Overview: The US dollar is firmer against all the G10 currencies but the Japanese yen. Local reports and the price action are consistent with short covering of the previously sold yen positions ostensibly ahead of next week’s BOJ and FOMC meetings. Still, the greenback is holding above last week’s low, slightly below JPY155.40. The Antipodeans and Scandis have extended their recent sharp losses. The euro eased to a seven-day low, a little below $1.0865, while sterling is holding above $1.29. Most emerging market currencies are lower. Of note, the offshore yuan as edged higher with the onshore yuan remains soft. Asia Pacific equities were mixed. Taiwan shares led the advance. The Taiex fell by nearly 7.5% in the past four sessions and recovered 2.75% today. On the

Overview: News that President Biden will not seek re-election has left investors unsure of the next step, but PredictIt.org still points to a Trump advantage of slightly better than 60-40. It is not clear yet whether Vice-President Harris will be challenged for the nomination. The dollar is mixed against the G10 currencies, with the dollar bloc and Norway weaker. The yen is up around 0.45% to lead the others higher. The Swiss franc, euro and sterling are slightly firmer. Most of the emerging market currencies are higher, led by the Mexican peso’s 0.40% gain. China cuts its seven-day repo rate, which has been upgraded as a policy tool, and Chinese banks responded by cutting the loan prime rates by 10 bp. The yuan, and a few Asia Pacific currencies are trading with

The consolidative phase for the dollar, we anticipated last week, after its recent drop, is evolving into a proper upside correction. We expect the dollar to trade broadly firmer over the next week or so. It is also part of a larger picture, where US interest rates also look to have put in a near-term bottom and are set to recover. Ideas that next US administration may favor a weaker dollar has become a talking point. Yet, of all the forces that drive the $7.5 trillion a day foreign exchange market, official preferences are not among most salient. Nor is it simply a question of asymmetry, where it is thought easier to "talk down" a currency than to talk it up. That was not the case in the run-up to the Plaza Agreement in 1985 or the period before the coordinated

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The failure of computer systems has disrupted airlines, banks, media companies, and the London Stock Exchange, ostensibly stemming from an update from a third-party software update, according to Microsoft. The dollar is trading with a firmer bias. The consolidation, we anticipated, appears to be morphing into a correction. Weaker than expected retail sales has driven sterling to new lows for the week. On the week, among the G10 currencies, only the Swiss franc and Japanese yen gained on the greenback amid what appears to be some unwinding of carry trades. Emerging market currencies are also mostly softer. Only the Czech koruna and Philippine peso, among emerging market

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The US dollar enjoys a firmer bias today, in mostly quiet turnover in narrow ranges. The Australian dollar is a noted exception, and the better than expected jobs growth may have lent it some resilience today. The greenback initially was sold to almost JPY155.35, a new low (since June 7) before recovering to nearly JPY156.60 in Europe. The UK’s employment report saw the first payroll growth in three months and softer wage pressures. Sterling is hovering in a narrow range around $1.30. The big event today is the ECB meeting. No change in policy is expected and the market seems fairly confident of a September cut ~80%), but ECB President Lagarde is unlikely to pre-commit

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The dollar is broadly lower, and stocks are under pressure. Comments by a Japanese official, which did not appear to break new ground, coupled with Trump’s interview in BusinessWeek, where he was critical that Japan was benefiting from a weak yen, despite having apparently spent some $80 bln this year trying to stop it from falling, may have been the trigger. The dollar has fallen to its lowest level in a month against the Japanese yen (~JPY156.10). At the same time, slightly firmer than expected UK CPI diminished speculation of a BOE rate cut on August 1, and sterling has been lifted above $1.30 for a new 2024 high. The euro has risen to about $1.0945, its best level in

Jury duty assignment prevents a more comprehensive note, but here is a snapshot. Overview: The US dollar is consolidating in narrow ranges against most of the G10 currencies. The Australian and New Zealand dollars, along with the Japanese yen are off by about 0.25%, but the others are +/- 0.10. The latest BOJ data appears to imply that officials intervened not only last Thursday, but Friday as well. Emerging market currencies are mixed but mostly quiet. The Turkish lira is the weakest, off about 0.25%, while the South African rand stabilizes (~+0.45%) after sliding 1.4% yesterday. Returning from yesterday’s holiday, Japanese equities enjoyed a firmer today. Mainland shares that trade in Hong Kong remain under strong selling pressure today. After yesterday’s 1.7%

Overview: The assassination attempt on former President Trump has injected a new dynamic as his chances of being re-elected appear to have risen. There are a few trades that seem to benefit from a second term:  steepening yield curve, weaker Mexican peso, and stronger crypto. The dollar initially strengthened as the market’s initially responded, while Tokyo markets were closed for Marine Day. As North American activity is about to begin, the dollar is mostly little changed. The Scandis and the New Zealand dollar are exceptions, and off around 0.4%. Among emerging market currencies, central European currencies are slightly firmer, while the Mexican peso, which had enjoyed its best week of the year last week is off more than 1.1% to be the worst performer today,

