The dollar is broadly weaker as the new week begins. DXY is trading lower for the second straight day near 99.677 after three straight up days last week. USD/JPY is trading lower near 143.90 after Kato walked back his comments on Japan’s UST holdings (see below). Elsewhere, the euro is trading higher near $1.1345 and sterling is trading higher near $1.3305. We continue to view any dollar relief rallies with skepticism, with last week’s gains unlikely to be sustained no matter how the U.S. data come in. For instance, the firm jobs report has pushed out Fed easing expectations and yet the dollar is softer.
AMERICAS
The U.S. economy remains resilient. Despite expectations of a far weaker number, BLS reported that 177k jobs were created in April. This was the first hard data to potentially reflect the tariff impact and the overall readings suggest that the economy remains on relatively solid footing. As a result, Fed easing expectations have been pushed out. Odds of a May cut have fallen to less than 5%, rising to around 35% in June and remain fully priced in for July. With the 90-day pause in reciprocal tariffs set to end in early July, even that month seems too soon for a cut given the ongoing uncertainty regarding the tariff impact. Looking ahead, the swaps market is pricing in 100 bp of total easing over the next 12 month, down from 125 priced in last week. Yet that has not helped the dollar, which is continuing its losing streak today.
Data highlight will be April ISM services PMI. Headline is expected at 50.3 vs. 50.8 in March. If so, it would be the lowest since June 2024 and nearing the key 50 boom/bust level. Keep an eye on prices paid, which is expected at 61.4 vs. 60.9 in March. Employment is expected to fall two ticks to 46.0. The regional Fed ISM services prints point to downside risk. Of note, S&P Global services PMI fell 3 points to 51.4 in April.
The Q2 growth outlook is mixed. The Atlanta Fed GDPNow model now has Q2 growth at 1.1% SAAR vs. the initial estimate of 2.4%. It will be updated tomorrow after the data. Elsewhere, the New York Fed Nowcast model has Q2 at 2.3% SAAR and will be updated Friday and its initial Q3 estimate will come at the end of May. For those keeping score at home, the gold-adjusted Atlanta Fed GDP model’s Q1 estimate of -1.5% SAAR was the closest to the actual initial Q1 reading of -0.3%, and that gold-adjusted model is now the standard one.
Canada April PMIs will also be reported. S&P Global services and composite PMIs will be reported today. Last week, its manufacturing PMI came in at 45.3 vs. 46.3 in March. Ivey PMI will be reported tomorrow.
EUROPE/MIDDLE EAST/AFRICA
Switzerland April CPI data ran cool. Headline came in two ticks lower than expected and was flat y/y vs. 0.3% in March, while core came in two ticks lower than expected at 0.6% y/y vs. 0.9% in March. For reference, the Swiss National Bank projects headline CPI inflation to average 0.3% in Q2 and 0.4% for all of 2025. At its last March 19 meeting, the SNB trimmed the policy rate 25 bp to 0.25%. President Schlegel highlighted that “this rate cut has an expansionary impact…In that sense, the probability of additional policy easing is naturally lower.” However, the downside risk to Switzerland’s economy from trade policy uncertainty and CHF outperformance in recent months have raised odds of more SNB rate cuts. The market has fully priced in a 25 bp cut at the June 19 meeting, along with 35% odds of a larger 50 bp move.
Turkey reported mixed April CPI data. Headline came in at 37.86% y/y vs. 38.80% expected and 38.10% in March, while core came in at 37.12% y/y vs. 36.85% expected and 37.42% in March. While the y/y rate for headline continues to fall, the m/m rate picked up for the third straight month. At the last meeting April 17, the central bank delivered a hawkish surprise and hiked rates 350 bp to 46.0% vs. no change expected. It noted that “Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.” Next meeting is June 19 and we lean towards a hold. However, the decision then will depend on both internal and external developments over the next month or so.
ASIA
Japan Finance Minister Kato walked back his comments on USTs. Specifically, he said “We are not considering the sale of US Treasuries as a means of Japan-US negotiations.” Last week, Kato said “It does exist as a card. Whether or not we use that card is a different decision.” This sort of threat is always a double-edged sword. Japan is the single largest holder of USTs at $1.126 trln. China is second with $784 bln. Threatening to dump an asset of which it is a major holder means that Japan can hurt itself in the process.
Australia Prime Minister Albanese and his Labor Party won the weekend election. The victory was noteworthy for being the largest win for Labor since 1946, as well as the being the first time any Australian leader won consecutive elections in over 20 years. Voters chose stability and continuity during a time of heightened global risks. As such, the election outcome is unlikely to drastically reshape the policy outlook in Australia. President Trump said that he was “very friendly with Albanese,” while Albanese said that he had a “very warm and positive” conversation with Trump during a congratulatory call.
The Taiwan dollar continues to surge. The central bank aggressively intervened last week but reports suggest it has not been so active today. There are several possible factors behind the exaggerated moves, including increased hedging activity by local investors as well as increased exporter repatriation of USD holdings, both on speculation that a stronger TWD will be part of any trade deal with the U.S. However, Taiwan officials stressed that the first round of tariff talks last week did not touch upon the exchange rate. Stay tuned.
