The Dollar is experiencing subdued trading, primarily within narrow ranges against the majority of G10 currencies. The primary development has been the intensification of pressure on Russia due to a fresh wave of sanctions imposed by the US and EU. The recent US sanctions targeting two of Russia’s major oil companies are poised to create significant challenges for Chinese and Indian buyers, who may be apprehensive about facing sanctions themselves if they persist in purchasing Russian oil following the designated grace period. December WTI, which was at a five-month low near $56 a barrel on Monday, has surged to approximately $61.60 today. The peak for the month was established at approximately $62.50, which is currently in proximity to the 100-day moving average. In the foreign exchange market, the increase in oil prices could be influencing the yen’s under-performance today, while contributing to the Norwegian krone’s outperformance. Most emerging market currencies are experiencing depreciation, although the PBOC has established the dollar’s reference rate at a new low since October 2024.

The increase in oil prices has dampened the momentum of the global bond market. Benchmark 10-year yields have increased by 1-2 basis points in Europe, while the 10-year Treasury yield has risen by nearly four basis points to 3.99%. If maintained, it would represent the most significant increase in the US yield for this month. Meanwhile, reports indicate that the US is contemplating extensive software restrictions on China, which may have impacted the equities of Japan, South Korea, and Taiwan today. Other exchanges in the region showed positive movement. Europe’s Stoxx 600 shows resilience, recovering from yesterday’s nearly 0.2% drop. US index futures show minimal movement. Following several days of fluctuating activity, gold is now trading with reduced volatility within its tightest range in just over a week (~$4066-$4137).

The Dollar Index is currently experiencing a four-day advance, aligning with its longest rally in almost three months. It approached nearly 99.15 yesterday, with last week’s peak nearing 99.50, which coincides with the trendline established from the highs of August 1 and early October observed today. The market is exhibiting stability, maintaining a tight range thus far today, oscillating within approximately a 10-tick bandwidth around the 99.00 mark. The ongoing federal government shutdown has resulted in a sparse economic report calendar. Today, we will see the release of September existing home sales, with a projected increase of 1.5% following a slight decline in August. Additionally, the Kansas City Fed will publish its October manufacturing survey. Both reports are significantly less impactful than the upcoming September CPI and preliminary October PMI. Unless there is a major unexpected development, the market remains optimistic about a rate cut in the upcoming week, with Fed funds futures fully pricing it in.

At this juncture, the pressure on Russia has reached a critical threshold. The US has declared its intention to impose sanctions on Rosneft and Lukoil, entities that collectively represent approximately 50% of Russia’s oil exports. This indicates that companies in China and India purchasing Russian oil face the potential of sanctions as well. The EU has implemented an additional set of sanctions targeting Russian companies. While the US has not consented to the sale of Tomahawk missiles to Ukraine, it has permitted Ukraine to utilize missiles capable of reaching deeper into Russian territory.