HUF: USDHUF Trading at 2-Year Low, EURHUF Probing 400

Minneapolis Fed’s Kashkari (’26 voter) reiterated the need for caution amid uncertainty caused by US government policies, having just yesterday told BBG TV that major shifts in US trade and immigration policy means he’s not sure if the picture will be clear enough to move rates by September. Today’s speech focuses more on his broader logic including the ability or lack thereof to look through tariff-driven inflation. 

• “At the Federal Reserve there is a healthy debate among policymakers about whether to “look through” the inflationary effects of the new tariffs. The look-through arguments view tariffs as creating a one-time change in the price level—a transitory inflation shock. This view prioritizes support for economic activity by lowering the policy rate while the economy transitions to its new equilibrium, at which point inflation will have returned to a 2 percent rate, albeit at a higher overall price level.”
• “Arguments against looking through tariff-induced inflation focus on the fact that the trade negotiations are unlikely to be resolved quickly. It may take months or years for negotiations to fully conclude, and there could be tit-for-tat tariff increases as trading partners respond to one other. In addition, some tariffs apply to intermediate goods, and it will take time for the full effects of those price increases to pass through to final prices. In the U.S., inflation has also been running well in excess of our 2 percent target for four years. How many years of elevated inflation can occur before long-run inflation expectations lose their anchor?”
• “These arguments support a stance of maintaining the policy rate, which is likely only modestly restrictive now, until there is more clarity on the path for tariffs and their impact on prices and economic activity. Personally, I find these arguments more compelling given the paramount importance I place on defending long-run inflation expectations.”

The Gilt curve follows global peers, bull flattening with 30-year yields down 8bps on the session. Moves in long-end JGBs have provided the main impetus for global FI this morning (see our earlier posts for a comprehensive summary), but DMO head Pulay’s interview with the FT may be providing some background support to long-end Gilts.

• Pulay noted that “there has been an important shift in the relative proportions [of short/long-end Gilts to be issued] this year”, owing to the “declining strength” of demand for longer-dated paper.
• While falling long-end demand is not positive in and of itself, supply adjustments on the DMO’s side should help contain future upside for yields, particularly after the ~30bp rise since the start of April.
• The BOE’s APF review in September will also be eyed in this respect, after the bank delayed a long maturity bucket sale in April in favour of the short maturity bucket.
• Gilt futures peaked at 91.89 at the open, but have since eased back to 91.72 (+72 today). M5 is still the front contract for now, but expect U5 to take over from tomorrow. Futures volumes unsurprisingly dominated by rolls.
• BOE-dated OIS price 41bps of easing through year-end, little changed from yesterday’s close. SONIA futures are -1.0 to +6.5 ticks through the blues, with the back of the strip leading.
• Overnight, the May BRC shop price index was in line with consensus at -0.1% Y/Y (vs -0.1% prior).  The CBI distributive trades survey is due at 1100BST.