Final night time’s information that the US and China would start formal commerce talks on 10-11 Might to de-escalate the tariff battle noticed the greenback briefly spike 0.4/0.5%. Keep in mind that in April, the defensive yen and Swiss franc currencies had been the large beneficiaries of ‘reciprocal’ tariffs and the uniform sell-off in US asset markets. In concept, then, de-escalation ought to see USD/JPY and USD/CHF lead the restoration. Regardless of the great restoration in US equities, there nonetheless appears to be a way of hangover within the FX and bond markets, ING’s FX analyst Chris Turner notes.
DXY can drift again to 99.25 in quiet markets
“For right this moment, we see two necessary US inputs to the greenback story. The primary is Treasury Secretary Scott Bessent’s testimony to the Home on the ‘State of the Worldwide Monetary System’. Presumably, he’ll argue that US bond markets are functioning in an orderly method and doubtless repeat the mantra that Washington retains a robust greenback coverage. Will probably be attention-grabbing, nonetheless, if he is quizzed on whether or not forex offers are a part of the commerce negotiations at the moment underway with 17 different buying and selling companions. Anticipate Bessent to step rigorously on this topic, however we predict this testimony presents a draw back threat to the greenback.”
“We even have the FOMC assembly and Chair Powell’s press convention this night. We doubt this may show a significant market mover because the Fed continues to withstand presidential stress to chop charges. It appears the market is snug sufficient ready for the subsequent Fed charge lower in July, whereas additionally ready on the laborious information to find out how deeply the Fed cuts. Markets have lately pared again about 20bp of the Fed’s subsequent easing cycle – once more asking why the greenback is not doing any higher?”
“DXY stalled final week precisely the place it ought to have if we’re seeing a weak bear market correction. We think about there are quite a lot of protecting purchase stops above 101.00 now. However in the meanwhile, DXY value motion has been poor and a drift again to 99.25 in quiet markets will affirm that the greenback is struggling to shake the chance premium related to unsure US policymaking.”
