Global FX: Broader impacts from the dollar bid

[MUSIC] Welcome to the JP Morgan at any rate podcast. Well, we'll just discuss the latest macro themes and views in FX. I'm James Nelligan in London. I'm here with a random Sandelia out of Singapore, our global co-head of FX strategy. And Junior Tenaise in Tokyo, who runs our at Yen FX strategy. So an interesting week in markets. Some kind of consolidation in yields after the aggressive move higher that we've seen in stay 10 year US yields over the past month. DXY, though, still kind of hovering near the highs as we speak anyway. Yesterday, some quite soft PMI data out of Europe. I think that just speaks to the shift in our call on the dollar last week in terms of the growth impact in some of the energy importers outside the US. And the shift that we had on the call in the dollar last week to more of a bullish view as a result of that. Some layer of uncertainty, though, still I think as just hovering over the market in terms of prospects of a US Iran deal. And how that might weigh on the dollar, on the short term. But that probably just keeps any kind of dollar move a bit more contained. I think it keeps positioning a bit lighter as well across the investor base. But we're starting to think, and we have thought for the last few weeks now that some of these growth and inflation dynamics that we're seeing come through look like they're happening despite the war, despite the conflict. You look at things like hyper-scaler, capex, plowing on in the US. Some of the inflation that we're seeing spill over into call measures beyond the impact of the war that's just making the dollar call a little bit more asymmetric in our view. In terms of my space in Europe, say I'm quite impressed with the continued run in Noki, the Norwegian Krona, despite oil prices not making new highs. I think that's just testament a little bit to the fact that there is more to the bullish Noki case than terms of trade. You do have rates spreads moving in the currencies favor, nor just bank remaining hawkish in our view. We think they do hike in September. And they carry friendly environment generating inflows. And I think it's an interesting dynamic because in my view, I think we're in the kind of world here where you don't really necessarily need rates spreads to be moving in a currencies favor in order for it to appreciate if the level of parry is already high, then that itself can generate inflows. And I think that's a similar dynamic to what we've seen with the end before where rates spreads haven't necessarily moved, but the end weakened in previous years. But sterling, if we've had a bunch of soft data this week, putting an end to the run of upside data surprises for the UK. So labor markets, CPI, PMI and retail sales all came in on the soft side. But trade weighted sterling is actually up on the week. And I think that speaks to that carry environment that we were talking about. At some of the political lull in terms of headline risk from the from UK politics, the market has still got a while to wait before the make field votes on June 18th. And that just allows carry to dominate a little bit. I'm positioning itself, we do see the investor base quite short sterling now. And Burnham has climbed down a little bit in terms of playing down the change in fiscal rules. It just gives the market a little bit less to play with in terms of political risk for the moment. And I think you can see that in certain measures of risk premium. So if you look at the UK assets swap at the long end, that's been moving higher, which I think is just a little bit of a sign of less fiscal risk premium in the UK. So we might yet see better levels in sterling to start to think about bearish political outcomes. You know, I think you have to you have to wait a little bit for that in it. And certainly in my view. Anyway, turning to Asia, a random, let's bring you self into the conversation. It looks like there's been a bit of a step change or a delta change in sentiment around Aussie of late. What do you, what do you make of that? Also, CNA has been training reasonably well in the face of dollars, recent dollar strength. Can that last and is there any reader cross from the CMY settlement data we got from safe? Yes. Yeah, you're right that there's a bit of a sentiment shift in the Aussie that's in the making. I hear more clients in conversation starting to nibble on on bearish Aussie positions. You know, the RBA, obviously, having broken ranks with other DM central banks in terms of proving more hawkish in the last six, seven months. It's looking like it's shifting to a more balanced outlook and we got the RBA minutes this week. It seems like the board has now done enough to have created space for itself to wait and observe the effect of the heights in this training coming. The OIS market, I think it's a price for a shade more than one hike, but I think that's kind of natural given the flow of incoming inflation data that is likely over next water or so. And then, you know, the RBA is essentially over and that view got more data support this week also in the form of a two tenths downside supplies to be unimplementary in the April jobs report. And then flags are there some technical quirks to the data that could pay back next month, but net net, I think it's fair to say that the evolution of our Aussie views that at least the RBA rates spread support for the currency seems to have a red sports or is approaching its end even though the other pillars of the bullish Aussie construct in terms of rate defensions, energy terms of trade and super fund effects, hedging supports are still kind of intact. So at the margin, we still construct a Aussie versus, you know, energy