US

USD is extending its advanced against most currencies, eyeing the upper bound of its range dating back to June. Treasuries are pushing higher, US equity futures are up, and gold prices soared above $4000 per ounce for the first time ever.

The ongoing US government shutdown continues to see no resolution as both parties remain at an impasse. The longer the US government shutdown lasts, the greater the downside risks to the labor market as the White House raised the specter of a permanent downsizing of federal workers.

The September New York Fed consumer survey of inflation expectations released yesterday supports the Fed’s gradual easing cycle. Median inflation expectations at the one-year-ahead horizon rose 0.2pts to a five-month high at 3.4% and at the five-year-ahead horizon to 3.0% from 2.9% percent. They remained steady at the three-year-ahead horizon at 3.0%

The FOMC September 17-18 meeting minutes is due today (7:00pm London, 2:00pm New York) and will offer more context behind the “risk-management cut.” We anticipate the Fed to turn more dovish by the time of the December FOMC meeting because restrictive monetary policy can worsen the already fragile employment backdrop and upside risks to inflation are not materializing. Bottom line: USD downtrend is intact.

JAPAN

We expected USD/JPY to top-out around 151.00. We were wrong. Instead, USD/JPY easily punched through key resistance levels to hit an 8-month high just under 153.00 and setting the stage for a test of 155.00. Weighing on JPY is the pro-stimulus agenda of Sanae Takaichi, who’s set to become Japan’s next prime minister.

Moreover, Japan’s August cash earnings data was soft and argues for a cautious Bank of Japan (BOJ) normalization cycle. Nominal cash earnings fell more than expected to a three-month low at 1.5% y/y (consensus: 2.7%) vs. 3.4% in July (revised down from 4.1%) while the less volatile scheduled pay growth for full-time workers remained subdued at 2.4% y/y for a second consecutive month (consensus: 2.5%). Overall, Japan wage growth is not a source of significant inflation pressures given annual total factor productivity growth of about 0.7%.

Nonetheless, we are sticking to our view that the BOJ will resume raising rates at the upcoming October 30 meeting. Japan’s Tankan business survey points to an ongoing recovery in real GDP growth and underlying inflation is making good progress towards the BOJ’s 2% target. The swaps market price-in less than 30% odds of a 25bps rate hike to 0.75% in October.

NEW ZEALAND

NZD underperformed and NZD/USD plunged 1% to a six-month low near 0.5740. The RBNZ delivered a jumbo cut which was only 40% priced-in. The RBNZ slashed the Official Cash Rate (OCR) 50bps to 2.50% and stressed it “remains open to further reductions in the OCR.” According to the RBNZ, “prolonged spare capacity and the associated downside risk to medium-term activity and inflation” supported the case for a 50bps cut.

In August, the RBNZ projected the OCR to settle around 2.50%. The next forecast update is due November 26, but today’s dovish guidance points to an OCR through closer to the lower bound of the RBNZ’s estimated neutral range (1.60%-4.20%). Indeed, New Zealand’s swaps curve shifted lower, implying an OCR bottoming around 1.75% over the next twelve months (vs. 2.25% previously).

SWEDEN

SEK ignored Sweden’s September CPI print. Inflation was softer than expected in September but roughly in line with the Riksbank’s projection. CPIF dipped 0.1pts to 3.1% y/y (consensus: 3.2%, Riksbank: 3.0%) and CPIF ex-energy fell 0.2pts to a four-month low at 2.7% y/y (consensus: 2.8%, Riksbank: 2.7%).

According to the Riksbank, indicators currently point to historically normal inflationary pressures close to 2%. That supports the bank’s forecast for the policy rate to remain at 1.75% until Q3/Q4 2026. Bottom line: the fundamental downtrend in USD/SEK is intact as the Fed delivers more rate cuts while the Riksbank is done easing.

EUROZONE

EUR/USD broke below its 100-day moving average (at 1.1629) on broad USD strength with the next support levels offered at 1.1575 and 1.1500. Outgoing French Prime Minister Sebastien Lecornu struck a cautiously optimistic tone this morning. Lecornu said “there is a desire to have a budget for France before Dec. 31” which make the possibilities of a dissolution of parliament more remote. He plans to speak again this evening.

THAILAND

THB had a kneejerk upswing. Bank of Thailand (BOT) unexpectedly left the policy rate unchanged at 1.50%. Only six of 26 economists surveyed by Bloomberg had no change penciled-in, the rest expected a cut. The Committee voted 5 to 2 to hold with the two dissenting members supporting a 25bps cut.

The bank signaled a pause to the easing cycle which bodes well for THB. The statement noted that “the transmission of previous policy rate cuts to the economy is ongoing” (100bps of cuts since October 2024) while most committee members saw “limited policy space.” Still, the swaps market price-in a total of 50bps of cuts over the next 12-month and policy rate to bottom at 1.00%.

POLAND

National Bank of Poland (NBP) policy rate decision is today, and expectations are split. 62% of analysts polled by Bloomberg anticipate NBP to keep rates steady at 4.75%, the rest have a 25bps cut penciled-in. We expect NBP to deliver a follow-up 25bps cut to 4.50%.The electricity price freeze was formally extended into Q4, which Governor Adam Glapinski previously said would likely trigger another cut as soon as in October.

Moreover, Poland headline CPI surprised to the downside in September (actual: 2.9% y/y, consensus: 3.0%, prior: 2.9%), and wage growth dropped 0.5pts to 7.1% y/y in August, the slowest annual pace since February 2021. The swaps market is pricing in 50-75bps of total easing over the next 12 months that would see the policy rate bottom near 4.00%.

ROMANIA

Romania central bank is widely expected to keep rates unchanged for a nineth straight meeting at 6.50% today. CPI rose to more than a two-year high at 9.9% y/y in August vs. 7.8% in July driven by tax hikes and higher electricity prices. Still, Governor Mugur Isarescu emphasized “We probably won’t need to hike rates by the end of the year to tackle this spike.” Indeed, the central bank projects inflation to fall sharply to 3% at the end of 2026.