Good morning
The big global macro development this week has certainly been the sharp rise in longer-end yields in developed markets, and in particular out of US and Japan. Part of this is driven by concerns around the long-term trajectory of the fiscal deficit and debt in the US. On that front, the House narrowly passed President Trump’s Big Beautiful tax bill yesterday with a 215-214 vote, which would extend Trump’s first-term tax cuts, while raise the US debt ceiling by $4 trillion. The Congressional Budget Office estimates that annual deficits will rise by north of $500bn annually, while the impact of the tax bill to households will be highly regressive with the benefits flowing to the top 10% with the lowest 10% of income seeing 4% decline in incomes annually. The bill now moves to the Senate, where passage may face greater challenges and could take weeks.
The USD index fell 0.3% in Asia hours to 99.61 and was set to fall more than 1% for the week. US yields initially rose yesterday but staged a reversal from late afternoon with the 10-Y UST moving from a peak of 4.62% to 4.52% and the 30-Y UST from a peak of 5.15% yesterday to 5.04%, trading sideways overnight.
Today's data calendar is light in terms of tier 1 events. ECB will release Q1 data for its measure of negotiated wages, while we will get some US housing data (sales/permits) for April. ECB's Lane will hold a public lecture on 'inflation and disinflation' before noon, and FOMC-chair Powell will speak in the evening.
EURUSD has again moved above the 1.13-level at 1.1313 overnight after touching below 1.1260 at one point yesterday.
GBP/USD is trading once again with a firmer bias above $1.3450. UK retail sales for April were much stronger than expected, even considering the downward revisions for March. Sterling shrugs though. EUR/GBP holds steady north of 0.841. UK markets are also closed on Monday.
USD/JPY eased 0.4% overnight to 143.52. Japan’s core consumer inflation accelerated to 3.5%y/y in April 2025, surpassing market expectations of 3.4% and marking the fastest pace in over two years. Core CPI, which excludes both fresh food and energy, also edged up to 3.0% in April from 2.9% in March. This metric is closely monitored by the BOJ as it provides insights into underlying inflation trends. The recent acceleration in inflation coincides with substantial wage hikes secured during Japan’s spring labour negotiations. In response to these developments, analysts are increasingly anticipating that the BOJ may consider another interest 25bp rate hike by July.
Asia FX has also strengthened despite the grind higher in US 10-year yields thus far. Some of this is driven by country-specific factors such as the sharp rise in the Taiwan Dollar but also driven by expectation of trade and FX deals. Whether this divergence can continue will likely be determined by future trajectory of tariffs and also whether the extent of US yields increase increasingly constrain growth and global risk sentiment.
USD/CNH and USD/CNY were both trading marginally lower down 0.1% at 7.1969 and 7.2007 respectively.
AUD/USD pair rose 0.3% to around $0.6438, USD/SGD pair edged down 0.2% to 1.2891, while USD/INR lost 0.1% to 85.725.
| Interest Rate Swaps | EUR | USD | GBP |
| 3Y | 2.09 | 3.69 | 3.83 |
| 5Y | 2.28 | 3.72 | 3.91 |
| 10Y | 2.61 | 3.98 | 4.23 |