Slowing US jobs growth, the third consecutive rise in the unemployment rate, and the softer than expected CPI are a watershed. Although the Federal Reserve will not cut rates when it meets at the end of the month, Chair Powell will likely lay the groundwork for a cut in September. Indeed, the Fed funds future market has priced in slightly more than a 25 bp cut. The deteriorating economic conditions dragged US two-and 10-year yields to their lowest in around three months. This weighed on the dollar and reinforced the sense that an important top for the dollar is in place. The contrast with the UK’s better than expected May GDP that helped lift sterling to new highs for the year near $1.30, while the decline in US rates and speculation of Japanese intervention saw

Overview: The dollar is mostly consolidating yesterday’s CPI-inspired decline. The main features include the market bidding the US dollar back above JPY159 despite more speculation that the BOJ did in fact intervene yesterday and checked on the euro-yen cross in the local session today, and unexpectedly soft Swedish inflation, which the swaps market says could spur three rate cuts here in second half. A record trade surplus and strong aggregate lending figures did not prevent the offshore yuan paring yesterday’s gains. Sterling is pushing to new highs for the year above $1.2950, while the euro holds in a narrow range below $1.0890. Most emerging market currencies are firmer, with the notable exception of Taiwan, South Korea, and Türkiye. The rebound in the yen

Overview: The focus today is on the US CPI report. Another soft reading is expected, and it may strengthen ideas of a Fed cut in September, which ostensibly gives it time to cut again before the end of the year. The dollar is trading with a softer bias against most of the G10 currencies. A stronger than expected May GDP report helped sterling reach new four month high. The greenback is also holding below yesterday’s high near JPY161.80 against the Japanese yen. The euro briefly traded above $1.0850 for the first time in almost a month. The intraday momentum indicators for the dollar, warning that follow-through losses may be limited. Most emerging market currencies are firmer, including the Chinese yuan. The three notable exceptions are Türkiye, Mexico, and

Overview: The dollar is mostly softer today, but largely within the recent ranges, as the market appears to be waiting for tomorrow’s US CPI. There are a few exceptions to note. The yen is trading near its recent lows. A less hawkish Reserve Bank of New Zealand has triggered a sell-off of the local dollar. Softer than expected Norwegian inflation has knocked the krone lower. Most emerging market currencies are firmer, with several Asia Pacific currencies bucking the move, including the Chinese yuan and the South Korean and Taiwanese dollars. The Mexican peso leads the advance with a 0.6% gain, and it is trading at its best level in a little more than a month. Global equities are mostly firmer following another record high in the US S&P 500 and NASDAQ. Both of

Overview: The dollar is narrowly mixed against the G10 and emerging market currencies today. The euro is little changed, holding on to last week’s gains, after the surprising French election results, where the focus shifts finding a prime minister that can carry a majority of the new and closely divided National Assembly. Despite firm underlying wage data, the Japanese yen has given back its initial gains, and the dollar is pushing back above JPY161 in the European morning. The Mexican peso’s 0.35% gain puts it atop the emerging market scoreboard today. Most central European currencies are softer. European benchmark 10-year yields are mostly 1-2 bp higher and the French premium over German has narrowed slightly. The 10-year US Treasury yield fell 11 bp last week

Four drivers are shaping the investment climate. First, ahead of the run-off elections in France, the market feels more comfortable that Le Pen will not secure a parliamentary majority. The French premium over Germany narrowed to 65 bp, falling by about 14 bp last week, and arguable a supportive factor for the euro. Second, the British election was largely a foregone conclusion, and Labour did secure majority. It ought not be construed as a shift to the left as Labour received less than 2% more votes that in did in 2019 and the party’s manifesto has shifted to the center, which itself appears to have moved to the right. The swaps market slightly raised the likelihood of an August cut (~68% vs. 65%), a September cut (98% vs. 88%) and two cuts this year (98% vs.

