FX Strategy

We see risks that investors will reprice the ECB's cutting path lower. An increased deviation between HICP fixings and forecasts, a sudden rollover in Italian growth and increasing focus on downside risks to r* are all potential catalysts to price in a deeper cutting cycle – and weigh on EUR.

Take your rate cuts and put your helmet on. Ground control to Major Dove. Commencing countdown, easing on. Ground control and Major Dove want a soft landing. More dovishness could come from weaker inflation, a weaker labor market, or both. That skew of risks keeps us in UST yield curve steepeners.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past and talk about the most important events of the week to come.

Our long GBP/CAD recommendation has had a good run, and policy divergence has supported this trade. We no longer recommend long GBP/CAD positions given limited upside potential and stretched positioning.

In the eyes of investors, the FOMC decision to cut 25 or 50bp, its explanation, and forward guidance will clarify how it thinks about the balance of risks to the economy. Investors will act on the perception of how Fed thinking compares to their own and move markets – providing clarity to all.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past and talk about the most important events of the week to come.

A cooler labor market plus a stickier core inflation print amplify hard landing concerns and reduce market hopes of a proactive Fed response. This means we expect FX market turbulence as we stay in the defense regime; JPY longs remain the clearest trade but we stay neutral on the DXY.

August payroll weakness increased investor desire to see a 50bp rate cut in September without equally increasing investor confidence that the Fed would deliver it. This combination – wanting more central bank accommodation than you're likely to get – rings negative for risk-taking sentiment.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past and talk about the most important events of the week to come.

A more dovish Fed reaction function skews USD risks from upside to downside, but forces abroad, still-present political risks and stretched positioning mean we're not yet sold that the DXY will break below 100. JPY is our top long while AUD and GBP should outperform the funders EUR and CAD.

In the JPY rates space, we discuss the valuation of long-end JGB ASW, and see it having more room to rally from here. In the FX space, we see continued outperformance of JPY against USD on either a US soft/hard landing scenario.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

US economic data over the past two weeks calmed nerves about a possible recession – initially brought about by a triggering of the Sahm Rule and a partial unwind of yen carry trades. Defensive positioning offended instead of pleased, but we stay in UST curve steepeners into supply/Jackson Hole.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

In this note, we discuss the upcoming JGBi auction on August 16.

Better-than-expected US data saved global risk markets from a continued deleveraging.The rebound in risk sentiment reversed some of the repricing in central bank policies, yield curves, and exchange rates, but not all. We continue to advise a defensive stance and staying with UST curve steepeners.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

The US employment report for July caused a free fall in equity prices, bond yields, and the USD. While price action looks dramatic, we advise against fading it until expectations stabilize.

In this podcast series, host Martin Tobias discusses the most important highlights of the week just past, and talks about the most important events of the week to come.

I've spent most of the last four months on the road seeing clients. What have I learned? Quite a lot. I detail the most common themes and questions.

The Olympic motto reads "Faster, Higher, Stronger – Together." It could have been used as the motto for central bank policies, inflation, and growth in 2022 and 2023. "Slower, Lower, Weaker – Together" seems a more appropriate description in 2024, unless recent weakness in equities extends further.

In this podcast series, co-host Alexandra Maier discusses the most important highlights of the week just past and talks about the most important events of the week to come.

It was a live-ly week for airplanes and equities. Severe lightning in the Midwest and Northeast accompanied a sell-off in tech stocks and an "IT" crash that temporarily grounded flights across the United States. We stay in UST curve steepeners, which just began their climb toward cruising altitude.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

The choppy relationship between FX and risk assets is partly explained by equity market breadth. We find that G10 FX relationships to equities are 'cleaner', larger, and more significant when equity market moves are broader. 'Narrow' equity market moves tend to be more negative for European FX.

The stickiness of US inflation has lost its tack. Proponents of higher equilibrium inflation have gone silent as recent data proved consistent with 2% or lower core PCE inflation. Downside risks to inflation from residual seasonality and a weaker labor market lurk. Stay in US curve steepeners.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

We discuss how the policy portfolio of the public pension fund may change based on the results of pension financial verification, and how it might affect the bond market.

EUR pessimism is still underpriced. The quantity of GDP growth has improved, but increasing concentration in low-productivity sectors like tourism raises risks of lower-quality growth. Political risk premia may shift from France to Germany. Stay short EUR/USD to hedge both US- and Europe-based risk.

After having adopted a neutral stance on the US yield curve for much of the past year, we believe now is the time to enter US Treasury curve steepeners. Heightened risks and uncertainty during election season, coupled with Fed rate cuts, should help the curve steepen finally and convincingly.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

To ease, or not to ease, that is the question. While several central banks have answered the question already, even those that have answered "yes" struggle to answer the follow ups: how much to ease and how quickly? The debates will not conclude next week, but the first US presidential debate will.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

Markets are underpricing dovish risks in Canada, and BoC cuts could render CAD a key funding currency. We add GBP/CAD longs and see increasing risks of a convex move in USD/CAD above 1.40, especially in a risk-off market.

Recent political events led to price action, suggesting unwinds of popular carry trades in Mexico and France. While the domino effect may be contained for now, we caution against adding to popular trades like US yield curve steepeners, which could be at risk if economic activity data disappoint.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

Special snippets report on what I see and hear on the ground in China. I visit the mainland about every three months to gauge the marginal change in sentiment.

More central banks hopped on the easing train this week, but investors don't expect the Fed to join the passenger manifest for some time. US economic data continue to confuse, instead of clarify, leaving the FOMC's perspective – or Chair Powell's – most important to the direction of macro markets.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

Our framework shows that real rates and breakevens go a long way towards explaining USD's behavior. But short rate differentials matter and can meaningfully amplify or dampen the broader USD path.

In this podcast series, co-hosts Martin Tobias and Alexandra Maier discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

Not the redcoats, the rate cuts, although rate cuts are coming to Britain too. Rate cuts aren't easing if they simply match lower inflation rates and reflect already priced in policy paths. We suggest investors stay long duration and prepare for the policy pricing pendulum to swing again.

In this podcast series, host Martin Tobias and recurring guest Francesco Grechi discuss the most important highlights of the week just past, and talk about the most important events of the week to come.

In this note, we discuss the upcoming JGBi auction on May 20th.

Once again, the fate of government bond markets in most parts of the world will likely come down to the US inflation reports in the coming week. Fear of tariff announcements – before and after the US general election – could increasingly fray nerves in the absence of improvement in PPI and CPI data.

Mayday! Mayday! Dust off your soft landing vs. hard landing debate materials, and remind yourself about residual seasonality in US inflation data. Even if the economy doesn't go down, bond yields could still fall dramatically as inflation data disappoint the higher-forever true believers. Buy bonds.

In this podcast series, host Martin Tobias discusses the most important highlights of the week just past, and talks about the most important events of the week to come.

What do rates mean for USD? It depends on which angle you view them from. We view rates from six different angles: three are USD-positive, one is USD-negative, two are mixed. The USD-positive angles all relate to rate differentials, which may matter more in a policy divergence world.

Curve steepeners are popular among all investor types. Yet, the possibility of "insurance cuts", improving fiscal and historical trends, and consensus positioning means there is an under-appreciated path to bull flattening. Duration longs offer better risk/reward than steepeners. Add 3m30y receivers.

How have FOMC participants and the Chair interpreted recent inflation data? Are multiple rate cuts still on the table later this year? Are risks to achieving its employment and inflation goals still moving into better balance, or have inflation risks risen? Inquiring minds and markets want to know.