Coming to America

June 19, 2026

Elias Haddad

Foreigner investors piled into US stocks and bonds in April. USD can edge higher.

UK could soon be on its fifth prime minister in just four years, its seventh since the Brexit vote ten years ago.

Japan underlying inflation remains subdued. BOJ not behind the curve in tightening policy.

Heads up: please note there will be no Daily or Weekly strategy reports over the next two weeks as I’ll be away on vacation. Publication will resume week of July 6.

US markets are closed for today’s Juneteenth holiday. Market risk sentiment soured as peace talks between the US and Iran in Switzerland were postponed due to renewed fighting between Israel and Hezbollah in Lebanon. USD pared back some of this week’s solid gains triggered by the FOMC hawkish hold.

Still, the dollar index (DXY) can edge higher. US-G6 two-year bond yields are consistent with DXY trading closer to 102.00 and US economic outperformance should keep rate differentials supportive of the dollar.

Moreover, underlying demand for USD remains strong. The US Treasury International Capital (TIC) data showed net foreign purchases of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds) increased by $206bn in April (the most since November 2025) vs. $96bn in March.

As a result, in the twelve months to April, foreign investors accumulated a record $1825bn of long-term US securities, eclipsing the -$719bn accumulated US trade deficit over the same period.

GBP/USD recovered after holding the line above its March 31 low of 1.3159. GBP/USD risks remain skewed to the downside, reflecting a stronger US growth outlook relative to the UK and the murky UK political backdrop.

Andy Burnham comfortably won yesterday’s Makerfield by-election, clearing a path for his return to parliament and a leadership challenge to Prime Minister Keir Starmer. A Burnham-led Labour government will likely lead to more spending and borrowing, worsening UK fiscal credibility.

As a background, a leadership contest can be triggered if the leader resigns or a challenger secures the backing of at least 20% of Labour MPs, currently equating to 81. Starmer said he was “not going to walk away” but he may be forced to step aside under pressure from MPs.

UK retail sales recovered more than expected in May supported by promotions and the hot weather. Total retail sales volumes rose 1.2% m/m (consensus: 0.5%) after falling -1.0% in April. Total retail sales, excluding automotive fuel, also increased 1.2% m/m (consensus: 0.3%) vs. -0.1% in April.

The swaps curve continues to price in a 25bps Bank of England (BOE) rate rise to 4.00% in November. Yesterday, the BOE left the policy rate unchanged at 3.75% for a fourth straight meeting (widely expected) while the hawkish dissent rose in line with consensus. The vote split was 7-2 compared with an 8-1 split at the last April 30 meeting. Megan Greene joined Huw Pill in supporting a 25bps hike. Catherine L Mann leaned for a hike but ultimately decided tightening could wait.

JAPAN

USD/JPY is holding above 161.00, and trading just shy of the multi-decade high of 161.95 reached on July 2024. In our view, the slump in crude oil prices takes some pressure off JPY and could help nudge USD/JPY lower to 155.00.

Japan May inflation remained contained, in line with consensus. Headline CPI rose +0.1ppt to 1.5% y/y, held in check by government subsidies on energy. Core CPI less fresh food printed at 1.4% y/y for a second straight month and core CPI less fresh food and energy dipped -0.1ppt to a multi-year low at 1.8% y/y. Both measures of core CPI are tracking well below the BOJ’s 2026 forecast of 2.8% and 2.6%, respectively.

Bank of Japan (BOJ) Deputy Governor Ryozo Himino warned today “there is a risk that underlying inflation could accelerate beyond the Bank’s 2% price stability target.” However, in April, four of the six BOJ measures of underlying CPI inflation continue to ease below 2%, one of the six is converging to 2%, and only one of the six (CPI ex. fresh food & institutional factors) is sticky above 2%. The BOJ will release the data for May early next week.

Bottom line: Japan’s benign underlying inflation backdrop suggests the BOJ is not behind the curve in tightening policy. The swaps curve price in nearly 50bps of hikes to 1.50% in the next twelve months, which looks broadly appropriate.

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