Taking the next few days off.  Will be back with week ahead commentary on  July 6.  Overview: The sharp jump in US long-term interest rates has helped lift the greenback in recent sessions and it remains firm against most of the G10 currencies today. The Canadian dollar is the best performer, and it is nearly flat. The intraday momentum indicators warn that after a mostly consolidative Asia Pacific and European morning, the greenback may probe higher in North America. The US economic calendar features the JOLTS report on job openings, while auto sale will trickle in throughout the day. Headline risk comes from the ECB gathering in Sintra, where Fed Chair Powell will speak later this morning. Equity markets are mostly lower today, though Japan’s Topix made new

Overview: The market feels a bit more at ease after the first round of the French elections that extreme policies will be avoided by an effort to deny the National Rally a legislative majority. French stocks have recouped some of their recent losses and the euro reached $1.0775, its best level since June 13. The yen remains soft after the Tankan survey showed little change but an uptick in capex plans. Outside of the yen and Swiss franc, the dollar is trading with a mostly softer bias. A handful of emerging market currencies are weaker today, including the Mexican peso. Central European currencies, though, a firmer in the wake of the euro’s gains, but the South African rand is leading the emerging market currencies with nearly a 1% gain as a new government is

July is about the Olympics and reaping what was sown in June. The UK and France will have new governments. There will be a new European Commission. China will hold its Third Plenum session, out of which many expect new measures to support the economy.The Bank of Japan may announce a plan to reduce its bond purchases, which are approximately the same as the amount maturing every month and hike rates at the end of July. Reducing its JGB holdings is another step in the normalization of Japanese monetary policy. Despite the weirdly early US presidential debate at the end of last month, before either candidate was formally confirmed, the market’s focus may not turn to US politics until September. In further evidence of a closely divided Federal Reserve, last month’s

Overview: The US dollar is narrowly mixed as North American participants prepare to return for the last session of the first half. Despite firmer than expected Tokyo CPI and stronger than expected industrial output, the market lifted the greenback around JPY161.25 before profit-taking pressures bought it back toward session lows near JPY160.65 in Europe. President Biden is thought to have lost last night’s debate with Trump, but it does not appear to be much of a market factor. The immediate focus is on today’s PCE deflator, which we suggest below may not have lasting impact as the signal has already been given from the CPI and PPI, and there will be another batch of inflation readings before the Fed meets again. The outcome of Sunday’s French election remains a

The relationship between interest rate expectations and the foreign exchange levels is more complicated than many textbooks or conventional wisdom allows. Australia’s and Norway’s central banks pushed against rate cuts this year, and their currencies were rewarded. The Reserve Bank of New Zealand said more or less the same thing, but investors are less sanguine and took the New Zealand dollar down as much as it took the Australian dollar higher. The Bank of Canada is perceived to be one of the most dovish G10 central banks. The market expects at least two more cuts to be delivered this year. Yet, the Canadian dollar was the third strongest G10 currency last week, appreciating by about 0.2% for the second consecutive week. That the Swiss franc was weak, losing

Thanks for your patience. See you tomorrow. Japan:  USD reached nearly JPY159.15, highest since late April.  US Treasury added Japan to fx watchlist after recent intervention. USD up past six consecutive sessions coming into today. Japanese rhetoric about fx escalates.  National CPI headline and core ticked up primarily utilities (electricity and gas). Excluding food and energy, CPI slowed to 2.1% from 2.4%. This was largely in line with the Tokyo CPI released a few weeks ago. The flash PMI softened with the composite at 50.0 vs. 52.6.  China:  The PBOC fixed the dollar at CNY7.1196, a new high for the year.  Banks were selling dollars. The offshore yuan reached CNH7.2925, a new high for the year. Loan prime rates were left unchanged. Australia:  The PMI slowed,

Overview: The US dollar is trading higher against all the G10 currencies today but the Norwegian krone. Norway’s central bank left policy on hold and warned that if the economy performs as expected, it does not anticipate a rate cut until next year. On the other hand, the Swiss National Bank surprised many with its second consecutive rate cut. The Swiss franc is the weakest of the major currencies, off about 0.70% against the dollar. The Bank of England is up next. It will not cut rates, but a close vote could weaken sterling, which is trading slightly heavier. Emerging market currencies are mostly weaker. The PBOC set the dollar’s reference rate at the strongest level since last November and the offshore yuan has fallen to new lows for the year. The Mexican peso

Overview: The dollar has caught a bid ahead of the US retail sales and industrial production figures. It is higher against all the G10 currencies but the Swiss franc. The SNB meets Thursday. It surprised many by cutting rates in March and the same logic (low inflation, move ahead of the ECB, stronger franc) may apply now. A hawkish hold by the Reserve Bank of Australia has not done much for the Australian dollar, which is little changed on the day. The greenback held last week’s high against the yen near JPY158.25, the highest it has been since the intervention in late April. Most emerging market currencies are firmer against the US dollar, but a few central European currencies dragged lower by the softer euro. Hungary is expected to cut rates shortly and it may

Overview: The US dollar is firmer against most G10
currencies to start the new week. The euro is a notable exception. It is only
slightly higher but confined to a narrow range around $1.07. On the other hand,
most emerging market currencies are firmer, but for a few Asia-Pacific
currencies, including those of China, South Korea, and Taiwan. The Mexican peso
is consolidating but it is also lower on the day. The tone is largely consolidative. Equities have begun softer. All the large
markets in Asia Pacific but India fell, led by sharp losses in Tokyo. Europe’s
Stoxx 600 is threatening to extend its losses for a third session. It lost 2.4%
last week, while the US S&P 500 rose by almost 1.6%: a significant
divergence. US index futures are narrowly mixed pre-open.

