Good morning
Today, the focus shifts to the April US jobs report. So far this week, labour market data has consistently surprised to the downside, with both JOLTs job openings and the ADP report falling short of expectations, and jobless claims rising to their highest level since February. That said, yesterday's ISM manufacturing print was stronger than feared. We forecast nonfarm payrolls at +130k in April, broadly in line with the consensus. If confirmed, market reaction is likely to be muted. However, in the event of a meaningful surprise, the market response could be more pronounced - notably the skew in Bloomberg survey estimates toward a weaker print.
The April inflation print for the Eurozone will be closely watched today. With regional inflation data from France, Spain, and Germany all surprising to the upside relative to consensus, the aggregate euro area HICP is also likely to come in slightly higher.
The USD index is holding just below the 100 level despite a pick-up in treasury yields. US Treasuries sold off sharply in yesterday's session following a stronger-than-expected ISM manufacturing release. The 2Y yield rose 9bp, outpacing the 5bp and 3bp increases in the 10Y and 30Y, respectively - reflecting clear front-end underperformance amid renewed pricing of a more hawkish Fed. Markets now price in 92bp of rate cuts for the remainder of the year, down from 102bp previously.
EUR/USD is holding around the 1.13 level, with the USD stabilising this week as some of the risk premium unwinds from US asset markets and the greenback. Positive risk sentiment is supported by stronger-than-expected tech earnings and signs that the Trump administration is stepping back from its most aggressive tariff threats. The key question is whether this trend can persist or if another policy-driven shock lies ahead.
EUR/GBP edged modestly lower overnight, hovering around 0.8490 after posting gains in the previous two sessions. GBP has found support amid growing optimism that the UK could secure a trade agreement with Washington.
USD/JPY edged higher above 145, with the JPY weakening against all other G10 currencies following the BoJ's dovish hold. Positioning remains against the JPY, as speculative longs have been stretched for some time - making an unwinding of these positions the primary near-term risk to further JPY appreciation. That said, it’s difficult to see a case for a gradual move lower in USD/JPY over the medium term. Beyond narrowing rate differentials between Japan and other G10 economies, the JPY also stands to benefit from repatriation flows and safe haven demand amid persistently elevated uncertainty around the global economic outlook.
There are emerging signs of a tariff-induced slowdown in trade with the US, which could put some renewed pressure on Asian currencies, especially those with heavy reliance on trade. South Korea’s exports to the US fell 6.8%y/y in April, dragged down by declines in exports to the US of autos (-16.6%y/y), semiconductors (-31%y/y), and machinery (-22.6%y/y). Container traffic from China to US have also collapsed since mid-April.
Asian trading volumes still remained muted due to a number of holidays in the region. Chinese markets remained closed and will open only on the coming Tuesday.
Still, the Chinese yuan rallied overnight with USD/CNY and USD/CNH pair’s falling 0.3% to 7.2714 and 7.2557 respectively. Chinese officials also confirmed state media reports that U.S. officials had reached out to China over trade talks, although there were no ongoing negotiations.
The Australian dollar – considered a key gauge of risk appetite in Asia - AUD/USD pair added 0.6% to $0.6415, despite mildly weaker-than-expected retail sales data.
The Taiwan dollar was a standout performer, USD/TWD fell sharply by 2.7% to its lowest level in nearly 14 years around 31.298. The currency was boosted chiefly by hopes of improving U.S.-China ties, given Taiwan’s heavy exposure to both economies, while a string of positive U.S. tech earnings stood to boost Taiwan’s chip exports.
