US Data Run Leaves Dollar Pinned Near Range Floor

The dollar ended last week pinned near the bottom of its range after a run of US data that left the market rethinking the hawkish case. July payrolls came in negative. Inflation gauges softened. Retail sales unexpectedly fell.

By Friday's close, the Fed funds futures market had priced in barely eight basis points of tightening for the September meeting, down from 18 bp at the end of July. The three FOMC members who dissented in favor of a hike last month now face a harder sell.

The minutes due this week will show how close they came to winning over the rest of the committee – and whether the discussion touched on reducing the number of meetings per year, as the press has reported.

None of the data due this week is likely to shift the rate path much on its own. July industrial production and the preliminary August PMI are second-tier after the jobs and inflation prints. The July PCE deflators, due a few hours before Fed Chair Warsh speaks at Jackson Hole on Aug. 26, are largely pre-empted by the CPI and PPI reports already out. The headline year-over-year PCE is expected to slip to about 3.5% from 3.7%, with the core rate steady at 3.3%.

The Dollar Index spent the month bumping up against 100.00, never closing above 100.10. After the retail sales miss, it slid to a new weekly low just below 99.50, near the post-payrolls low of 99.40. Support sits in the 99.20-30 area. A break below that could open a run at 98.70, a level DXY has not touched since mid-May. Momentum indicators have flatlined in oversold territory.

The 30-day correlation between the Dollar Index and the US two-year yield is near 0.60, the highest in two months. The dollar's sensitivity to short-rate expectations remains the dominant driver.

Euro

The euro touched a new weekly high just ahead of the weekend at $1.1585, fractionally above the level reached after the July payrolls miss. A clean break above the $1.1615-30 area would improve the technical picture. Momentum indicators are stretched, capping the bullish case for now.

The 30-day correlation between the euro and the US two-year yield is near -0.60, the most extreme in about three weeks. The correlation with Germany's two-year yield is only -0.16. The broader relationship with the two-year rate differential is almost -0.52, a level that reached -0.60 in mid-July – the strongest in more than two decades.

The week's highlight is the preliminary August PMI on Aug. 21. The July composite reading hit 52.0, the highest since last November. The same day, the ECB releases its July survey of one-year and three-year inflation expectations. Germany's August ZEW survey comes earlier in the week; the current-situation component was -77.6 in July, a three-month high but still weak. The expectations component has risen for three straight months to 26.3, down sharply from 58.3 on the eve of the Middle East war. The swaps market still prices in about an 85% chance of an ECB rate hike in September.

Yuan

The yuan is the strongest currency in Asia this year, up about 3.65%. The yen is off about 1.5%. The two are not directly linked – the broad dollar direction matters more. The 30-day correlation between the Dollar Index and the offshore yuan is near 0.73, the highest since late 2024.

China reports July high-frequency data and new and used home prices on Aug. 17. Retail sales look a little stronger sequentially, while industrial production, fixed-asset investment, and property investment may have softened. Home prices remain weak. The banks set the loan prime rates on Aug. 19 and are expected to hold the one-year and five-year rates at 3.0% and 3.5%, respectively.

The dollar has held below CNH6.76 and above CNH6.74 this month. With the broad dollar retreating ahead of the weekend, the PBOC may struggle to keep Monday's fix above levels not seen since February 2023. Some signs suggest officials may be seeking to moderate the yuan's appreciation, possibly ahead of the Trump-Xi meeting next month. The US has already announced new import restrictions and tariffs on China while stepping up its push against transshipments. The USTR has yet to define domestic content precisely.

Yen

The market continues to test the resolve of Japanese and US officials to defend a floor under the yen. The exchange rate is more sensitive to US short-term yields than Japanese rates. The 100-day correlation between USD-JPY and the US two-year yield is near 0.65, near the highest since last November. The correlation with Japan's two-year yield is de minimis at about 0.02.

Japan reports its first official Q2 GDP estimate on Aug. 17. Growth is expected to have strengthened to 2.0% annualized from 1.8% in Q1, though consumer spending may be steady to weaker. Capex appears to have recovered after a 0.7% contraction in Q1. June industrial production, the tertiary activity index, and core machine orders are due the next day. The July trade balance comes Aug. 20; a strong seasonal pattern for deterioration was defied in June, and the trend is gradually improving. National July CPI, due at the end of the week, will likely follow Tokyo's lead – headline there rose to 2.0% from 1.7%, and core to 1.9% from 1.6%. Comparable national figures would put both near 1.9%. The preliminary August PMI follows shortly after.

The dollar reached about JPY159.55 last week, its best level since the late July intervention. Officials have been remarkably quiet. Many traders sense that JPY160 is a possible trigger and turned cautious as it approached. Initial support is near the old resistance at JPY158.50, which the pair tested ahead of the weekend. That level also corresponds to the 38.2% retracement of the bounce from the intervention low near JPY156.70. The 200-day moving average sits a little lower around JPY158.25. Momentum indicators look constructive. Japanese investors responded to the yen's gains by buying foreign bonds and stocks at the fastest pace in two years, largely recycling the yen the US Treasury bought during the intervention.

Sterling

The 30-day correlation between sterling and the euro is near 0.76, up from the year's low of 0.65 in late July. The exchange rate remains more sensitive to changes in the US two-year yield (30-day correlation near -0.42) than to the UK two-year yield, where the correlation is near zero and has been inverted since early April – meaning higher UK short rates do not support a firmer pound.

