FOREX: USD Index Makes Fresh Lows, High Beta Plays Outperforming
The first part of Monday trade has seen further USD selling pressure. The BBDXY is under 1208, fresh lows back to the end of 2023. Lows from earlier that year in the index were just under 1200. There doesn't appear to be a fresh catalyst for the weakness other than a continuation of Friday's sell-off, with concerns around US trade and fiscal policy dominant drivers.
- Equity sentiment is being aided by the better US equity futures backdrop, with Trump pushing out the tariff hike on the EU to July 9. Emini futures are up around 0.95%. There is no cash US Tsy trading today due to the US holiday, but futures are weaker.
- The softer tariff stance hasn't helped the USD though.
- Higher beta FX is outperforming, with AUD up +0.60%, to 0.6530, fresh highs back to Nov back to late Nov last year. NZD/USD is up to 0.6020, up 0.5%, but isn't above April 2025 highs yet.
- Safe havens are still ticking up against the USD, USD/JPY near 142.25/30, against earlier highs of 143.08. EUR/USD is around 0.45% stronger, last close to 1.1415.
- USD/Asia pairs are down across the board as well. The USD/CNY fix was higher than forecast, but USD/CNH has traded sub Friday lows.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
