Following the significant declines observed yesterday, the US dollar is predominantly stabilizing with a stronger inclination against the G10 currencies. The yen stands as an exception. The unforeseen post-election increases have persisted into the local session and the European morning. The extended rally at the long end of the Japanese yield curve continues to defy expectations, as yields on both the 30- and 40-year bonds have declined for the fifth or sixth consecutive session. Although the dollar seemed to respond significantly to China’s cautions regarding US Treasury exposure, the bond market appears to have largely disregarded this development. The US 10-year yield has declined to below 4.20%, a level that has been breached only once since mid-January. The upcoming week for US economic indicators commences today with the release of import/export prices, the Q4 Employment Cost Index, and December retail sales figures. Robust automobile sales and significant holiday discounts likely supported consumer spending. The Atlanta Fed’s GDP tracker indicates that the US economy experienced growth exceeding 4% in the fourth quarter, marking the second consecutive quarter of such expansion. Meanwhile, the Fed funds futures have fully discounted a cut at the first meeting Warsh will chair, provided that the confirmation hearings proceed without disruption from the ongoing investigation into Powell for allegedly misleading Congress regarding cost overruns of the HQ renovations.

The euro concluded the trading session at $1.1815 prior to the weekend and maintained a position above $1.1810 in yesterday’s market activity. Following yesterday’s surge, the euro has regained approximately 50% of its losses incurred since reaching a multi-year high near $1.2080 on January 27. It surpassed $1.1925 in North America yesterday but has remained below that level so far today, while staying above $1.1895. Options amounting to 1.2 billion euros are set to expire today at a rate of $1.1910. The subsequent retracement target is approximately $1.1960. The dollar experienced a significant outside down day in relation to the Japanese yen. The asset fluctuated around the pre-weekend range and ultimately closed beneath the low established last Friday. The most recent instance of the greenback experiencing an outside down day against the yen occurred on January 23, subsequent to the Fed’s rate check, which was reportedly conducted on behalf of the US Treasury. Yesterday, the dollar experienced a slight decline, dipping through the JPY155.60 level, which aligns with a (38.2%) retracement of its upward movement from the low observed on January 27-28, just before reaching JPY152.00. Continued selling pressure drove it to nearly JPY155 today. It encountered a standstill at the subsequent retracement target, approximately JPY154.90. Below it, there is potential for JPY154.25.

In light of ongoing inquiries regarding Prime Minister Starmer’s administration, sterling experienced a notable increase, driven by the general decline of the dollar. Following a sluggish beginning to the trading session, sterling gained momentum and neared $1.37 during the North American session. It continues to trade below that level today, consolidating at approximately half a cent lower. Options for GBP360 million are set to expire at $1.37 today. Sterling’s gains have propelled it to the midpoint of its approximately $1.3510-$1.3870 trading range established since January 27. The subsequent area of technical significance is approximately $1.3730, which represents last week’s peak and the forthcoming retracement objective. The US dollar peaked at CAD1.3725 prior to the weekend, encountering selling pressure that subsequently drove it down to CAD1.3625. The greenback experienced a further decline yesterday, reaching a test at CAD1.3560. It retraced more than 61.8% of its increase from the end of January. It dipped marginally beneath CAD1.3550 today before stabilizing. Proximity to support is observed around CAD1.3540; however, the potential downside risk reverts to the late January lows near CAD1.3480.

The Australian dollar exhibited a bullish outside up day prior to the weekend, experiencing consistent buying from the beginning to the conclusion of yesterday’s trading session. The recent session marked the first occasion in three years where the Australian dollar maintained a trading level above $0.7000. It established a new three-year peak, just 1/100 of a cent shy of $0.7100, coinciding with the expiration of options for A$1.15 billion today. The Australian dollar is currently stabilizing at approximately $0.7065.