The US dollar has regained strength after recently hitting two-month lows against several G10 currencies. Market uncertainty persists, with the looming US tariff threat creating a cautious environment. Tensions in US bilateral relations are evident, as key officials skipped the G20 meetings in South Africa. Meanwhile, the eurozone and UK preliminary PMI figures fell short of expectations, signaling economic challenges. Although British retail sales showed a recovery, underlying weaknesses remain. The Bank of Japan’s intervention in the bond market contributed to the yen’s depreciation. The US 10-year Treasury yield declined by nine basis points, whereas its Japanese counterpart increased by 25 basis points over the past month. Despite today’s recovery, the dollar remains approximately 1.25% lower for the week, with the euro struggling to maintain levels above $1.05.

Asia Pacific Markets

The Japanese yen weakened as the dollar briefly dipped below JPY150 for the first time since December before rebounding. The yen’s decline was partly influenced by the Bank of Japan's efforts to stabilize the bond market through Japanese Government Bond (JGB) purchases. Additionally, Japan's inflation rate saw an uptick, with the January Consumer Price Index rising to 4% from 2.6%, and core inflation climbing to 3.2%.
Meanwhile, the Chinese yuan saw fluctuations, with the dollar retreating to CNH7.23 before bouncing back toward CNH7.26. The People's Bank of China set the yuan's reference rate at CNY7.1696, marking one of its lowest levels since the Lunar New Year holiday.

European Markets

The euro has struggled to establish a stable position, with its range this week fluctuating between $1.04 and $1.0515. The eurozone’s preliminary February PMI remained at 50.2, the highest since last August, but manufacturing continues to contract. Germany’s PMI remained above 50 for the second month, though its manufacturing sector has been in contraction since mid-2022. France's PMI unexpectedly dropped to 44.5, its lowest since September 2023.
In the UK, sterling hit a two-month high near $1.2680 before retracing to $1.2640. January retail sales showed a recovery, increasing by 1.7% after a previous decline. However, the broader economic outlook remains cautious, with PMI figures softening and rate cut expectations for May adjusting downward from 90% to 80%.

American Markets

The US dollar index dropped to 106.35, a two-month low, before stabilizing around 106.70. A failure to close above this level would result in a third consecutive weekly decline. Earlier in the week, the dollar faced resistance near 107.40. The market is closely watching the preliminary University of Michigan survey after January’s inflation expectations surged to their highest level since November 2023. Market-based inflation expectations continue to rise, with the one-year breakeven rate nearing 4.10%. The 10-year breakeven rate also climbed slightly to 2.46%. The composite PMI, which had dropped sharply in January, is projected to improve slightly. Despite these movements, the US dollar remains under pressure as investors assess inflation trends and monetary policy shifts.