FX Morning Update

The GS FX desk notes that USD demand is currently driven by funding rotations while highlighting that G10 FX implied volatilities are at extreme lows despite major central bank event risk.

Key Takeaways

• 1.The US Dollar is being driven by funding rotations (moving from USD shorts into cheaper G10 currencies like EUR, JPY, and CAD) rather than directional chasing at current levels.
• 2.FX implied volatilities are currently viewed as too low (bottom quartile) relative to the heavy upcoming event calendar including the Fed, ECB, and NFP data.
• 3.A June Bank of Japan (BoJ) rate hike is largely priced in (85%), and while Governor Ueda did not push back, USD strength may limit JPY appreciation.

Table of Contents

• USD: Ranges Holding, Funding Rotations, Gamma Cheap
• EURUSD NFP Event Weight (bps)
• JPY: No Ueda Pushback To June But Not Enough For JPY
• BoJ Pricing & Overnight Change
• Meme Of The Day:
• Notice to Australian Investors
• Additional Disclaimers