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Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: Fed foot-dragging and low volatility dominate

It has been a good night for the dollar. One of the Fed's most influential voices, Christopher Waller, delivered a mildly hawkish speech - firming up the view that the Fed will be arriving late to the rate cut party. At the same time, the S&P rating agency reaffirmed the US sovereign rating at AA+ with a stable outlook. Low FX volatility also dominates

Francesco Pesole
  • Francesco Pesole

FX derivatives hedging idea: Hedging EUR/USD upside ahead of expected ...

In this FX derivatives hedging idea, we focus on how corporates looking to hedge EUR/USD upside can benefit from a moderate rebound in the pair in the next six months by obtaining an effective hedging rate lower than the current forward. Despite being bearish on the dollar, we think EUR/USD may be capped around 1.12-1.13 in a 6M horizon. Here, we present two six-month Inverse Forward Extra hedging strategies, one with barrier only valid at expiry (European KO) and another one with barrier valid ...

Francesco Pesole ... (+2)
  • Francesco Pesole
  • James Smith

Riksbank opens the door to May rate cut

Sweden's central bank has left the door wide open to a May rate cut should inflation data continue to look better. We now think the Riksbank will move a month earlier than the ECB, where we expect the first cut in June. However, markets are already betting on a May move, and domestic monetary policy should remain secondary to external drivers for SEK

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: Riksbank to resist dovish temptation

FX markets are still struggling to find direction, and we expect dollar crosses to keep stabilising until Friday's US PCE. Today, keep an eye on a speech by the Fed's Christopher Waller. In Sweden, the Riksbank should stay on hold and, in our view, not fully endorse rate cut expectations for 1H. SEK, however, still looks a bit fragile in the near-term

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: Global stabilisation

Markets are navigating much calmer waters after last week's action. The PBoC's efforts to stabilise the yuan are offering support for FX risk sentiment and hurting the dollar's momentum. The declining FX volatility may keep the yen pressured by funding demand for carry trades, making USD/JPY even more reliant on a move in USD rates

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: PBoC pushback softens the dollar bull case

Last Friday, many were focused on the sharply higher USD/CNY and questioning whether Chinese authorities were allowing a new period of renminbi weakness. The PBoC has pushed back against that overnight. Looking ahead in this holiday-shortened week, we are all expecting a firm US inflation print on Friday. It's another tough week for dollar bears

Francesco Pesole ... (+2)
  • Francesco Pesole
  • James Smith

Riksbank preview: On hold as May cut speculation intensifies

Sweden's central bank is looking at a more encouraging inflation outlook but may be relatively cautious in revising its rate projections lower. In our view, a cut in June is likely – but risks of a krona drop, resilient services inflation and an improved economic outlook mean May cut bets may be overdone. Still, prompting a hawkish repricing won't be easy

Francesco Pesole ... (+2)
  • Francesco Pesole
  • James Smith

Riksbank preview: On hold as May cut speculation intensifies

Sweden's central bank is looking at a more encouraging inflation outlook but may be relatively cautious in revising its rate projections lower. In our view, a cut in June is likely – but risks of a krona drop, resilient services inflation and an improved economic outlook mean May cut bets may be overdone. Still, prompting a hawkish repricing won't be easy

Chris Turner ... (+11)
  • Chris Turner
  • Dmitry Dolgin
  • Francesco Pesole
  • Frantisek Taborsky
  • Lynn Song
  • Muhammet Mercan
  • Nicky Mapa
  • Peter Virovacz
  • Piotr Poplawski
  • Rob Carnell
  • Valentin Tataru

FX Talking: Laser-focused on a lower dollar

We think the dollar is getting ready to break out of its range to the downside. The Fed looks committed to rate cuts and seasonal factors are less supportive for the dollar from April onwards. Assuming that slowing price data allows the Fed to start cutting in June, expect the commodity currencies and even the yen to enjoy a meaningful rally against the dollar

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: Strong dollar at the end of central bank week

The dollar is enjoying good momentum after a week full of central bank decisions. Strong US data yesterday combined with a couple of dovish surprises from other central banks (Switzerland in particular) to give USD support. However, with the Fed having sounded optimistic about disinflation and rate cuts, we are not sure the dollar rally has legs

Francesco Pesole
  • Francesco Pesole

G10 FX Trader/Sell CAD/NOK on policy divergence and sensitivity to USD...

