[CC may contain inaccuracies] Lots of action really across the board. But when you get down to what how much
is going to depend on the direction for the greenback next, do you see more
consolidation? Do you see a further break lower?
Well, our view is that the the dollar will break lower over the coming months,
but that's going to be driven by data releases.
You know, we have the Fed this week, which we think not only they will hike
by 25 basis points, but they will also retain that very hawkish message that
there's still quite a lot of work to do because inflation remains elevated.
But when we look at the inflation dynamics and we look at the leading
indicators for inflation, we are sure that we have been gaining this
confidence that inflation will come down quite significantly over coming quarters
in the US. And that in itself will encourage the
market to believe that the Fed not only is done, but it will be contemplating
rate cuts towards the turn of the year and there will be a significant downturn
for for the US dollar. Is a euro strength story overdone as
well? The nominal effect of exchange rates is
the most expensive ever. Yeah, the euro one is a really
interesting one because at the moment, you know, the economic data releases,
particularly when you look at Germany, is not very supportive from a growth
perspective, particularly when you see that the resilience of the U.S.
economy, Yet the euro's been performing because of those expectations that the
ECB still has a little bit more work to do.
And this week, of course, that 25 basis point hike is well priced, but the
messaging after that, that hike will be super important.
If they remain very hawkish, the euro can probably sustain this, supports an
unbreakable bond 12 but it does sound a little bit doubtful about further hikes,
particularly in September. Then I think the euro will struggle to
break higher. Let's talk a little bit about the
Japanese yen, because it has broken higher, but
really not enough. We're now continuing to see the weakness
again around the 142 level. And with the BOJ potentially not doing
much, how much weaker against the US dollar and other currencies could it go?
Well, I think that 145 level remains the big test.
If it breaks higher, that that's when you get the most probably talking about
intervention. We're still a long way from there.
I say it leaves open room for for the yen to weaken this week.
Our sense is that the BOJ will be important.
You guys, as you noted, how all these reports last week suggesting that the
BOJ is likely to stand pat. But what will be important is, you know,
they're going to be releasing new inflation numbers and those inflation
numbers are going to be upgraded. The core reading remains.
The core core reading remains at 4.2%, so very elevated.
And if they show that they don't decline towards the 2% this year and potentially
next year, the BOJ is going to have to justify those numbers and that's going
to leave the door open for the potential for ways to see to potentially be, you
know, tweaked maybe in September. So so I think that it will be we should
expect some volatility on Friday for the yen.
Of course, much of the movement in currencies has been those rate
differentials. Right.
And when we're talking about the bogey, we can't really forget about the PBOC
either because they seem to be going in a completely different direction as the
rest of the advanced Western economies. I mentioned earlier how the Aussie and
the Kiwi dollar have been dragged by the weight on the offshore yuan as well.
What can we expect there? Quite right.
There was in the QE very, very risks and pro-growth sensitive currencies.
And at the moment, as you say, you know, equity markets have been performing.
So that's been good news for the Aussie and the Kiwi.
The rates differentials are now particularly for the Aussie starting to
help a little bit as the market sees the RBA holding the cash rate for longer
than the Fed will do. But is China the one that is actually
impeding the Aussie in the QE performing?
And much will depend on on what the stimulatory measures announcements that
are expected later in the week, whether they disappoint or whether they not CNY
of course, and remains under a little bit of pressure.
And then we basically need to see the government committing to some real
fiscal spending at the moment. There's been a lot of announcements of
piecemeal sort of stimulatory measures, but what the market is looking is for
the government to actually spend a little bit more money to reinvigorate
this recovery that is losing momentum.