The US dollar remains under pressure as it continues to retreat from its recent highs. It is losing ground against all major G10 currencies and most emerging market currencies. The Japanese yen leads gains among major currencies, rising over 1% due to stronger wage growth and declining US Treasury yields. The Canadian dollar is the weakest of the G10 currencies, though it is still approaching its yearly peak with a modest 0.35% increase. In emerging markets, the Chinese yuan and Indian rupee are the only two currencies showing weakness. Meanwhile, bond markets are rallying, and gold has surged past $2,870, marking a new record high. Oil prices remain within the upper range of recent trading sessions, with WTI hovering around $72 per barrel.

Asia Pacific Markets

The Japanese yen has strengthened significantly, driven by a combination of higher domestic wage growth and softer US yields. The dollar has declined to JPY152.55, marking its lowest level since mid-December. Wage growth data has fueled speculation about a possible rate hike by the Bank of Japan in the coming months, with December labor earnings rising 4.8% year-over-year, the strongest increase since 1997.
On the Chinese side, the yuan has slightly appreciated after the post-holiday reopening of mainland markets. The PBOC set its reference rate for the dollar at CNY7.1693, nearly unchanged from pre-holiday levels. However, weaker-than-expected Caixin PMI data has had little market impact.

European Markets

The euro is gaining momentum, climbing above $1.04 for the first time this week as it recovers from Monday’s low of $1.0140. Resistance is expected around $1.0440-65. In France, political uncertainty is in focus as Prime Minister Bayrou bypassed parliament to push through the national budget, prompting no-confidence votes. However, these are expected to fail due to lack of opposition unity. Germany is also preparing for elections on February 23.
Meanwhile, the British pound has strengthened, nearing $1.26, largely reflecting the broader US dollar weakness rather than domestic economic strength. The Bank of England is set to meet tomorrow, with no immediate rate cuts expected, though markets anticipate a cut in May. UK-US yield differentials have shifted, with US bond yields losing their previous advantage over UK rates.

American Markets

The US dollar index is extending its decline, breaking below key support at 107.50, with the potential to test last month’s low near 107.00. Economic data remains in focus, with upcoming reports on private sector employment, trade balance, and PMI figures. Despite weaker auto sales in January, the overall economic momentum remains solid. The Federal Reserve is expected to hold interest rates steady for the next few meetings, with no imminent changes to its balance sheet reduction plan. Additionally, the US Treasury’s quarterly debt issuance strategy is drawing attention, as officials debate adjusting the balance between short-term and long-term securities. In a separate development, President Trump has authorized the creation of a sovereign wealth fund, allowing the Treasury to allocate part of its $125 billion Exchange Stabilization Fund to a broader range of investments.