The US dollar remains strong against the G10 currencies as we approach the release of the US January CPI. The week commenced with reports indicating that Chinese officials were advocating for a reduction in exposure to US Treasuries. Supported by better-than-anticipated employment figures for January, the dollar reduced its declines. In a surprising turn of events, the Japanese yen and Japanese bonds have experienced a rally following the LDP’s significant victory. In light of the current market dynamics, the yen stands out as the strongest among the G10 currencies this week, appreciating nearly 2.5% against the dollar as we approach today’s North American session. The Fed funds futures indicate a shift in expectations, moving the anticipated Fed rate cut from June to July. The June meeting marks the initial occasion that Warsh will preside, contingent upon the typical progression of the confirmation hearings. However, this outcome is uncertain due to the objections surrounding the investigation into the Federal Reserve regarding cost overruns in its renovations. Currently, there remains approximately a 75% likelihood of a rate cut anticipated for June.

Currently, reports suggest that the Trump administration is contemplating a reduction in the range of import duties applicable to certain metal products. Several industrial metal prices have experienced a decline as a result. The Supreme Court is set to announce decisions next Friday, with a potential ruling regarding the president’s authority on tariffs. Lastly, with the US markets closed on Monday, liquidity may diminish sooner than typical today. It is important to recognize that the Chinese markets are currently closed and will remain so until February 24 in observance of the New Year celebration. The euro has remained largely within the range established on Monday, fluctuating between approximately $1.1810 and just above $1.1925. This has retraced fifty percent of the euro’s decline from the high near $1.2080 observed on January 27. The value has dipped marginally beneath $1.1850, but it has since recovered and is currently above that level. Options for 5.25 billion euros are set to expire today. The euro is experiencing a decline over the past three days as we enter today. The response to the US CPI data will dictate if the trend continues.

The dollar achieved session highs yesterday against the yen during early North American trading, approaching JPY153.75. Sellers drove it down to nearly JPY152.35 before stabilizing. The JPY152.00 level presents immediate support, with approximately $1.8 billion in options positioned at that strike price set to expire today. The greenback has maintained its position above that level since mid-October of the previous year. Today, it has returned with a stronger bid and has approached yesterday’s high, where it encountered resistance during the early European trading session. Similar to the euro, sterling has largely remained within Monday’s range (~$1.3585-$1.3700). Sterling declined to nearly $1.36 yesterday, with options for GBP530 million set to expire today. It briefly traded below that level but maintained a slight position above Monday’s lows. Next week, the UK will release data on the labor market, January CPI, which appears to be softer, and retail sales. The swaps market indicates a strong acknowledgment that a cut next month is a tangible possibility, with a probability of approximately 72%.

The upward movement observed on Wednesday allowed the greenback to further strengthen its position against the Canadian dollar yesterday. The US dollar stabilized just below the (61.8%) retracement of its declines from the February 6 peak (~CAD1.3725), located around CAD1.3640. It remained just under that level today. Above CAD1.3650, the initial potential extends into the CAD1.3675-CAD1.3700 range. The Australian dollar reached nearly $0.7150, marking its highest point in three years, before experiencing profit-taking that brought it down to around $0.7075. The precious and certain industrial metals exhibited a decline. Today, losses have reached approximately $0.7045, marking a four-day low. The 0.7025 area provides support; however, a breach of Monday’s low around 0.6990 could signal a more significant correction following a dramatic beginning. Despite today’s losses, it remains up approximately 5.8% year-to-date.