Dollar Tests JPY159 as Yen Weakness Challenges Officials

The dollar pushed toward JPY159 in European trading Monday, a new monthly high that tests the resolve of Japanese and US officials who have warned against excessive yen depreciation. The greenback reached almost JPY158.90, extending gains after the swaps market trimmed the odds of a Bank of Japan rate hike at next month's meeting, despite a hawkish-sounding record of last month's policy decision.

The yen's roughly 0.65% drop stood out in an otherwise mixed session for the dollar. A record jump in Swedish industrial orders – 32% month-over-month, seasonally adjusted – lifted the krona about 0.25%, putting it at the top of the G10 leaderboard.

Iran demanded the US lift its naval blockade, withdraw forces, drop sanctions, release frozen assets, and pay reparations before reopening the Strait of Hormuz. President Trump said the US may rely on economic pressure on Iran and was only "semi-negotiating" with Tehran, according to reports. September WTI crude edged up to almost $79.45, building on a recovery from last week's low near $74.25, as Houthi strikes on Saudi Arabia added to supply concerns.

The euro rose to about $1.1580 after Friday's disappointing US employment report, its highest since the Fed's hawkish hold on June 17. The momentum was not sustained, the single currency settled above recent highs. Options for 1.4 billion euros at $1.1575 expire today. With expectations for a softer US CPI reading Wednesday, the euro could test the $1.1600-25 area in the coming days, traders said.

Sterling posted its highest close since July 15 ahead of the weekend, settling above its intraday high in a bullish outside-up day. It probed the $1.3500 area Monday but held below the pre-weekend high near $1.3510. Last month's high around $1.3560 is the near-term target, with more formidable resistance near $1.36.

The Canadian dollar hit its best level since June 10 after the diverging employment reports, pushing below the 38.2% retracement of the greenback's rally off the early May lows. The dollar dropped to almost CAD1.3925 before consolidating in a 30-point range below CAD1.3965. Options for about $460 million at CAD1.3920 expire today. The CAD1.3900 area marks the 50% retracement, and the 200-day moving average sits near CAD1.3855.

The Australian dollar reached almost $0.7080 after the US jobs data, its best level since June 16. It settled firmly above recent highs and traded in about a quarter-cent range above $0.7050 Monday. The next target is in the $0.7100-$0.7120 area. The Reserve Bank of Australia meets Tuesday, with little chance of a policy change. Governor Bullock is expected to keep the door open to another rate hike, economists said.

The dollar fell to about MXN17.0925 after the US employment data, nearing the nearly two-year lows set in mid-February around MXN17.0865. It traded quietly Monday, holding below MXN17.1720. The strength of high-yielding emerging market currencies like the peso suggests the funding leg may have shifted back to the Swiss franc and US dollar, traders said. The Swiss franc reached its weakest level against the euro late last week.

The offshore yuan edged higher before the weekend, reaching its best level since February 2023 at almost CNH6.74. The PBOC set the dollar's reference rate at CNY6.7884, up from CNY6.7904.

The Indian rupee rose 0.2% last week, its first back-to-back appreciation since late May or early June. The rupee traded with a softer bias Monday, with the dollar rising to INR95.30 and settling near its highs. Governor Malhotra speaks Tuesday, and India reports July CPI on Wednesday.

US equities advanced ahead of the weekend, with the S&P 500 posting a record close at the conclusion of its best week since April, up about 3.6%. Europe's Stoxx 600 reached a record high before the weekend. MSCI Asia Pacific Index rose 0.4% last week, its third consecutive weekly advance. The Nikkei led with a 2% rally.

Benchmark 10-year yields fell 2-3.5 basis points last week in Japan, Europe, and the US and Canada. Yields were mostly slightly firmer Monday. The 10-year JGB rose almost two basis points, the 10-year US Treasury yield edged up nearly one basis point to above 4.65%.

Gold rallied 7.3% last week, its best week since late January, supported by lower rates and a weaker dollar. China's reserve figures showed continued interest in the yellow metal. Gold reached almost $4,378 at the end of last week and consolidated in the upper end of Friday's range. The $4,400 area is the next technical resistance. Silver surged almost 10%, its biggest weekly advance since late February, pushing slightly above $65 before settling near $64.

Japan reported its June current account swung into a deficit of JPY9.3 billion from a JPY3.97 trillion surplus in May, the first deficit since January 2025. The OECD forecasts Japan's current account surplus this year at 5.2% of GDP, the IMF expects it to narrow to 3.8%. The balance-of-payments trade balance flipped to a JPY135 billion deficit from a JPY6.9 billion surplus in May.

China's July CPI rose 0.5% year-over-year, half the June pace and the smallest increase since before the Middle East war. The ceasefire saw gasoline prices fall 11% on the month, playing an outsized role. Food prices fell for the fourth consecutive month on a year-over-year basis. Core prices, excluding food and energy, rose 0.9%, the slowest since January. Producer prices moderated to 3.5% year-over-year from 4.1% in June, the first easing since March. Oversupply in the hog industry appears to be gradually easing, the year-over-year decline in pork prices slowed.