The battle and rhetoric surrounding it kept investors on edge, though, and they are now firming after hitting modest four-day highs. The greenback is strong against G10 currencies. Disappointing UK January GDP weighed on sterling, with a 0.65% loss led by the majors. A close proximity to the JPY160 level could encourage a more cautious tone, leaving the yen as the best performer, up just 0.1%.

Uncertain risks over the weekend could help the greenback keep support in North America today. The dollar index is up 1.2 percent this week as the North American session continues. It rose 1.4 percent last week. It is at its highest level since last November. Average US retail gasoline prices are up more than 4% this week after rallying 16% last week. Mortgage rates hit 11-month high.

Prices

G 10

• Traded poorly yesterday and ended up slightly above Tuesday’s low of $1.1505. It still posted its lowest settlement since last November. Today’s sell-off has pushed it slightly below $1.1435, its lowest level since last August. It has recovered to around $1.1470 in late European morning trade. The technical tone is bearish, and a strong rally could be prevented by increased uncertainty heading into the weekend.

• Yesterday, for the third session in a row, the greenback settled near session highs. It traded above highs since January 23 when reports suggested the Federal Reserve had tested foreign exchange rates on behalf of the US Treasury. Gains were extended today to around JPY159.70, the best level since July 2024. While we expect the market to be a bit more cautious as the psychologically important JPY160 level approaches, we think the risk of intervention is minimal, given the market setup, limited volatility, and the fact that the dollar has appreciated.

• Yesterday traded at a three-day low, slightly below $1.3340. The greenback’s broad gains, and a disappointing UK January, provided the impetus for sterling to move to around $1.3255 today, to test the lowest level for the year set for March 3. Initial resistance could be around $1.3280. The next support area is seen around $1.3200-15.

• Broke higher than yesterday. Perhaps January’s trade balance deterioration (C$3.65 bln deficit, was three times larger than the median economist forecast in a Bloomberg survey. After knocking against it for the past three sessions, the greenback has confidently pushed above CAD1.36. CAD1.3640-CAD1.3665, and is above the upper end today, above CAD1.3670 is the next target. CAD is around 1.3700-15.

• Leaned to profit-taking despite persistently high expectations that the Reserve Bank of Australia would raise rates next week. It hit its highest level since mid-2022 on Wednesday, slightly above $0.7185, and retreated to around $0.7070 yesterday in North America and around $0.7015 today. About A$855 mln options expire today at $0.7000. The low for the week was recorded on Monday near $0.6955.

E.M

• Stay under pressure in a non-threatening environment. The greenback hit a three-day high of MXN17.8955 today and around MXN17.95. It has stabilized in Europe. Support is seen near MXN17.80. Monday’s high was around MXN18.0245. A move above MXN18.04 could signal a run towards MXN18.12-13.

• The dollar remained within Tuesday’s range (~CNH6.86-CNH6.8970) against yesterday. The greenback’s broad strength extended to around CNH6.9075 today and held below resistance near CNH6.91. PBOC sees dollar reference rate higher for second straight session (CNY6.9007 vs CNY6.8959 on Thursday). Still, it was the 14th week that the PBOC has lowered the dollar’s fix.

Despite talk of interference, it fell to a new record low today. The dollar touched around Rs 92.4790. The greenback is up about 0.8 percent this week after last week’s 0.85 percent gain.

Other markets

• There is no relief for equity today. Almost all markets in Asia Pacific fell. India’s 2% decline was the sharpest among major markets, though others fell more than 1%. Europe’s Stoxx 600 is off about 0.5% and is nearly flat on the week today. US index futures were briefly mixed.

• Benchmark 10-year yields are mostly higher. The yield on the 10-year JGB jumped nearly seven basis points to 2.24%. European 10-year yields are mostly firm, although UK gilt yields are slightly softer, as is the German Bund. In the week, 10-year JGB yields were flat before today’s move, and European yields are up 10-15 bp. The 10-year U.S. Treasury yield is up one basis point at 4.27%, up 17.5% on the week. Two-year U.S. yields are flat at around 3.74%, after jumping nearly nine basis points yesterday. It settled at 3.56% last week.

• Quietly consolidating around $5100. It ended last week near $5172. Silver is soft and hovering around $83 in European morning trade. It settled near $84.50 last week.

• April WTI hit a four-day high just above $98 today but slipped to session lows of ~$94.50-$95 as the European morning advanced.

Data

• The US economic calendar is jammed today, but war likely dampens market reactions. Another look at Q4, which grew at a disappointing 1.4% annual rate, may be less relevant than Q1 coming in below 26. The key takeaway from January’s personal income and consumption data is that, adjusted for inflation, spending was flat after rising 0.1% in December. Price deflators will remain steady, seen steady at 2.9%, while a range of 3.0% to 3.1% is likely. Boeing and defense orders likely flattered January durable goods orders, without the average forecast in a Bloomberg survey expected to rise 0.5%. The January report is expected to show that job openings rose for the first time in four months, while the level of quits fell for the first time in three months. This would support the view suggested by some Fed officials that the labor market has recently shown some signs of stabilization. Finally, it would surprise no one if inflation expectations rose in the preliminary March University of Michigan survey. At the risk of oversimplifying, consider that the average retail price of gasoline has risen every day since the war began, for a cumulative increase of more than 20%.

• Canada reports February jobs data today. It’s hard to imagine a better report than January, when the unemployment rate fell to 6.5 percent from 6.8 percent, about 45,000 jobs were created, and wage pressures eased. On February 6, when the report was released, the Canadian dollar strengthened about 0.25 percent. That was broadly in line with a 0.20% drop in the dollar index. The median forecast in a Bloomberg survey predicts a slight increase in the unemployment rate and softening wages.

• Mexico reports January industrial production. Mexico’s economy may have survived a recession, but the economy has yet to gain much traction. A small increase is expected.

• The Eurozone reported its January industrial production data today. Given that Germany fell by 0.5% and Spain by 0.4%, the median estimate in a Bloomberg survey of a 0.6% increase seemed optimistic. In fact, it fell by 1.5%, although the upward revision in December has reduced the sting from -1.4% to -0.5%.

• The UK economy stagnated in January. The median forecast in a Bloomberg survey was for 0.2 percent growth. Industrial production fell 0.1% in January (-0.9% in December) and services were flat. The construction sector grew by 0.2% (-0.5% in December). The trade balance also improved (-GBP3.9 bln vs -GBP-4.3 bln), and excluding trade in precious metals, showed a slight surplus for the first time since December 2024. The Bank of England meets next week and has cut the odds of a swap market cut to around 5% before war breaks out around 85.

• China’s February lending data was slightly stronger than expected at CNY5.6 trillion in the first two months of the year. Earlier on Monday, Beijing reported real sector data for February and the economy was seen struggling to maintain forward momentum.