HUF: USDHUF Extends Losing Streak as Spot Reapproaches Multi-Year Low

• A combination of drivers have propelled USDJPY to a fresh one month high of 148.79 this morning. The initial impetus for the squeeze higher came from Bank of Japan Deputy Governor Ryozo Himino, who gave no guidance on the timing or pace of potential rate hikes, providing little confidence to yen longs.
• The dynamic of widening yield differentials underpinning the USDJPY rally has then been exacerbated by a relief rally for JGB futures following a very solid 10-year auction (highest bid-to-cover since 2023) and a subsequent pop higher for core yields.
• USDJPY demand towards 146.00 has been pretty solid since mid-July and through August, keeping us for the most part in a 146.00-149.00 range, with today’s move placing the pair towards the upper end of this range.
• Political uncertainty has also played its part in the yen sell-off early Tuesday, as a flurry of resignations from senior leadership positions within the governing LDP have followed what is reported to have been a raucous internal party meeting. It remains to be seen whether this proves a sufficient sacrifice to keep PM Shigeru Ishiba in office.
• On the topside, 149.12 is the next resistance (61.8% of the Aug 1 - 14 bear leg). However, should momentum gather speed, investors will be focused on 149.81 and 150.92, the August 01 high and a key resistance. 

• We are still waiting for size info re the 10-year gilt launching today (the new 4.75% Oct-35 gilt) but we had pencilled in GBP8-12bln ahead of today and now think the risks are skewed to the top of that range or potentially even a little larger.
• Books we in excess of GBP125bln as the spread was set (with 15 minutes to go until books closed at 9:30BST).
• Record books are GBP142bln in February when GBP13bln was sold when the previous 10-year 4.50% Mar-35 gilt was launched.
• Note that the new 4.75% Oct-35 gilt will be reopened three times via auction in the Oct-Dec period with the first auction on 2 October.

The mix this morning of: political uncertainty in Japan (various resignations across the LDP), a window-dressing UK reshuffle (not expected to resolve Starmer's popularity crisis in the near-term) and acute pressure on the longer-end of the UK, US and European yield curves - has reignited fiscal, financing and politic risk concerns around higher borrowing costs - driving sentiment through the European open.

• Sizeable down-move in GBP/USD comes despite the bullish technical backdrop that stemmed from the bullish engulfing candle posted on August 22nd. With spot showing through the lows already today, this somewhat undermines the recovery off 1.3391 and instead retracement support expected into 1.3315 and 1.3369 is of more importance.
• Today's price action serves as a further reminder of the pressure on governments from bond markets, particularly as Summer concludes. Today's Gilt price action shows markets are not satisfied with floated proposals so far for the UK Treasury to raise indirect taxes through property, capital gains, landlords, or otherwise. Given the internal party opposition to spending cuts, this places additional pressure on the Chancellor's pledge not to raise VAT, income tax or national insurance this parliament - a topic that will likely be a market focus into the Autumn Budget - and may have to become a more palatable option the longer yields stay higher.