Ahead of the extended holiday weekend in North America, the US dollar shows a slightly firmer tone, though overall activity remains confined to tight ranges. Attention continues to circle around the Federal Reserve, where internal tensions have grown. Governor Waller has again voiced support for lowering rates in September, citing a weakening labor market while downplaying tariff-driven inflation concerns. At the same time, the FHFA Director has escalated matters by filing a new referral against Governor Cook. Meanwhile, China’s central bank fixed the dollar lower, pushing the yuan to one of the strongest emerging-market performances this week, second only to the Thai baht.

Asia Pacific Markets

In Asia, currency dynamics remain active. The yen has been trading unevenly, holding near JPY147 but vulnerable to further declines should support levels break. Japan’s data releases painted a mixed picture: retail sales and industrial output both fell more than expected, while the unemployment rate edged lower, marking its best level since 2019. Inflation in Tokyo also cooled for the third straight month.
The Australian dollar, by contrast, has outperformed among G10 currencies, climbing to a two-week high near $0.6540. The move was supported by technical momentum, with short-term averages turning higher. Markets now look to next week’s GDP estimate, expected to confirm moderate growth.

European Markets

The euro has recovered from a midweek three-week low, rebounding toward $1.17 but remaining in choppy territory with daily swings between gains and losses. Recent inflation data from France and Spain came broadly in line with expectations, showing moderate increases but highlighting the challenging base effects facing the eurozone this year. The swaps market now reflects a reduced probability of additional ECB rate cuts compared to early August.
Sterling, meanwhile, has staged a modest three-day rally but remains locked within its broader range. A heavier tone emerged today after speculation about a potential windfall tax on banks, adding fiscal uncertainty. Market pricing continues to imply a possible rate cut later this year.

American Markets

The US dollar index has spent the week consolidating within last Friday’s wide range, following Powell’s Jackson Hole remarks. Rather than trending lower, the currency has held steady near 97.80. However, pressure persists from looming economic data, including expectations of a soft jobs report and downward revisions to employment surveys. Bond market spreads have narrowed, with US yields sitting near multi-month lows relative to Germany and Japan. Today’s figures on income, spending, and trade will shed light on the start of Q3, with GDP tracking at 2.2%. That pace suggests growth is holding above non-inflationary levels, countering stagflation claims. Market focus also turns to upcoming inflation readings, with forecasts pointing to a modest rise in headline CPI.