Under
other circumstances, the softer than expected US inflation readings and the
subsequent sharp drop in US interest rates would have weighed on the US dollar.
Instead, the greenback managed to do well, especially against the euro, sterling,
and Japanese yen. The 0.6% rise in the Dollar Index was the biggest gain in
two months. The Fed’s hawkish hold, with the median dot shifting to one cut
this year from three in March (and last December) means that some other central
banks may cuts rates one or two more times before the Fed cuts. In addition,
political anxiety stemming from the snap French election for which President
Macron’s party and allies could come in third place in the first round has seen
not only the French premium widen over Germany but others in

Overview: The dollar is bid. What makes its
performance standout is that it is taking place as US rates have fallen. The US
10-year yield is near 4.20%, the lowest in more than two months. The two-year
yield is near 4.67%. It has fallen every session this week for a cumulative
decline of more than 20 bp. It is not so much that constructive developments
took week, but that Europe and Japan are suffering from self-inflicted injury. Macron’s
call for snap elections in France undermined sentiment, and the latest
developments warn that his party and allies could come in third place in the
first round of voting. In the UK, it is possible that the Tories slip into
third place too. In Japan, the BOJ made no change in its bond purchases,
disappointing many, though

Overview: The dollar fell alongside US rates
yesterday after the softer than expected CPI. The move on both rates and the
dollar were pared after the FOMC meeting which held rates steady as widely
expected, but the median dot now anticipated one cut this year rather than
three. The dollar has recovered more ground today and is trading with a
slightly firmer bias G10 currencies. However, trading is quiet and mostly
narrow ranges have dominated. North American leadership is sought, and range
extension is likely. Most emerging market currencies, on the other hand, are
firmer with a few exceptions, mostly from central Europe, and the Chinese yuan.
Asia Pacific bonds played catch-up with
the decline in US yield yesterday. European bonds are paring yesterday’s gains

Overview: Position adjustments ahead of today’s US CPI and FOMC
meeting are giving the dollar a modestly heavier tone today. Each of these
events are typically a source of volatility in their own right and together
they promise an eventful North American session. The yen is the only exception
among the G10 currencies, but even there, the dollar is holding below
yesterday’s highs. Even sterling’s relative resilience this week was unmarred
by the flat April GDP. Led by central Europe, most emerging market currencies
are firmer too. The beleaguered Mexican peso remains under pressures and has
taken another leg lower amid the political backdrop. The sell-off of the French bonds slowed today. Last
Wednesday, the 10-year French bond yield was a little below 3% and it

Overview:  The US dollar is firm against all
the G10 currencies, except for sterling, which is straddling unchanged levels
after labor market report that showed an uptick earnings remain elevated, and
the unemployment rate ticked up to a new high since September 2021. The dollar
reached a new six-day high against the Japanese yen near JPY157.40. The Chinese
yuan (onshore) fell to new lows since last November as the mainland markets
re-opened from the holiday-long weekend. Most emerging market currencies are
lower, including the Mexican peso, which has become unhinged amid heightened
political uncertainty. The peso staged a bit of a recovery in late North
American dealings but came under pressure again as president-elect Sheinbaum
encouraged the discussion of

Overview:  With mixed elements, the market took the
US jobs data as relatively strong and took the dollar and US rates higher. The
EU Parliament election has shaken up European politics, with the Belgium
government collapsing and French President Macron calling a snap legislative
election for the end of the month. Holidays in China, Hong Kong, Taiwan, and
Australia made for thinner Asia Pacific trading, but the euro was sold and has reached to
one-month lows slightly below $1.0740 in the European morning. The dollar is mostly firmer today
against the G10 currencies and emerging market currencies. Ahead of Wednesday’s
US CPI and FOMC meeting, the greenback is likely to remain firm. Japanese stocks moved higher, but
that is the notable exception. Most other markets

The
market got caught leaning the wrong way. The weakness in April’s high-frequency
US data encouraged participants to push the US two-year yield to its recent
floor near 4.70% and took the 10-year yield to two-month lows, slightly above
4.25%. The Dollar Index was driven below the uptrend line drawn off the
December 2023 and March and May 2024 lows. We have argued that while the US
economy is slowing, the April data seemed to overstate the case, and the May
jobs data will likely set the broad tone of other real sector data. The Atlanta
Fed’s GDP tracker had slipped to 1.8% as of June 3. But between last Thursday
and Friday’s data, the tracker for Q2 GDP finished the week at 3.1%. US rates
jumped (The two-year settled near 4.88% and the 10-year ~4.43%) and the