The prevailing sentiment in the foreign exchange market reflects a phase of consolidation following the release of January jobs data, which exceeded expectations and introduced volatility into dollar trading. The flow of news is minimal, and tomorrow the United States will release its Consumer Price Index for January. Japan’s markets resumed operations following yesterday’s holiday, resulting in a slight continuation of the yen’s recovery and a further rally in Japanese government bonds. As JPY152 has been approached, we suspect that the short squeeze which has propelled the yen since the weekend election has reached its conclusion, or is close to doing so. In the interim, Chinese officials have taken minimal action to prevent the market from steadily pushing the yuan upward. The dollar concluded the previous year marginally under CNY6.99 and is poised to potentially breach the CNY6.90 threshold. The UK economy recorded a modest growth of 0.1% in the fourth quarter; however, the data for December showed signs of weakness. Nevertheless, market sentiment continues to lean towards an anticipated rate hike in the March-April timeframe.

Next Friday marks a pivotal moment for the US Supreme Court, as it will deliver a ruling regarding the President’s authority to utilize emergency powers for the imposition of extensive tariffs. Concurrently, Congress is taking steps to limit these powers. The House, with support from a contingent of Republicans, achieved a narrow passage of legislation aimed at rescinding the tariffs on fentanyl imports from Canada. This does not represent the genuine article, and the Canadian dollar has shown minimal response. The subsequent challenges in transforming the bill into law are significant: it requires approval from the Senate followed by the President’s signature. Unlikely. The unexpectedly robust US January jobs report surprised the market, which had positioned itself in the opposite direction. The euro, which had been hovering around $1.19, experienced an immediate decline of approximately two-thirds of a cent. The recovery was uneven until it reached Europe, at which point the euro was pushed to the post-data high near $1.1890. The euro’s recovery was significant; however, it encountered a pause just beneath $1.1930 for the third consecutive session. The euro is currently stabilizing within a range of approximately 20 ticks on either side of $1.1870.

The significant yen short squeeze experienced a brief interruption due to the US jobs report; however, within a few hours, the dollar reached new lows for the movement close to JPY152.55. Local participants resumed activities today following yesterday’s holiday, with the dollar’s decline extending to nearly JPY152.25. Initial support is observed around JPY152, the low recorded last month, which marked the lowest level for the greenback since the previous October. Nevertheless, the downward momentum diminished. A breach of JPY153.50-60 would contribute to a more stable technical outlook. Sterling exhibited a wide trading range yesterday, oscillating between approximately $1.3610 and $1.3710, effectively encompassing the range observed on Tuesday. The settlement exhibited a slight decline, falling below Tuesday’s low; however, the bearish outside down day did not result in significant follow-through selling, even in light of the underwhelming GDP data. Sterling is currently fluctuating within a range of approximately $1.3605 to $1.3655 today. The swaps market indicates a probability of approximately 73% for a rate cut at the upcoming Bank of England meeting, with nearly 95% likelihood of a reduction by the end of April. The Canadian dollar exhibited considerable volatility yesterday, fluctuating within a range of approximately CAD1.3505 to CAD1.3620 against the US dollar. The US dollar concluded the session slightly stronger, positioned above Tuesday’s peak at approximately CAD1.3570.

The market seems to have overlooked the development regarding the US House of Representatives’ decision to reverse the 25% tariff on Canada concerning fentanyl, and this may be justified. The bill requires Senate approval, and even if it is passed, it is highly probable that President Trump will exercise his veto power. Consequently, it appears to be largely symbolic. The greenback is currently trading approximately one-third of a cent below CAD1.3600. Consolidation might maintain yesterday’s range today; however, Friday’s US CPI could introduce additional volatility. The Australian dollar bulls remained resolute in the face of US employment figures, advancing to new peaks slightly above $0.7140 around midday in New York. The asset experienced a slight increase today but encountered resistance near the $0.7150 level. The Australian dollar has reached a level not seen in three years. The peak in 2023 approached $0.7160. It subsequently retraced to nearly $0.7100, at which point buyers entered the market.