Good morning
The US Dollar strengthened while most Asian currencies across the board weakened including the Japanese Yen, with USD/JPY rising above 144 yesterday. The key immediate driver both from a global FX and rates perspective was news the Japanese Ministry of Finance may adjust debt issuance following a sharp rise in longer-end JGB yields, with MOF reported to send a questionnaire to market participants asking for their views on issuance and the current market situation. This sparked a meaningful global bond rally, with JGB 30-year yield falling sharply to below 2.9% from 3.2%, and US 30-year yields fell to 4.96% from 5.15% at its most recent local peak.
The soft data out from the US yesterday including stronger than expected US consumer confidence and better Dallas Fed Manufacturing Index do point to some improvement in at least sentiment and especially post the recent moves to both pause Liberation Day tariffs for 90-days and the recent US-China tariff pause. However, US growth should still slow down, and inflation should still pick up, even if tail risks of a sharp global recession have been reduced from tariff pause.
The USD rebounded together with equity markets yesterday as the worst trade war fears in the market calmed further. The USD index rose 0.3% in Asia hours to 99.78 after strong gains a day earlier. The main focus today will be the release of the May 7 FOMC meeting minutes.
EUR/USD fell back toward the 1.1310 level. While the Eurozone PMI deteriorated in May, the European Commission’s economic sentiment indicator released yesterday actually picked up a bit compared to the April reading (up from 93.8 to 94.8). This was mainly due to a slightly more upbeat consumer, but industry sentiment also ticked up again.
GBP/USD has seen a few sellers emerge around the $1.3480 level. Traders suggest the bullish tone remains intact with the first upside target seen around $1.3550.
USD/JPY posted further gains overnight up 0.2% to 144.67 with the yen under some selling pressure. This came after a Reuters report stated that Japan’s Ministry of Finance is considering adjusting its government bond issuance plans for the current fiscal year, potentially reducing sales of super-long debt. Yields on 20-, 30-, and 40-year Japanese government bonds had climbed to record highs before the report, driven by waning demand from key institutional investors such as life insurers.
Traders remain biased to take the opportunity to go long some Asian currencies with good domestic stories such as India and the Philippines, and to a smaller extent Indonesia.
AUD/USD was steady around $0.6428 after trimming earlier losses as data showed that consumer inflation came in higher than expected for April, casting doubt over future interest rate cuts by the Reserve Bank of Australia.
Meanwhile, the Reserve Bank of New Zealand cut interest rates by 25bp to 3.25% as expected amid global trade tensions and subdued domestic growth. The Minutes of the RBNZ interest rate meeting suggested that inflation is within the target band. The central bank projected the OCR to be at 3.12% in September 2025 and at 2.87% in June 2026, increasing the likelihood of more rate cuts. NZD/USD pair rose 0.4% to $0.5954.
Elsewhere, USD/KRW was largely steady around 1,375.39, while USD/SGD posted modest gains of 0.1% to 1.2899.
The Indian rupee’s USD/INR pair rose 0.3% to 85.572.
| Interest Rate Swaps | EUR | USD | GBP |
| 3Y | 2.03 | 3.64 | 3.83 |
| 5Y | 2.20 | 3.66 | 3.88 |
| 10Y | 2.51 | 3.89 | 4.16 |
