FOREX: Greenback Reversing Monday Gains Ahead of US CPI
Jul-15 09:12
- The USD index sits in moderate negative territory on Tuesday, taking the DXY back to unchanged levels on the week. Cautious sentiment precedes the June inflation report from the US, which will be the final input for the Fed and no doubt prompt some further commentary from President Trump.
- This dynamic has allowed AUD and NZD to outperform on the session, eroding the majority of the prior day’s declines. Bolstered sentiment in the equity tech space has been supportive, buoyed by early headlines that chip/AI bellwether Nvidia would resume sale of its H20 chip to China (with US government approval). Additionally, China’s Q2 GDP print was slightly better than forecast (y/y growth holding above 5%).
- The impressive USDJPY rally stalled overnight at 147.89, just 14 pips shy of the June highs of 148.03. The pair has since slipped back to unchanged on the day around 147.65. The key technical point for the pair remains at 148.65 as we approach the significant US data, the May 12 high and a reversal trigger.
- Markets remain cautious surrounding the upcoming upper house election on Sunday in Japan, with latest polls underlining the prospect that the governing bloc may struggle this weekend, with the focus remaining on the relentless rise in longer-dated JGB yields.
- GBP has been consolidating its relatively weak position this week, just below 1.3450. A UK jobs report from KPMG REC showed a particularly pessimistic/stagflationary set of figures on Monday, keeping markets on a pessimistic footing ahead of UK inflation and labour market data later this week. EURGBP reached a recovery high this morning at 0.8697, further narrowing the gap with the key bull trigger at 0.8738, the 2025 high and near-term upside target.
- Swiss Franc strength continues to be notable as CHFJPY rose to a fresh record high of 185.73 overnight. It is also worth highlighting that EURCHF dipped to a near 3-month low on Monday, slipping back below the 0.9300 mark.
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US FISCAL: Available Extraordinary Measures Pick Up Ahead Of Tax Date
Jun-13 20:42
Treasury had $144B in "extraordinary measures" available to keep the government financed as of June 11 per a release Friday. That is up from $84B a week earlier and the highest since April 28.
- However, TGA cash continues to fall, to $309B latest (lowest since early April) Combined with a pullback in Treasury cash ($376B), keeping the total resources available to avert an "x-date" in the summer at around $450B .
- There will be another uptick in Treasury cash in the coming days, and it's likely Treasury allowed some of the extraordinary measures to be rebuilt (ie not exercised) in anticipation of more cash coming in.
- This is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
FED: Two Cuts Priced This Year Headed Into FOMC Week
Jun-13 20:28
As we head into the June Fed meeting week, market pricing is reflective of the FOMC’s messaging (that we describe in our preview):
- The next cut is only fully priced by the October FOMC meeting, with September seeing a roughly 80% implied probability of bringing the next 25bp reduction.
- Exactly 50bp of cuts are priced through end-2025, implying two Q4 cuts.
- That’s a shift from just after the May meeting, after which the next cut was fully priced by September, and there were closer to three cuts priced for the rest of the year.
- Overall cuts are seen backloaded this year (after 15bp in September, 29bp of cuts priced in Q4 - Oct/Dec combined), but falls off in Q1 (just 21bp cuts priced, 9bp of cuts priced for January and 12bp for March)
FED: Summary Of Economic Projections: Higher 2025 Inflation, Weaker Growth
Jun-13 20:21
The MNI Markets Team’s expectations for the updated Economic Projections are below.
- As of the May meeting, the Federal Reserve staff – whose outlook tends to be broadly shared by the median Committee member – revised their forecasts for growth weaker in 2025 and 2026, “as announced trade policies implied a larger drag on real activity relative to the policies that the staff had assumed in their previous forecast. Trade policies were also expected to lead to slower productivity growth and therefore to reduce potential GDP growth over the next few years. With the drag on demand expected to start earlier and to be larger than the supply response, the output gap was projected to widen significantly over the forecast period. The labor market was expected to weaken substantially, with the unemployment rate forecast moving above the staff's estimate of its natural rate by the end of this year and remaining above the natural rate through 2027."
- On inflation, "The staff's inflation projection was higher than the one prepared for the March meeting. Tariffs were expected to boost inflation markedly this year and to provide a smaller boost in 2026; after that, inflation was projected to decline to 2 percent by 2027."
- Our expectations for these changes fall somewhere in between those projections and the March SEP – a slightly higher unemployment rate, substantially higher inflation in 2025 but to a lesser extent in 2026, and weaker GDP growth this year. Longer-run variables should be unchanged.
MNI Markets Team Expectations For June 2025 Summary Of Economic Projections Medians
