The yen’s surge that commenced in the middle of last week persisted today. The greenback declined from above JPY160 to just under JPY153 today, marking its lowest level in seven months. There remains a lack of evidence indicating any official intervention. The swaps market persists in pricing in a rate hike for next week, with a high probability of an additional increase in December. It has remained largely unchanged since the middle of last week. While the US has strongly advocated for a tighter Japanese monetary policy, the Trump administration continues to argue against a Fed hike, even as US inflation and the economy are running hotter than Japan’s. President Trump has issued a warning to cease all trade with nations where the US faces a trade deficit, contingent upon the Federal Reserve reducing interest rates. Yet clearly the issue confronting the FOMC next week is whether it should implement a rate hike. None of the officials appear to endorse a reduction. While Trump’s threat may be seen as mere bluster, it illustrates that despite his appointment of a new Fed chair, the president persists in attempting to influence monetary policy, and the pressure on Governor Cook remains unabated.

Outside of the yen, Canadian dollar, and Norwegian krone, the US dollar exhibits strength against the G10 currencies, as well as most emerging market currencies. Recent escalations in the Middle East have driven oil prices higher and prompted adjustments toward risk-off positions. Canada’s retaliatory tariffs take effect today, while the US is signalling potential additional measures against its trading partner, which accounts for 15% of its exports and serves as the primary destination for goods from 34 US states. The euro exhibited strength yesterday, supported by a generally weaker dollar, which was primarily influenced by the ongoing short squeeze of the yen. The euro approached but remained below last Thursday’s high near $1.1640. The cap is maintaining its position today, approximately at the midpoint of the retracement from the August 21 peak (~$1.1710). Options for nearly 1.3 billion euros are set to expire today at a rate of $1.1650. The euro is exhibiting a heavier bias and appears poised to test the $1.16 level. Support is observed in the 1.1565-85 range.

The significant short squeeze of the yen persisted. The dollar declined past JPY155, nearing JPY154 yesterday. The losses were extended today to approximately JPY152.90. The greenback recovered to approximately JPY154.25 during the European morning, where it encountered resistance. While there remains no indication of intervention, some individuals continue to be vigilant for a potential shift in tactics. While sterling demonstrated firmness yesterday, it remained below the $1.3550 threshold that constrained it during the previous two sessions last week. That area corresponds to the 38.2% retracement of the losses from the August 21 high (~$1.3675). Although sterling briefly traded above it today, it does not signal a breakout; it was met by sellers who pushed it to new session lows near $1.3520. Support is observed in the 1.3475-1.3500 range. The subsequent retracement is anticipated around $1.3575, followed by $1.3600. President Trump’s assertion that the Canadian dollar’s imbalance with the US is “unacceptable” and that “it has been that way for years—but no longer” seems to reflect the intensifying trade tensions between the two nations. Canada’s retaliatory tariffs take effect today.

According to the OCED’s model of purchasing power parity, the Canadian dollar ranks as the third most under-valued currency among the G10 against the US dollar, with a valuation approximately 18.6% lower. This positions it behind the Japanese yen, which is undervalued by around 61%, and the euro, which is undervalued by approximately 28.6%. Canada’s overnight target rate at 2.25% is the lowest compared with the US Fed funds since the mid-1990s, which is partly a result of the disruption spurred by the US administration. The holiday in the US and Canada yesterday resulted in subdued trading activity, with the Canadian dollar maintaining a steady position within the pre-weekend range. The US dollar fluctuated within a range of CAD1.3805 to approximately CAD1.3840. The greenback was sold to nearly CAD1.3775 today, with buyers appearing in anticipation of last week’s low (~CAD1.3765). It recovered to a little above C AD1.3800. Initial resistance may be in the CAD1.3820-40 range. The Australian dollar appreciated for the fourth consecutive session yesterday, reaching $0.7225, marking its highest level since mid-May. It has stalled today and is consolidating quietly, slightly above $0.7200. It appears to be susceptible. Nearby support is observed in the $0.7175-$0.7185 range.