It is a heavy data week for the UK. June jobs data arrives Tuesday. Average weekly earnings (three-month year-over-year) ticked up to 4.3% in May from 4.2% at end-2024. Regular private-sector pay has not risen since end-2024, falling 0.1% a month through May. The number of payrolled employees fell about 38,500 in H1 2026 after falling 33,000 in H2 2025. July CPI follows Wednesday. UK headline CPI rose at an annualized pace of 3.6% in H1 2026, down from 4.8% in H1 2025. In June, the headline and core rates were both 2.6% year-over-year, though services inflation was sticky at 3.6%. July retail sales, government finances, and the preliminary August PMI round out the week. Retail sales volumes were strong in H1 2026, rising an average of 0.6% a month, accelerating to 1.1% in May and June. The budget deficit in the first three months of the fiscal year was GBP57.6 billion, about GBP3.7 billion less than a year earlier. It was GBP2.7 billion more than the Office for Budget Responsibility forecast, leaving the new government little flexibility. The composite PMI declined in June and July to 51.9, still better than any monthly reading last year.

Sterling rose slightly above $1.3560 ahead of the weekend, its best level since mid-May. The 61.8% retracement of the decline from the January high near $1.3870 is about $1.3590. Near-term gains are possible. Momentum indicators are stretched.

Canadian Dollar

Over the past 30 sessions, the USD-CAD correlation with the Dollar Index is about 0.65. The correlation with the two-year rate differential is stronger at about 0.82. The correlation with oil prices (WTI), positive since mid-March, turned negative around mid-July and is now about -0.28.

The week's two highlights are July CPI on Aug. 17 and June retail sales at the end of the week. Canada's headline inflation rose at an annualized 4.8% in H1 2026 versus 3.6% in H1 2025. The year-over-year rate was 2.8% in June. The core and underlying measures favored by the Bank of Canada are below 2%. The median Bloomberg forecast calls for a 0.4% increase in July, pushing the year-over-year rate to 2.9%. The swaps market sees virtually no chance of a hike at the Sept. 2 meeting and has about 14.5 bp of tightening priced in for the rest of the year. Retail sales have risen an average of 0.8% a month in the first five months of 2026, a dramatic improvement from -0.4% a year earlier. StatCan's preliminary estimate for June is a 0.4% increase. On Aug. 19, unless a deal is struck, the US has threatened to impose 50% tariffs on about $20 billion of Canadian imports. No exception for goods complying with the USMCA has been granted.

The US dollar was sold through CAD1.39 ahead of the weekend, even before the disappointing US retail sales print. That is the lowest since June 3. It surpassed the 50% retracement of the rally from the May 1 low near CAD1.3550, found just above CAD1.3885. The 200-day moving average is near CAD1.3850, and the 61.8% retracement is close to CAD1.3800. Momentum indicators are stretched. The greenback has slipped through the lower Bollinger Band five times in the last six sessions. The decline in the US two-year premium has steadied around 120 bp, down more than 20 bp in three weeks.

Australian Dollar

The Aussie's 30-day correlation with the Dollar Index is near -0.68. The correlation with the US two-year yield is about -0.60. The correlation with Australia's two-year yield is about 0.24. The 30-day correlation with gold has fallen from near 0.90 on June 9 to about 0.48.

Australia's Q2 wage price index is expected to match the 0.8% rise in Q1, with the year-over-year pace ticking down to 3.2% from 3.3%. The July employment report follows Aug. 20. The economy added an average of almost 27,000 jobs a month in H1 2026, up from about 10,000 in H1 2025. Full-time posts averaged 14,700 versus 6,400 a year earlier. The unemployment rate stood at 4.4% in June, up from 4.3% a year earlier. The participation rate was steady at 67.0%. The preliminary August PMI is due before the weekend; the July composite was 53.2, the first back-to-back increase since July-August 2025.

The Australian dollar neared $0.7100 before the weekend, its best level in just over two months. It is knocking on the upper Bollinger Band, and momentum indicators are stretched. The 61.8% retracement of the losses from the early May high near $0.7280 sits just below $0.7110.

Mexican Peso

Over the past 30 sessions, USD-MXN has been more sensitive to changes in US two-year yields (30-day correlation about 0.59) and Mexico's two-year yield (0.50) than to the Dollar Index itself (0.41). The peso is also sensitive to risk appetite – the 30-day correlation with the S&P 500 is near -0.62. Most of all, the correlation with JP Morgan's Emerging Market Currency Index is about -0.75.

Mexico reports June retail sales on Aug. 21. Sales have been weak this year, rising an average of 0.1% a month through May versus 0.4% in the same period last year. The economy appears to have recovered in Q2 after contracting 0.6% quarter-over-quarter in Q1. Consumption and government spending likely slowed. Gross fixed investment may have contracted for a seventh consecutive quarter. Net exports may have driven the recovery.

The US dollar was sold ahead of the weekend to just below MXN16.98, the first time it has traded below MXN17.00 since the run-up to the July 2024 Mexican presidential election. In the 20 sessions since July 17, the dollar has fallen in all but three against the peso. Momentum indicators are stretched. Previous support in the MXN17.08-17.15 area may now act as resistance. Last week, Latam currencies accounted for four of the top five performing emerging market currencies. The Taiwanese dollar led with a 0.85% gain, followed by the Colombian peso. The Mexican peso rose a little more than 0.7%, and the Argentine peso gained slightly less. The Peruvian sol rounded out the top five with about a 0.4% gain. The Brazilian real was the weakest, losing about 3%.