FX Weekly

The US dollar is strengthening following a hawkish FOMC policy update, challenging the BoJ's intervention efforts. Conversely, the Bank of England appears set to pause rate hikes as inflation pressures ease in the UK.

Key Takeaways

• 1.The Federal Reserve's hawkish shift after its policy meeting has provided momentum for USD strength, complicating the Ministry of Finance's efforts to curb JPY depreciation.
• 2.MUFG forecasts the Bank of England will hold rates steady for the remainder of the year as inflation undershoots expectations and labor market weakness persists.
• 3.MUFG recommends a new long USD/NOK trade idea, citing lower energy prices following the US-Iran deal and rising US yields.

Table of Contents

• FX View
• Trade Ideas
• JPY Portfolio Flows
• AI Overview of BoE MPC Communication
• USD/JPY: Fed shift complicates MoF resistance to JPY depreciation
• BoJ fails to trigger yen buying this week but behind the curve fears may be easing somewhat as inflation eases
• BoJ policy stance enters R* zone
• Positioning supports intervention but possibly at higher levels
• GBP: Room for UK yields & GBP to continue adjusting lower
• UK yields & GBP are adjusting lower
• Inflation is undershooting BoE's best-case scenario setting a higher bar for rate hike
• Narrowing yield spreads & higher volatility to dampen carry demand for GBP
• Political uncertainty has picked up after decisive by-election victory for Andy Burnham
• Downside risks for gilts & GBP from Andy Burnham becoming PM have diminished in near-term
• Weekly Calendar
• New Trade Ideas
• FX Portfolio
• FX Positioning
• JPY Flows – Portfolio & by investor type
• AI Overview: BoE MPC Communication
• FX Correlation Heatmaps

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