The dollar index (DXY00) today is up by +0.07% and just below Wednesday's 1-week high.  The dollar garnered support from today's US existing home sales report, which showed sales rose to a 7-month high.  Also, higher T-note yields today strengthened the dollar's interest rate differentials.  In addition, weakness in the yen is benefiting the dollar, as the yen fell to a 1.5-week low today on concerns that new Japanese Prime Minister Takaichi will advocate a less hawkish monetary policy.  Gains in the dolla ...

Group 1: Dollar Index and Economic Impact - The dollar index rose by +0.39% to a 1-week high, driven by the resignation of French Prime Minister Lecornu, which negatively impacted the euro, and a significant drop in the yen following the election of pro-easy policy candidate Sanae Takaichi as Japan's new prime minister [1][6] - The ongoing US government shutdown, now in its second week, poses a bearish outlook for the dollar, with potential stagnation in GDP growth if the shutdown continues [2] Group 2: Eurozone Economic Indicators - The EUR/USD pair fell by -0.26% to a 1-week low, influenced by political instability in France after Prime Minister Lecornu's resignation, which raised uncertainty about the Eurozone's economic outlook [4] - Eurozone retail sales for August increased by +0.1% month-over-month, aligning with expectations, while the October Sentix investor confidence index rose by +3.8 to -5.4, surpassing expectations of -7.7 [5] Group 3: Japanese Yen and Monetary Policy - The USD/JPY pair increased sharply by +1.89%, with the yen reaching a 2-month low against the dollar due to Takaichi's election, which diminished expectations for an imminent interest rate hike by the Bank of Japan and raised concerns over increased debt supply from fiscal stimulus [6]

Group 1: Dollar Index and US Labor Market - The dollar index (DXY00) recovered from early losses and is up by +0.23%, supported by higher T-note yields which strengthened the dollar's interest rate differentials [1] - The dollar initially declined due to the US government shutdown and signs of weakness in the labor market, with a report indicating that US employers have cut the most jobs this year since 2020 [2] - US September Challenger job cuts fell by 25.8% year-on-year to 54,064, with a total of 946,426 job cuts announced this year, the highest for the same period since 2020 [3] Group 2: Eurozone Economic Indicators - The EUR/USD pair is down by -0.17%, influenced by the dollar's rebound and an unexpected increase in the Eurozone's August unemployment rate [4] - The Eurozone's August unemployment rate rose by +0.1 to 6.3%, indicating a weaker labor market than expected [5] - ECB Governing Council member Kazaks stated that current ECB interest rates are appropriate, suggesting a pause in rate cuts [6] Group 3: Japanese Yen and Economic Outlook - The USD/JPY pair is up by +0.09%, with the yen losing overnight gains as T-note yields rose [7] - The Japanese consumer confidence index for September rose to a 9-month high, initially supporting the yen [7] - BOJ Deputy Governor Uchida indicated that the BOJ will continue to raise interest rates if the economic outlook improves, pushing the Japanese 10-year bond yield to a 17-year high of 1.674% [7]

Group 1 - The dollar index (DXY) recovered from a 1.5-month low, rising by +0.36% due to higher T-note yields strengthening interest rate differentials and sparking short covering in the dollar [1] - Preliminary benchmark payroll revisions indicated a loss of -911,000 jobs through March 2025, exceeding expectations of -700,000, signaling a weaker US labor market [3] - Markets are now pricing in a 9% chance of a 50 basis point rate cut at the upcoming FOMC meeting on September 16-17, with a 75% chance of a second -25 basis point cut at the October 28-29 meeting, leading to an overall -73 basis point cut in the federal funds rate by year-end [4] Group 2 - The EUR/USD fell by -0.50% due to a rebound in the dollar, with the euro pressured by a significant decline in French manufacturing production [5] - French July manufacturing production decreased by -1.7% month-over-month, worse than the expected -1.2% and marking the largest decline in 14 months [6]

