Overview: The dollar is bid as the upside correction that began last week continues today. The greenback is trading above last week’s highs against most of the G10 currencies. The yen is the notable exception. Comments by BOJ Governor Ueda has reiterated his intention to raise rates further provided the economy continues to perform as the central bank expects. The dollar has unwound yesterday’s gains against the yen and is lower than last week’s close (~JPY146.15). The Antipodeans and Scandis are the weakest in the G10, off ~0.5%-0.70%. Most emerging market currencies are heavier, with the Russian ruble and Mexican peso the exceptions. And despite the yen’s gain and robust correlation, the Chinese yuan is softer today. Equities are biased lower, although Japanese

As the summer in the Northern Hemisphere gives way to the fall, monetary policy and politics will shape the investment and business climate. Even if history does not repeat itself, there are still insights to be gleaned. In the last few months of 2023, the market expected aggressive interest rate cuts this year. Although global rates fell, the dollar fell. In Q1 24, the markets moved more into line with the signals from the central banks. Global rates rose and the dollar recovered. The Federal Reserve will likely be one of as many as seven G10 central banks that will cut interest rates in September. The Bank of England is unlikely to join them but is widely expected to cut rates at least another time before the end of the year. The Reserve Bank of Australia and

Overview: The US dollar is mostly firmer, though consolidating against most of the G10 currencies. The Japanese yen and Swiss franc are the strongest, while the Scandis and Antipodean currencies are the heaviest. Among emerging market currencies, a handful of Asian currencies, including the Chinese yuan are higher, but central European currencies, the South African rand, and the Mexican peso are softer.The news stream is light but the threat of the escalation of the Middle East war has extended the rally in crude oil. October WTI traded below $72 in the middle of last week and is now pushing near $76. Global equities are mixed. Japan and South Korea fell in the Asia Pacific session, but most large markets advanced. Europe’s Stoxx 600 is flat after advancing in 12

In the middle of last week, the Fed funds futures discounted 103 bp of cuts this year. There was some movement but after Fed Chair Powell’s, but the market finished the week with 104 bp of cuts priced into the Fed funds futures curve. The two-year note yield settled at a three-week low and the dollar slumped. The Dollar Index’s 1.7% lost last week, its fifth consecutive drop and the largest weekly decline of the year. Although the euro rose to $1.12, its best level since July 2023, and sterling appreciated to $1.3230, its best level since March 2022, they did not lead the assault on the greenback. Rather, the New Zealand dollar (~2.85%) and the Swedish krona (~2.6%) took charge. The swaps market has three cuts fully discounted for the remainder of the year for

Overview: The US is consolidating with a softer profile against most G10 and emerging market currencies today, ahead of Fed Chair Powell’s speech at Jackson Hole (10 AM ET). He is unlikely to go much beyond confirming what the market already thinks it knows: namely, that the first rate cut will be delivered next month. By acknowledging that the economy has evolved broadly along the lines the central bank expected, it would be a gently push against speculation of a 50 bp move. In the current context, a rate cut will not usher in easy policy, but simply make the current stance less restrictive. The Dollar Index fell to the low for the year in the middle of the week and remains in the trough. The BOJ’s Ueda explained last month’s rate hike and did not back off the

Overview:  The US dollar’s decline continued yesterday after the steep jobs’ revision and an unusual solid auction of the Treasury’s 20-year bond. The minutes from the recent meeting confirmed that the FOMC will begin its easing cycle next month. The dollar is mostly firmer today. The market has looked through the stronger than expected eurozone flash PMI–seeing the impact of the Olympics–and stalled the euro’s rally, which lifted it to new highs for the year yesterday. The UK’s flash PMI was also stronger than expected but sterling has been rewarded and extend its advance to near last year’s high (~$1.3140). A rail strike in Canada has not prevented an extension of the Canadian dollar’s recovery, and it is trading at its best level in four months. The

