FOREX: USD Index Recovering Further, GBP Underperforms
Jul-14 16:41
- The USD index is rising once again on Monday, extending the ongoing cautious recovery from cycle lows to ~1.8%. This follows the DXY closing above 20-day EMA resistance on Friday, which marked a bullish development for the greenback.
- Early weakness in G10 was led by the likes of AUD and NZD as the threats of further global tariffs had a negative impact on risk sentiment. Despite the subsequent stabilisation for risk/equities, the dollar remains firmer as we approach the APAC crossover and tomorrow’s US CPI data.
- GBP has also been a notable underperformer, steadying edging lower across US hours and tilting GBPUSD to fresh pullback lows below 1.3440. A UK jobs report from KPMG REC showed a particularly pessimistic/stagflationary set of figures, with permanent staff appointments falling, availability of candidates increasing and permanent staff salary increases rising at the fastest rate since last October. Consequently, EURGBP has broken and cleared above the early July high - putting the cross at the best levels since early April. Price action narrows the gap to the key bull trigger at 0.8738, the 2025 high and near-term upside target.
- Higher US yields continue to underpin USDJPY’s strong rally across July, as markets also remain cautious surrounding BOJ rate hikes and the upcoming upper house election on Sunday. Japan's ruling LDP party received its lowest score in an opinion poll since returning to power in 2012 in a survey by public broadcaster NHK on Monday, underlining the prospect that the governing bloc may struggle this weekend.
- As such, USDJPY reached as high as 147.76 today, just 30 pips shy of the June highs, located at 148.03. Above here, 148.65 remains a key technical point for USDJPY, the May 12 high and a reversal trigger.
- Tuesday’s data calendar is stacked with China activity figures kicking things off. The focus will then swiftly turn to US and Canadian inflation data, final inputs before both the Fed and BOC decisions on July 30. We will also have the beginning of quarterly earnings season with financials the usual early focus.
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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
