releases, including the jobs report set for next Friday. Should a government shutdown impact the economy, US yields might decline, potentially putting pressure on the dollar. Certainly, the extended duration of the shutdown will have greater implications.