Overview: The preliminary annual revision to US jobs growth is front and center today. It has gotten more play that usual, amid speculation of a historically large revision. Yet, the direct impact on policy may be minimal. Federal Reserve officials, including Chair Powell, acknowledged that the payroll growth may have been overstated. Moreover, the Fed’s judgment of the labor market is not based on one element of the multidimensional labor market. Indeed, given the extent of the dollar’s slump in recent days, "sell the rumor, buy the fact" type of activity could unfold. The dollar is trading with a firmer bias against most of the G10 currencies today. The Canadian dollar is the only one posting upticks, albeit minor. Among emerging market currencies, the Mexican

Overview: The capital markets have begun the week in subdued fashion. Japanese markets were closed for the Mountain Day celebration, and this week’s key events, which include US and UK CPI, and the Reserve Bank of New Zealand meeting and potentially its first rate cut. The uncertainty about the market positioning and the extent of the carry-trade may also be dampening activity. The yen and Swiss franc are the weakest of the G10 currencies today, off around 0.4%. The Antipodeans are the strongest, gaining 0.3%-0.45%. Emerging market currencies are mixed. Asian currencies are mostly lower, while central European currencies are a little firmer.  The MSCI Asia Pacific equity index has fallen for the last four weeks but has begun the new week on a firm tone. Chinese

There is no need to debate whether it was tightening by the Bank of Japan or the fourth consecutive rise in the US unemployment rate that spurred the dramatic market reaction at the start of last week. It seems reasonable that both played a role. And the dramatic unwinding of short yen positions, which appeared to help fuel a recovery of the Swiss franc, Chinese yuan began before the Bank of Japan meeting and the US employment report. Moreover, on the eve of the July 31 BOJ and FOMC meetings, the derivatives market had two Fed rate cuts fully discounted and a little more than a 70% chance of a third cut this year. The lack of transparency around the size of carry trades makes many skeptical of estimates that suggest a greater knowledge that seems reasonable. The

Overview: The most recent data showed that Japanese investors took advantage of the yen’s strength last week to buy foreign bonds and stocks. The US weekly jobs claims to their lowest level in four weeks, suggesting that the slowdown in the labor market remains gradual. The sky is not falling. There is no emergency. With a 28% drop in Japanese bank shares in the first three sessions of the month, stress in Japan was acute, but Japanese official actions seemed to have been limited to a deputy governor of the central bank, talking in the first person. Moreover, the market continues to lean toward a hike before the end of the year. Calls for a 50 bp cut by the Fed next month seem exaggerated. The elevated volatility is already calming, the VIX has been nearly halved

Overview:  Yesterday’s poor 10-year note US Treasury auction helped turn the equity market lower and this carried over into Asia Pacific and European activity today. Today, Treasury completes its quarterly refunding with the sale of $25 bln 30-year bonds. The general tone in the foreign exchange market is one of consolidation. Japanese investors were buyers of foreign stocks on bonds last week, according to the latest portfolio flow report, which is not what one would expect if Japanese investors were repatriating assets and unwinding their natural carry trade. Foreign investors were sellers of Japanese bonds and stocks. India’s central bank stood pat as expected. Several hours after Mexico’s CPI is reported, the central bank meets, and the market seems split

Overview:  The calls earlier this week for an emergency rate cut seemed to be a call for the Fed put, which, we argue is misunderstood. It is not about the stock market per se but financial stability, which did not seem threatened in the US. Japan is a different story, and the Bank of Japan offered a verbal put today, with an indication that it wants to maintain low (accommodative) rates. The markets reacted accordingly. The yen was sold (and dragged down the Swiss franc as well). The dollar-bloc currencies and Scandis are trading higher, while the euro and sterling are consolidating. The Mexican peso, which has been beaten down, is the stronger emerging market currency today, gaining about 1.8%. Equities are mostly higher. The Nikkei gained 1.2%, but Taiwan led

Overview: Calmer markets are prevailing today, but an unease remains, and market moves continue to be sharp even if less dramatic. Still, it is in these somewhat less volatile conditions that the US dollar is doing better. It is firmer against all the G10 currencies today. The yen and sterling are the weakest, nursing 0.4%-0.5% losses, while the Norwegian krone and the Canadian dollar are faring the best, off 0.05%-0.15%. Emerging market currencies are also mostly lower, except a couple of East Asian currencies. Large Asia Pacific equity markets recovered, with the Nikkei up 10.2%, and South Korea and Taiwan equities rising by more than 3%. However, Europe is struggling and the Stoxx 600 is off for the fourth consecutive session. US index futures have pared early

