EUR tests $1.1510 support, GBP fails at $1.3545, CAD edges higher. Gold volatile near $4400. US 10yr yield falls 3bp after deficit data. UK GDP 0.4% Q2.
The US dollar traded in tight ranges against most G10 currencies Thursday, failing to extend the previous session's gains. The euro and sterling reversed lower after initial strength, while the yen shrugged off an apparent endorsement of faster rate hikes from Japan's prime minister. Commodities and yields also showed mixed signals, with gold pulling back from a fresh high and the 10-year Treasury yield slipping after a weak auction and a larger-than-expected federal deficit.
The euro posted a bearish outside down day Wednesday, trading on both sides of Tuesday's range before settling below that day's low. It returned to nearly last Friday's low, just under $1.1520, and extended losses to about $1.1510 Thursday before catching a bid in European trading. The recovery carried it to new session highs just above $1.1535. Nearby resistance sits in the $1.1540-50 area.
The greenback posted an outside up day against the yen Wednesday, reaching a new session high near JPY159.55 in the New York afternoon. The dollar settled at its highest level of the month. The JPY159.50 area corresponds to the 61.8% retracement of the dollar's intervention-inspired slide, with JPY160 the next psychological hurdle. News that Prime Minister Takaichi appeared to endorse faster Bank of Japan rate hikes failed to lift the yen. The dollar consolidated between about JPY159.20 and JPY159.50 Thursday, with the yen trading in a narrow range near Wednesday's low.
Sterling initially reached almost $1.3545, its best level in nearly a month, before reversing lower and taking out Tuesday's low just above $1.3490. A firm second-quarter GDP print of 0.4% failed to stem follow-through selling Thursday. Sterling fell to $1.3475. The $1.3510 area offers initial resistance. Unless that level is overcome, the risk extends to the $1.3420-40 zone, which hosts the 38.2% retracement of the rally from the late July low around $1.3275 and the 20-day moving average.
The US dollar appeared to bottom against the Canadian dollar Wednesday just above CAD1.39, the 50% retracement of the rally from the May 1 low near CAD1.3550. It reached nearly CAD1.3950 Wednesday and almost CAD1.3960 Thursday. Initial resistance lies in the CAD1.3980-1.4000 area. The US two-year premium over Canada rose Wednesday for the first time in six sessions, only the third increase in two-and-a-half weeks. That spread may have also bottomed near 120 basis points after peaking near 145 bp in late July, the highest in a year.
The Australian dollar briefly traded above $0.7090 Wednesday, its best level since early June, before the broad greenback recovery pulled it back to around $0.7060. It eased to about $0.7045 Thursday but recovered to nearly $0.7060 in European trading. Limited scope remains for additional gains before intraday momentum indicators become stretched.
The Mexican peso reached its best level since June 2024, before the presidential election that year, with the dollar touching almost MXN17.0160. The greenback has fallen for three consecutive weeks and has risen in only three sessions since July 17. The move Wednesday was small, with the dollar falling about 0.15%. It traded in a narrow range Thursday between MXN17.0435 and MXN17.0805. Carry-trade competitors like the Brazilian real and Colombian peso both weakened. The Colombian peso was the weakest in the region, off by a little more than a third of one percent, after a deadly earthquake that will strain the economy and could mark the end of the tightening cycle at 12.0%.
The offshore yuan has practically flatlined in recent days. For seven consecutive sessions, it settled between CNH6.7460 and CNH6.7482. The People's Bank of China set a high fix Thursday after Wednesday's fix at CNY6.7888, a three-and-a-half-year low. The US dollar edged slightly higher against the Indian rupee, reaching INR95.4475, matching Tuesday's high and the week's peak. It settled near that level. The dollar gapped lower on July 31, with the bottom of the gap around INR95.4715 extending to about INR95.57.
US equities advanced Wednesday, but both the S&P 500 and Nasdaq composite settled below their opening levels. In Asia Pacific Thursday, Japan, Taiwan, and South Korea advanced, while most other markets fell. Europe's Stoxx 600 snapped a seven-day advance Wednesday but recouped the loss Thursday. US index futures traded with a firmer bias.
Benchmark 10-year yields were narrowly mixed in the US and Europe Wednesday. The 10-year JGB yield has not fallen since last Thursday; it rose another 1.5 basis points Thursday. European yields were mostly 1-2 bp lower. The US 10-year Treasury yield fell three basis points to 4.67%. Wednesday's $42 billion 10-year note auction drew lukewarm demand, though the yield was the highest since 2007. The Treasury will sell $25 billion in 30-year bonds Thursday. The 10-year note auction took place before news that the July federal deficit was $432.3 billion, above the expectations of a dozen economists surveyed by Bloomberg. That deficit was nearly as large as the previous two months combined and the biggest in about five and a half years, since post-pandemic stimulus peaked.
Gold and silver extended their monthly advance Wednesday. Gold rose more than 1% for the second time this week and the fourth time in six sessions. It peaked in early North American trading around $4,441 before pulling back. Thursday it traded heavier but found support near $4,364. Silver rose a little more than 1% Wednesday, finishing more than a dollar off its intraday highs. It was the seventh session in the past eight that silver gained more than 1%. At its best, it reached almost $66.80, its highest level since June 22. It also traded with a heavier bias Thursday, with bids emerging near $64.25.
October WTI crude spent Wednesday inside Tuesday's range of roughly $80.15 to $83.35. The Strait of Hormuz remains a focus after US Energy Secretary Wright claimed nearly 9 million barrels of oil a day transited the waterway over the past week, well above the 4 to 5 million barrels estimated by flow trackers. The actual amount is indeterminate as many vessels turn off transponders and GPS, and satellite-imagery vendors have reportedly stopped selling high-resolution pictures. Given the stalemate, the risk seems tilted to higher prices, but oil consolidated Thursday, holding above Tuesday's low near $80.15. The 20-day moving average sits near $80.35.
The US reports July producer prices Thursday after Wednesday's tick lower in the year-over-year CPI pace. A large moderation is expected after June's 5.5% headline increase and a 5.1% core rate. Weekly jobless claims will also draw attention; they have been below 200,000 for three consecutive weeks, a streak not seen in a generation that offers a more constructive view of the labor market than non-farm payrolls.
The eurozone reported industrial output flat in June, while the May series was revised to 0.3% from an initial estimate of -0.2%. Market impact was minimal; second-quarter GDP has already been reported at 0.4%. The UK economy grew 0.3% in June, above the median forecast for a 0.1% contraction, though May's 0.1% growth was revised away. The details looked poor: industrial output fell 0.2%, construction weakened, the trade balance deteriorated, and government spending fell 0.3%, the first decline since the first quarter. The bright spot was services, where the index of activity rose 0.4%, but May's series was revised to 0.1% from 0.3%. Q2 GDP came in at 0.4%, led by capex and consumption and better net exports. Policy expectations barely moved; swaps continue to fully discount a rate hike before year-end.
Japan's July producer price index edged up 0.1% month-over-month, and the June series was revised to 0.5% from 0.4%. The year-over-year pace ticked down to 7.2% from a revised 7.3%. The swaps market prices about a 75% chance of a Bank of Japan rate hike in September, up from nearly 65% at the end of last week but down slightly from Wednesday. A hike is fully discounted for October.
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