casualty low yielding terms of trade currency such as zero, but on a forecast basis, we are not really looking for Aussie dollar itself to stretch much beyond 73 cents or so on the other side of the media. And then on CNY, as you said, all eyes this week were on the CNY fixing stuff, the conclusion of the US-China presidential summit last week. Well, there was some angst among some market participants at least that you could get a bit of a self-effective reversal in the fixing downtrend. Now that a big political event was out of the way, even though NMS President in recent years around Trump's reuniting, this has not only not been the trend, but has actually been followed by between 2% or 5% of CNY appreciation in the three months after such summits. But in the event, the good news is that the fixings have not misdeed at all. The trend at lower all week, we broke below 684 to figure. So that leaves us still constructive on the R&B here. We're looking for spot to get down to somewhere in the 675 zone in coming months, but I think there's no denying that markets are getting frustrated with the slow pace of appreciation with spot seemingly stalling around 680 or so. And there's also some hand-ranging around the fact that the April settlement data that you mentioned that we got earlier in the week did not sustain the well above seasonal dollar selling norms of Q1, IE, Chinese exporters are not coming out in force in the way that they did earlier in the year to offload unconverted dollars. And the other people are also mindful that the Chinese dividends season start sometime in late June or late July. And as you've seen with most of Asia, dividend outlooks do seem to have some sort of a drag on the currency. But right here right now there's not a whole lot to like Asian effects. The dividends season is still about a month or a little bit more away. And the fixings are not misbehaving. So right here later we're still then constructing on the same line. OK, thanks. Thanks for that, Arindam. Makes sense. Just turning to the yen now. Junya, we've got a dolly yen approaching at 160 again here. What's the intervention outlook, seeming like to you here in terms of risks? And the incestant rise in long NJGB yields. How does that factor in? Thank you for the question, Jim. So as a conclusion, I think that if there are approaches 160 again or exceeded, it is likely that next round of intervention will be conducted. The estimated size of intervention conducted from April 32, May 6 is about 829 trillion yen in total. This is comparable under 2022 intervention, but there is still room up to 15 trillion yen in 2024. Depending on the development going forward, it is possible that the total size of intervention at the current episode will exceed that in 2024. In the previous interventions, Moff did not try to push the end down for below 155, but this This may have been intended to save the earth. ammunition in preparation for the scenario, if which the next round of intervention becomes necessarily in the near future. Regarding the possible constraint on the intervention, if we consider the redemption of security as the effects reserves, that can be used for financing intervention without any outright sales of US trade-ally is much larger than that is generally solved. And the IMF free voting criteria are not expected to be a strong constraint as well. On the other hand, Japanese authorities likely has a one-two-about signature country deducing effects reserves and being seen as having diminished intervention capacity. Given that we believe that at some point, they will be forced to give up trying to cap the end upside that the land 160. As a baseline, the currency like a game, which is freely traded under the free voting currency regime, it is difficult for the intervention to stop or reverse the trend that is determined by fundamentalists. In the 2022 and 2024 cases, the IMF will significantly after the second series of interventions. But this was widely due to a broad vast weakness, reflecting the changes in the outro of the US economy and the monetary policy. At this cast in the previous key country views, as macroenvironment has recently become more positive as opposed to the US dollar, it is unlikely that the broader that weakness will lead to a large decline in the end in coming months. Diggered in the about the lies in JGB yield, yes, it is true that increase in JGB yield is seen over the past several weeks has been notable, significant. However, at a two-some extent, it has been in line with the global trend, and given the past extent, domestic supply demand concern, it may be premature to connect to this directory to a history story. In fact, last November, although when the JGB yielded the loose sharply on the back of the fiscal concern due to the Takaichi administration's policy, a strong negative correlation between superlomial and JGB yield and the yen was observed. By contrast, the current correlation between JGB and the yen is weak, even though it may be as a partly distorted by heightened concern at the over-the-potential intervention. However, as a relevant debate is expected to intensify going forward and over the funding sources as a whole consumption tax cut and gross strategies, it will be necessary to keep a close watch on the relationship between JGB and the yen and the commission. That's from me, thank you. - Great, thank you, Junior. We'll leave it there this week. This communication is provided for information purposes only. Please refer to JP Morgan Research Reports related to its content for more information, including important disclosures. 2026 JP Morgan Chase & Company, all rights reserved. This episode was recorded on May 22nd, 2026.