Ahead Today
G3: US: GDP 2nd estimate, wholesale inventories, initial jobless claims, pending home sales; eurozone consumer confidence, Germany CPI, Spain CPI
Asia: -
Market Highlights
The DXY US dollar index has recently found support around the 100.50 level before rebounding off it to trade 0.6% higher at the 101.00-level. USDJPY rose 0.4% yesterday, while EURUSD fell 0.6%. Markets continue to expect 100bps of rate cuts this year followed by another 125bps in 2025. With the Fed set to embark on a rate cutting cycle from September, the US dollar will likely continue to face headwinds from falling US treasury yields. The US 2-year yield has fallen 40bps year-to-date to 3.85%, outpacing the 6bps year-to-date decline in the 10-yr yield. The US treasury yield curve has flattened, with the 2/10s positive yield spread diminishing after hitting a high of more than 100bps in mid-2023. The US data calendar is a heavy one today, with eyes on the GDP (2nd estimate), core PCE inflation, and jobless claims.
BOJ Deputy Governor Himino said that rate hikes are justified so long as inflation moves in line with the central bank’s outlook. This shows that the BOJ’s stance of policy normalization has not changed. Two 25bps BOJ rate hike could still be on the table for December and Q1 2025. With markets appearing to underprice the extent of BOJ rate increases, there could be scope for more yen strength amid falling US yields, but the pace of appreciation will likely be slower than recent yen rally.
Meanwhile, Nvidia – a key player in AI – has reported strong earnings, reflecting strong demand for AI-driven chips.
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Regional FX
Many Asian currencies were weaker against the US dollar. But momentum indicator like the relative strength index is showing several Asian currencies in overbought territory. KRW (-0.4%) led losses in Asian currencies yesterday, while CNY (-0.2%), TWD (-0.1%), and SGD (-0.2%) also fell. However, both IDR (+0.5%) and THB (+0.2%) rose. Notably, global funds have invested US$2.4bn into Indonesian government bond market in August, marking the largest net bond inflows since January 2023. A 2.5% of fiscal deficit to GDP target that has been recently tabled for next year has also allayed investor concerns that the incoming Prabowo administration will run a much larger deficit.