Dollar Gains Momentum, Outpaces Peers as 10-Year Nears 4.15% – Action Forex
Dollar’s rebound is gathering strong momentum today, surging broadly across the board as markets continue to realign with the Fed’s message from midweek. After being under pressure earlier in the week, the greenback is now positioned to potentially end as one of the strongest performers. Supporting the move, U.S. Treasury yields have extended higher, with the 10-year looking set to break through 4.15% mark. That is notable considering the benchmark yield briefly dipped below 4% twice earlier in the week.
The resilience in Dollar and yields underscores investor confidence that the Fed remains in control of the easing process rather than being pushed into aggressive action by market forces. Indeed, traders appear to have taken comfort in the Fed’s framing of its rate cut as “risk management” rather than a response to imminent economic weakness. Policymakers still project two more cuts this year, but with the overall policy rate just 25bps below June’s projections and the terminal rate expected to stay above the long-run neutral. The message is that the Fed is easing with caution, not capitulation.
Meanwhile, Yen was briefly buoyed by a slightly more hawkish than expected BoJ vote, which saw two dissenters calling for a rate hike. The move triggered a sharp intraday jump in Yen crosses. But that strength quickly faded as Governor Kazuo Ueda’s press conference highlighted the board’s more cautious stance. Ueda stressed that in his personal view, “underlying inflation is still somewhat below 2% but approaching that level.” He added that while upside price risks identified by board member Naoki Tamura deserved attention, downside risks tied to the intensifying impact of U.S. tariffs on Japan’s economy could not be ignored. His balanced tone signaled that the hawkish dissent remains a minority position.
For the week so far, Swiss Franc and Loonie still lead the performance table, followed closely by Dollar. If current momentum persists into the close, the greenback could overtake both. At the other end, Kiwi and Aussie remain pinned to the bottom, with Sterling also soft. Euro and Yen are stuck in the middle of the pack.
In Europe, at the time of writing, FTSE is up 0.03%. DAX is down -0.16%. CAC is up 0.15%. UK 10-year yield is up 0.043 at 4.723. Germany 10-year yield is up 0.025 at 2.750. Earlier in Asia, Nikkei fell -0.57%. Hong Kong HSI closed flat. China Shanghai SSE fell -0.30%. Singapore Strait Times fell -0.23%. Japan 10-year JGB yield rose 0.04 to 1.641.
Canada’s retail sales drop -0.8% mom in July, but advance data signal August rebound
Canadian retail sales declined -0.8% mom to CAD 69.6B in July, worse than expectations of a -0.6% drop. Core sales, which exclude motor vehicles, parts, and fuel, fell even more sharply by -1.2%.
The downturn was broad-based, with eight of nine subsectors posting declines, led by food and beverage retailers. The figures point to cooling consumer demand as households remain squeezed by high borrowing costs and lingering price pressures.
Still, Statistics Canada’s advance estimate suggested a brighter picture ahead, with retail sales projected to rebound by 1.0% mom in August.
Fed’s Kashkari sees two more cuts this year, labor market risks more pressing
Minneapolis Fed President Neel Kashkari said the balance of risks facing the U.S. economy tilted toward the labor market rather than inflation. In an essay, he argued that given the “large concurrent changes” in trade, immigration, and tax policies, and the mixed signals in the economy, the more pressing danger is “rapid further weakening” in employment rather than a major inflation overshoot.
Kashkari noted that labor markets historically can deteriorate “quickly and non-linearly,” making preemptive action necessary. By contrast, he said tariff-related uncertainty implies a risk of inflation persistence near 3% rather than a sharp surge to 4–5%.
That backdrop led him to support this week’s rate cut, raising his own projection from two to three cuts this year in the Fed’s Summary of Economic Projections.
Still, Kashkari stressed that policy is not on a preset course. If the labor market proves more resilient or inflation surprises on the upside, the Fed should pause, or even consider raising rates again. Conversely, if jobs weaken more rapidly than expected, he said policymakers should be ready to act more aggressively to support growth.
UK retail sales rise 0.5% mom in August, third monthly gain
UK retail sales rose 0.5% mom in August, slightly above expectations of 0.4%, marking a third consecutive month of growth. Still, volumes remain shy of their March 2025 peak, highlighting that the rebound is steady but incomplete.
The broader three-month trend still points to weakness, with sales down -0.1% compared to the three months to May. However, this marks an improvement from July’s -0.6% decline, indicating the downturn in spending is losing intensity.
BoJ holds with two members calling for hike, starts selling ETFs and J-REITs
The BoJ kept rates steady at 0.50% in September, but the 7–2 vote revealed a growing hawkish bias. Naoki Tamura and Hajime Takata broke ranks to support a rate increase, citing upside risks to inflation and progress toward achieving the 2% price stability target. Takata said that Japan has more or less achieved its inflation goal, while Tamura argued that the key rate should move closer to neutral given skewed risks to the upside.
Alongside the decision, the BoJ unveiled plans to shrink its massive balance sheet by selling assets. The Bank will sell ETFs at a pace of JPY 330B annually and J-REITs at JPY 5B, with the principle of minimizing market disruption. With its balance sheet at 125% of GDP—far larger than other major central banks—the BoJ’s move marks a notable shift toward normalization, even as rates remain unchanged for now.
Japan core CPI Slows to 2.7%, lowest since late 2024
Japan’s consumer inflation eased notably in August, with both headline CPI and core CPI (excluding fresh food) falling to 2.7% yoy from 3.1% in July, the lowest since November 2024. Despite the slowdown, inflation has remained above the BoJ’s 2% target for over three years.
Core-core CPI, which strips out both fresh food and energy and is seen as a key gauge of underlying price dynamics, ticked down to 3.3% yoy from 3.4%. The moderation suggests a gradual cooling in inflationary pressures, though price growth remains elevated relative to historical norms.
Food prices continued to drive the cost-of-living squeeze, with processed food up 8.0% yoy, though slower than July’s 8.3%. Rice inflation also eased to 69.7% yoy from an eye-watering 90.7%. Energy prices provided some relief, falling -3.3% yoy after a -0.3% drop in July.
NZ exports jump 23% in August, imports flat, deficit at NZD -1.2B
New Zealand recorded a goods trade deficit of NZD 1.2B in August as imports outpaced a sharp rise in exports. Goods exports climbed NZD 1.1B, or 23% yoy, to NZD 5.9B, supported by strong shipments to major partners. Imports slipped slightly, falling NZD 30m (-0.4% yoy) to NZD 7.1B, but remained elevated enough to keep the monthly balance in deficit.
Export growth was broad-based, with China (+35% yoy, the EU (+52%), Australia (+17%), and the U.S. (+14%) all showing strong gains. Japan was the notable exception, where exports fell -11% yoy, driven by a NZD 28m decline in milk powder, butter, and cheese.
On the import side, flows from China rose 6.2% yoy, while purchases from the EU fell -6.0% and from the U.S. declined -1.3%. The largest pullback came from South Korea, where imports dropped -32% yoy.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.3505; (P) 1.3583; (R1) 1.3631; More…
GBP/USD’s break of 55 D EMA (now at 1.3486) suggests that rebound from 1.3140 has completed at 1.3725. Fall from there is seen as the third leg of the corrective pattern from 1.3787. Intraday bias is back on the downside for 1.3332 support first. Break there will target 1.3140 support next. On the upside, above 1.3561 minor resistance will turn intraday bias neutral again first.
In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.3151) holds, even in case of deep pullback.
