The US dollar is enjoying a firmer tone. Sterling is stabilizing after grinding down to its lowest level since late June. The Mexican peso, which had dropped in thin trading in Asia and Europe yesterday following Trump’s threat to exit NAFTA and force Congress to fund the Wall or face a government shutdown recovered fully and is now slightly higher on the week.  

The dollar continues to chop around in well-worn ranges against most of the major currencies. The euro has been confined to a little more than 15 pips on either side of $1.18. The dollar fell to almost JPY108.80 in early Asia, but recovered and at pixel time is knocking on JPY109.40. Sterling made a marginal new low at $1.2775. It may have looked like it was breaking out, but is recovering back toward $1.2820. A move above $1.2835 would stabilize the tone. The dollar-bloc currencies are stabilizing–the Aussie with a softer bias and Canada with a slightly firmer bias. The New Zealand dollar briefly was pushed below $0.7200 for the first time since mid-June but also recovered.

Equities are mixed. In Asia, Japan and Chinese markets fell, but most other equity markets gained. Nevertheless, the MSCI Asia Pacific Index slipped marginally for the first time this week. Of note, Japanese steelmakers fell as Toyota reported is forcing suppliers to cut prices. European bourses are mostly higher, and the Dow Jones Stoxx 600 is up about 0.4%in subdued turnover, led by utilities, materials, and financials.  

Benchmark 10-year yields are mostly firmer but at low levels. The US 10-year yield is up a single basis point and remains below 2.2%. It peaked near 2.40% in early July. Similarly, the yield on the 10-year German Bund peaked in mid-July near 62 bp and is below 38 bp today. Inflation appears to have converged. The Fed’s preferred measure, the core PCE deflator stood at 1.4% in June.The ECB’s preferred measures, headline CPI was 1.3% in July (core at 1.2%). However, the similar rates of change disguise the fact that the quantities (the baskets of goods and services) that are measured are not the same. To avoid the problems associated with this discrepancy is why there is a common methodology (HICP) in Europe, while many countries also track their own metric.