Overview: An unexpected decline in Japan’s unemployment did not prevent a retreat in the yen to a four-day low ahead of tomorrow’s data and conclusion of the BOJ meeting. The dollar has probed the JPY155 area where nearly $3.5 bln options expire today. An unexpected contraction Germany’s Q2 GDP was offset in the aggregate by better French, and especially Spanish figures, leaving the euro consolidating in a narrow range (~$1.0815-$1.0835). The greenback is softer against most emerging market currencies, including the Chinese yuan, which has shrugged off today’s yen weakness. Asia Pacific equities were mostly lower. The Hang Seng, and mainland shares that trade in Hong Kong, posted the largest losses (~1.4%-1.5%), while Taiwan bucked the move, and the Taiex posted

Overview: The US dollar is mostly firmer today ahead of what promises to be an eventful week. Sterling is bearing the brunt today, off a little less than half-of-a-cent as expectations creep up of a rate cut this week and Chancellor of the Exchequer Reeves plays up the poor state of public finances left by the Conservative government. Sterling (and the euro’s) five- and 20-day moving averages have crossed. The yen is mostly within the pre-weekend range. Outside a of a few Asian currencies, most emerging market currencies have also begun the new week on softer footing, as well. Bond and equities are mostly firmer. China’s CSI 300, New Zealand, and the Philippine’s were the notable exceptions in the Asia Pacific region. Europe’s Stoxx 600 is extending its

A dollar-centric narrative would note that the greenback rose against most of the G10 currencies last week. Yet, the dollar, the most actively traded currency, was arguably not the prime mover in recent days. Rather, the unwinding of carry trades seems to be the driver of much of the price action. The low yielding yen and Swiss franc were the only G10 currencies to rise against the US dollar. The Australian and New Zealand dollars were the worst performers, losing almost 2% against the US dollar last week. Among emerging market currencies, the Mexican peso was easily largest loser, and was thought to have been a beneficiary of the carry trades. The peso tumbled more than 2% against the greenback. Brazil’s real was the second worst emerging market performer, off

Overview:  The powerful yen short squeeze that has roiled the capital market this week has stalled today. It is the first day this week that the dollar has not fallen below the previous day’s low and has risen, though slightly, above previous session’s high. The Antipodeans and Scandis are trading with a firmer bias. The yen and Swiss franc are the only two G10 currencies that are not stronger today. The stability of the yen appears to have removed some of the pressure on some emerging market currencies. The Mexican peso is still heaviest currency this week, but on the day, it is the best of the emerging market complex, with the South African rand slightly behind it. Modest losses in Tokyo extended the Topix loss this week to 5.6% and the Nikkei’s decline to

Overview: The capital markets are in flux. The powerful short-covering rally of the yen and unwinding of carry trades continues. For the second time this week, the PBOC has surprised by cutting interest rates. The dramatic sell-off of equities continues. The unexpected contraction of South Korea’s Q2 GSP (-0.2%) is seen as confirmation of broader economic weakness Speculation of a more aggressive Federal Reserve is gaining ground. It is not that the odds of a cut next week have improved much (~10%), but the derivative markets are pricing in about 25% chance of a 50 bp cut in September. The US 2-10-year yield curve is the least inverted in two years (~-13 bp), while 2-30-year curve is positive sloped by the most in two years (+14 bp). The dollar-bloc currencies

Overview: The dollar’s gains have been extended today, but in the risk-off mode, and unwinding of carry positions, the Japanese yen and Swiss franc are firmer.  the dollar has stabilized in late European morning turnover. The Bank of Canada is widely expected to cut rates today and the greenback is pushing against CAD1.38, which it has not traded above for three-months. The US dollar gains, which we anticipated, are coming despite interest rates remaining soft. The US 10-year yield is a little lower around 4.23%, it remains within the range set on Monday. A disappointing Eurozone PMI and the risk-off has seen peripheral premiums widen over core rates in Europe. Leaving aside the Russian ruble and the South African rand, most other emerging market currencies,

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