We target a move in CAD/NOK to 7.50 in the coming months, and a profit on the trade of c.5.0% excluding carry, which is slightly negative on this position. Stop loss if spot hits 8.05. This is a relative-value trade in the G10 commodity space, meaning it is largely insulated from oil prices impact and partly shielded from swings in risk sentiment (CAD normally does better than NOK in risk-off waves). The key risks are linked to extra strength in US data – especially inflation – and a hawkish shi...

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: Fed fires up the soft landing story

Risk assets are bid and the dollar is softer as last night's FOMC meeting revealed a Fed firmly minded to cut rates even as growth forecasts were revised higher. This could be the start of an important new trend for the dollar, should US price data soften. Look out for key central bank meetings today. A positive risk environment should keep the dollar soft

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: Dots in focus

The dollar is doing a little better as investors prepare for tonight's FOMC meeting. Consensus is not looking for any significant changes in the statement or the Fed's economic projections. If there is a risk, it lies in a less dovish/mildly dollar positive outcome. Elsewhere today sees rate decisions in the Czech Republic and Brazil, plus UK CPI

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: BoJ lift-off underwhelms the yen

The Bank of Japan has finally ended its eight-year reign of negative interest rates and shifted to a more conventional policy of targeting short-term interest rates. Kudos to BoJ Governor Kazuo Ueda for achieving this without dislocating financial markets. A policy rate near 0.1% still leaves the yen vulnerable in a low-volatility world

Chris Turner ... (+2)
  • Chris Turner
  • Francesco Pesole

G10 FX Trader/Take profit on EUR/CHF 0.9600 European Digital

Take Profit on EUR/CHF three-month European Digital recommended 11/1/2024. Trigger Barrier: 0.9600. Expiry: 12 April 2024. Premium Paid: 12.25% of notional. Exit: 65% of notional. Take profit: On 11 January 2024 we published an FX options trade recommendation structured to take advantage of a move higher in EUR/CHF into early April. The European Digital option would return 100% of the notional were EUR/CHF trading at or above 0.9600 on the 12 April expiry. The cost at the time t...

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: All smoke and no fire?

Many central banks are announcing policy this week, but we may not end up looking at a very different global FX picture by Friday. The Fed could keep its Dot projections unchanged and reiterate data dependency, delaying most USD moves to April's round of data releases. The BoJ's hike or hold decision is a 50-50 affair, but the yen still needs help from USD rates

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: The yen needs a dovish Fed more than a hawkish BoJ

Japanese negotiated wages were reported at 5.3% this morning, the highest in 30 years. After some local media suggested the BoJ is preparing to hike next week, a move at the 19 March meeting seems likely. However, the yen is struggling to trade higher, showing how a US Treasury selloff can still overcome the impact of positive monetary policy developments

Francesco Pesole ... (+4)
  • Francesco Pesole
  • James Knightley
  • Padhraic Garvey
  • CFA

FOMC preview: Fed remains inclined to cut

While there is little prospect of an imminent policy change, the Federal Reserve thinks it will likely be appropriate to cut rates and move its stance towards a more neutral footing later this year, assuming the data cooperates. Monetary policy is in restrictive territory and we see scope for the Fed to cut rates by 125bp this year, starting in June

Carsten Brzeski ... (+4)
  • Carsten Brzeski
  • Francesco Pesole
  • James Knightley
  • James Smith

Central banks: How our views compare to yours

We ran a series of live polls at our recent Economics Live webinar earlier this week, and this is how the views of our listeners compare to our own. You can listen back to our event via our THINK Aloud podcast

Chris Turner ... (+3)
  • Chris Turner
  • Francesco Pesole
  • Frantisek Taborsky

FX Daily: Short-dated yields point at a higher dollar

The USD two-year swap rate is at 4.5%, a level consistent with DXY at 104 as opposed to the current 102.5/103.0. We continue to see short[1]term upside potential for the dollar, even though today's PPI and retail sales figures are key risk events. Sweden's inflation figures released this morning are endorsing the Riksbank's dovish turn

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