September 25, 2025

Foreign Exchange Commentary

Mid-day Remarks

Summary

  • Canadian dollar steady in quiet trade ahead of Canada’s payroll data tomorrow.
  • U.S. dollar attains best levels in three weeks as U.S. 2nd Qtr. GDP rises an annualized 3.8% Qtr./Qtr. versus forecast of 3.3%.
  • Euro currency has depreciated 1.2% thus far this week.
  • U.S. Treasury yields remain higher despite the Federal Reserve interest rate cut last week near 4.19% on the 10-year bond yield.
  • U.S. jobless claims 218,000 in September 20 week; estimate 233,000.
  • U.K. pound sterling, gilts trade in narrow ranges before Confederation of British Industries (CBI) survey results.
  • Mexico peso decline aided by CTAs covering USD/PHP shorts.
  • U.S. new home sales soar 20% in August to 800,000 annualized rate versus estimate of 650,000.
  • Swiss National Bank (SNB) holds interest rates steady at 0%.
  • Volume of world trade rose 1.3% in July, Dutch CPB says.
  • U.S. will 100% support Argentina, Trump key aide Hassett says.
  • China’s yuan drops most since July on U.S. dollar gains.

Noteworthy

  • U.S. Dollar Gains Ground on Better GDP, Lower Jobless Claims
  • Dollar at Highest in Three Weeks on Strong U.S. Data

U.S. labor market and economic activity show new signs of strength, bucking calls for fast interest rate cuts by the Federal Reserve and sending Treasury yields and the dollar higher. Weekly jobless claims fell to 218,000 from 232,000, while economists surveyed forecast the layoff indicator at 233,000.

Additionally, decreasing imports unexpectedly pushed the third estimate for 2Q GDP up to 3.8% from 3.3% annualized pace. August durable goods orders rise 2.9% following a contraction in July. Consensus was a negative 0.4%.

The Personal Consumption Expenditures (PCE) inflation reading tomorrow is expected to remain above target. The 10-year yield is at 4.19% and the two-year at 3.66%.

In Europe, the Swiss franc turned lower after the Swiss National Bank (SNB) didn’t rule out the possibility of negative interest rates. The franc initially edged higher after the SNB left the policy rate at 0%, as expected, but gains were brief.

“The SNB signaled that the bar for negative rates is high but cannot be ruled out,” a senior markets strategist said.  SNB Chairman Martin Schlegel reiterated that the bank would cut rates further if required.  A settlement of the trade dispute with the U.S. would lower the risk of negative rates, in our view. The euro currency rose 0.2% to 0.9346 francs, having briefly fallen to 0.9333 after the SNB announcement.

Somewhat surprisingly, the U.S. dollar has been resilient to recent negative news.  The dollar moved significantly higher today, as mentioned on stronger than expected U.S. economic data after hitting a fresh two-week high on Wednesday. 

Barclays’ currency strategists say the U.S. dollar has failed to weaken meaningfully over the past couple of months despite “extraordinarily bearish events.”

The U.S. dollar went through shock moves when it weakened in February to May. Since then, it has traded in a relatively tight range, without substantial further weakness, despite weaker data and challenges to the Federal Reserve’s credibility, Barclay’s said in their note.

Barclays expects that the U.S. economy will rebound in the months ahead, which could mean the U.S. currency remains resilient. The analysts are wary about threats to Fed independence, however.

In South America the U.S. is discussing terms of aid for Argentina, whose currency was in free fall this month until Treasury Secretary Scott Bessent signaled Monday that the administration was ready to support Argentina's president, Javier Milei, in his attempt to impose free market reforms there.

On Wednesday, Bessent tweeted: "The Treasury is currently in negotiations with Argentine officials for a $20 billion swap line with the Central Bank. We are working in close coordination with the Argentine government to prevent excessive volatility."

Argentina has faced deepening financial turbulence following an election in the province of Buenos Aires where Milei’s Freedom Advances party lost badly to his left-wing Peronist opponents.  The election rattled investors, who viewed it as a harbinger for a crucial national midterm congressional vote in October.

Last week, Argentina’s central bank dipped into its already depleted reserves to sell more than $1 billion of  U.S. currency over three days to defend the peso, which had weakened to the upper limit of its currency band.

Finally, Bank of Canada’s Macklem warns U.S. dollar may be losing appeal as a hedge.

Worries about the independence of the Federal Reserve have dampened the U.S. dollar’s appeal as a hedge during turbulent times, Bank of Canada Gov. Tiff Macklem said Tuesday.

In both a speech and a press conference in Saskatchewan, Macklem said he expects the U.S. dollar to remain the global reserve currency for the foreseeable future. However, “President Trump’s repeated attacks on the Fed are a concern” because of the spillover to broader financial markets, the Canadian central banker said.

Macklem said the U.S. dollar has depreciated roughly 10% and the price of gold has climbed 40% amid the rapid shift from the U.S. on trade policy. In times of stress, investors historically have veered toward U.S. dollar assets as a security blanket, leading to an appreciation in the dollar and a drop in Treasury yields.

That’s changing, Macklem said. The value of the U.S. dollar as a hedge “may not be there anymore, or it may not be as reliable as it was,” he said at a press conference. He added foreign investors are hedging more of their U.S. dollar exposure, thereby applying downward pressure on the dollar.

“I’m not saying this is all related to President Trump’s threats on the Fed,” Macklem said. “But I do think you are starting to see some impacts, and in that sense, it’s time to talk about it.”

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