The dollar spent Thursday on the back foot for most of the session, then clawed some of it back. It slid early in Asia and Europe as US Treasury yields drifted lower, and it stayed near its weekly lows after a US jobless claims print that came in lighter than expected. A softer yield backdrop usually trims the dollar's carry appeal, and that was the main story until the afternoon.
The euro was the awkward one. Instead of benefiting from the weaker dollar, it gave ground as French government bond yields pushed to fresh highs on worries about the political and street unrest in Paris. Euro-area consumer confidence ticked slightly lower and added nothing to the case for buyers. Sterling tried to extend this week's strength after Wednesday's hot UK inflation print, but stalled near its recent resistance as oil climbed. The yen firmed against the dollar as yields fell, with USD/JPY pressing toward the lower end of its recent range.
Commodities were noisy. Oil rose on talk that military action involving Iran could resume, which kept a geopolitical premium in the market. Gold and silver sold off sharply despite lower yields, a reminder that safe-haven metals do not always move with the dollar; when positioning is stretched, a headline can trigger liquidation regardless of the macro backdrop. Commodity-linked currencies such as the Canadian dollar lost some ground alongside the metals.
Worth understanding: why the euro can fall on a weak-dollar day. A currency pair is a relative price, but each side has its own risk story. When a government's borrowing costs rise because investors want more compensation for political risk, that is not the same as rising rates driven by a hawkish central bank. Higher yields from a stronger economy tend to attract capital; higher yields from stress tend to repel it. Reading the reason behind a yield move, not just its direction, is what separates a rate-differential story from a risk-premium story. Thursday showed both at work in one pair.
On deck for Friday:
- Flash PMIs for France, Germany, the euro area, the UK and the US through the European morning and early US session. These will show whether activity is holding up amid the political and energy-price noise.
- UK retail sales for September, an early read on how consumers are coping with firmer inflation.
- Canadian retail sales may also be due; confirm the date on the official calendar.
- Iran-related headlines and French bond auctions or yields, which have been moving oil, metals and the euro.
Thin Friday liquidity into the weekend can exaggerate moves on surprises, so size and stop placement deserve extra thought.