Summary of G10 FX Strategy Conference Call Industry Overview - The conference call focuses on the G10 foreign exchange (FX) market, analyzing various currencies and their economic indicators, flows, positioning, and drivers. Key Points by Currency US Dollar (USD) - **View**: Bearish - **Core Argument**: A compression in rate differentials and a USD-negative risk premium are the main drivers behind the bearish outlook on USD. The convergence of US and rest-of-world (RoW) rates, along with increased risk premium due to higher FX hedging, is expected to weigh on USD, especially as Federal Reserve (Fed) cuts materialize [21][2][64]. - **Current Account**: The US current account deficit stands at 4.6% of GDP, driven by high consumption and government spending, indicating a widening trend [69]. Euro (EUR) - **View**: Bullish - **Core Argument**: EUR/USD is expected to maintain an uptrend due to US rate convergence and increased FX hedging by investors. Political risks remain a significant factor to monitor [3][22]. - **Current Account**: Europe's current account surplus has recently declined, primarily due to changes in the income balance [108]. British Pound (GBP) - **View**: Bullish - **Core Argument**: GBP benefits from a high carry-to-volatility ratio, making GBP/USD a key expression of USD weakness, particularly if Fed and Bank of England (BoE) rates diverge [4][23]. - **Current Account**: The UK's current account deficit has stabilized but is financed by more volatile 'other investment' [150]. Japanese Yen (JPY) - **View**: Bullish - **Core Argument**: JPY appears undervalued against its implied fair value due to speculative short positioning amid resilient risk sentiment. However, weak US data could alter this outlook [5][24]. - **Current Account**: Japan's current account remains positive, with a narrowing trade deficit [190]. Swiss Franc (CHF) - **View**: Neutral - **Core Argument**: A bearish skew is maintained due to an unfavorable carry profile, but concerns over US tariffs are seen as overblown, providing some near-term support for CHF rates [6][25]. - **Current Account**: Switzerland's current account surplus remains high, driven by a strong goods surplus [230]. Norwegian Krone (NOK) - **View**: Neutral - **Core Argument**: A bearish skew is retained due to a significant oil surplus expected in 4Q25 and 1Q26, alongside a lower trough rate for Norges Bank than currently priced [7][261]. - **Current Account**: Norway's current account surplus continues to benefit from oil and gas exports, although it has decreased from recent highs [267]. Swedish Krona (SEK) - **View**: Neutral - **Core Argument**: A near-term headwind is expected from a potential Riksbank cut, but medium-term factors suggest strength for SEK [8][298]. - **Current Account**: Sweden's current account surplus is recovering, supported by trade and income balance [304]. Australian Dollar (AUD) - **View**: Bullish - **Core Argument**: Re-accelerating CPI raises the likelihood that the market will not price a sub-3.5% RBA trough rate, maintaining attractive carry [9][334]. - **Current Account**: Australia's current account has shifted to a deficit recently due to increased goods imports [338]. New Zealand Dollar (NZD) - **View**: Neutral - **Core Argument**: The RBNZ's trough rate pricing has decreased to 2.5%, reflecting a slow recovery from a deep growth hole compared to late 2021 [10][376]. - **Current Account**: New Zealand's annual current account deficit has been narrowing since peaking in 2022 [381]. Additional Insights - **Market Positioning**: Options data indicate that the market is most long SEK and most short JPY, with significant CHF shorts and EUR longs [45]. - **Inflation Trends**: Core inflation has slightly re-accelerated in Australia, the UK, and Sweden, which could influence monetary policy decisions [60]. - **Monetary Policy Expectations**: The Fed is expected to resume its cutting cycle, while the ECB's terminal rate is anticipated to be lower than consensus forecasts [92][132]. This summary encapsulates the key insights and projections regarding the G10 currencies, highlighting the macroeconomic factors influencing their performance and positioning in the FX market.