TARIFFS: Industry Bodies Warn Increased Uncertainty After SCOTUS Tariff Ruling

• EUR/USD: Jan23 $1.1650(E1.4bln), $1.1700(E1.5bln); Jan27 $1.1600(E3.0bln), $1.1670(E1.2bln), $1.1800-15(E1.5bln)
• USD/JPY: Jan23 Y159.00($1.4bln), Y160.00($1.5bln); Jan26 Y159.90-00($1.0bln); Jan27 Y159.85-00($1.0bln)

• While President Trump said he was seeking immediate talks on the acquisition of Greenland, his comments on not using force have provided a more favourable backdrop for risk, allowing equity markets to bounce and precious metals to pare intraday gains. These dynamics have fostered a moderate dollar recovery, with the DXY rising back into positive territory.
• This has only stalled the progress for the likes of AUD and NZD while the USDJPY bounce has been more notable, given fresh impetus from equities. USDJPY is now roughly 50 pips above session lows, and today’s bounce supports the narrative that short-term bouts of weakness are still considered corrective.
• US PCE data the third reading of Q3 GDP are the next notable event risk, while the focus will then shift to Friday’s Bank of Japan meeting. The BOJ is firmly expected to keep policy unchanged after December’s 25bp hike, as mixed data (inflation above target but weaker wage growth) argue for assessing the impact of the recent move.
• Furthermore, a snap election and shifting political dynamics are reinforcing caution, effectively limiting scope for near-term policy changes. However, any commentary on recent yen weakness will be eagerly awaited. As a reminder, finance minister Katayama said yesterday that she will talk to the BOJ to restore market confidence.

Gilts are away from lows, benefitting from spillover support from Tsys after U.S. President Trump suggested that he will not use force when it comes to acquiring Greenland (reversing a little of the ‘sell America’ trade).

• Still, recoveries remain relatively shallow at this stage, with yesterday’s price action eroding some of the bullish technical picture.
• Futures last +15 at 91.74.
• Bulls will want to close yesterday’s opening gap lower (92.16), which protects more meaningful resistance at Monday’s top (92.51). Initial support is located at yesterday’s low (91.21).
• Yields 0.5-2.0bp lower, curve holds flatter.
• 10s haven’t retested the 4.50% mark after the level held during yesterday’s sell off, last 4.45%.
• SONIA futures flat to +2.5.
• BoE-dated OIS pricing ~44bp of easing for this year, with the next cut not fully discounted until the end of the June MPC (over 80% priced through April).
• This morning’s slightly firmer-than-expected headline CPI data had little impact on pricing, with the 0.1ppt upside surprise vs. the BBG survey median driven by non-core items.
• Rhetoric at the Bank’s February MPC will be key, we expect no change in policy settings at that event.
• Further deterioration in the labour market presents the most obvious dovish risk to pricing at this stage.