FOREX: USDJPY Leads Impressive Greenback Rally Following US Inflation Data
Jul-15 16:11
- Despite the initial dip lower for the greenback following the softer-than-expected core and supercore readings for US inflation, a deeper dive into the data prompted a swift and significant recovery for the greenback. A broader increase in core goods across 56 items for a second month, with a median increase of 0.44% M/M in June is another marked acceleration, threatening to delay the Fed hitting their inflation target.
- With US yields rising in reflection of this dynamic, the broad dollar reversal higher was swift and then persistent throughout the session. The most recent USD index recovery has now extended to around 2.3% from cycle lows printed on July 01. The rally marks the cleanest evidence yet of a material break of the downtrend posted off the February high, bolstered by a breach of the 20-day EMA.
- The rally has been led by a powerful 0.75% advance for USDJPY, where topside momentum was exacerbated on a break of the June and July highs at 148.03 and 148.65 respectively. The peak so far today stands at 149.02 as the market continues to extend its short squeeze, and the next focus will be on 149.38, the 50.0% retracement of the Jan 10 - Apr 22 bear leg, and 150.49, the Apr 2 high.
- While JPY weakness stands out today, the Swedish krona sits at the bottom of the G10 leaderboard. A continued reversal following last week’s inflation data provides an interesting positioning dynamic here, as the market may prefer to be positioned for a dovish Riskbank ahead.
- The likes of EUR, AUD and NZD have all declined around 0.4% against the dollar. EURUSD has hit fresh pullback lows towards the 1.16 mark as downside momentum has picked up following a breach of the 20-day EMA.
- Although sterling moderately outperforms, GBPUSD has breached important trendline support below 1.3430, drawn from the Jan 13 low. A clear break of the trendline would strengthen a bearish threat and expose 1.3335, the May 20 low. Sentiment will be affected by both CPI and labour market reports, due on Wed and Thu respectively. US PPI is also due.
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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
