US

USD and crude oil prices trimmed some of yesterday’s gains. USD/JPY continues to trade near the 160.00 intervention zone. USD/KRW and USD/IDR are also trading at levels likely to keep policymakers on high alert.

The Fed Beige Book reinforced the case that the US labor market is stabilizing and inflation is gaining traction. According to the Beige Book “Employment showed little to no change across eleven Districts, while one District experienced modest growth…Prices increased at a moderate to strong pace overall, with most Districts reporting higher inflation than the previous report.”

The ISM May surveys corroborated the Beige Book’s findings. The Prices Paid indices signaled inflation risks remain skewed to the upside while the Employment gauge was stable under the 50.0 boom/bust threshold.

Bottom line: A Fed funds 25bps rate hike by year-end to a target range of 3.75-4.00% is increasingly likely (75% priced-in) and supportive of a firmer USD.

Dallas Fed president Lorie Logan (FOMC voter) said yesterday, “I'm increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability.” Logan was one of the three regional Fed presidents (the other two are Beth Hammack and Neel Kashkari) that did not support the inclusion of an easing bias in the April 29 post-meeting statement.

Fed speakers today include: Richmond Fed President Tom Barkin (2027 voter), Fed Vice Chair for Supervision Michelle Bowman, San Francisco Fed President Mary Daly (2027 voter), and Kansas City Fed President Jeff Schmid (non-voter).

Revelio Labs non-farm employment is due today (1:30pm London, 8:30am New York). There is no consensus estimate for Revelio Labs employment, but in April it showed the economy added 66.4k jobs. According to Revelio Labs, its employment data has a 0.74 correlation coefficient with the policy-relevant non-farm payrolls survey.

SWITZERLAND

Switzerland May CPI inflation remained muted. Both headline and core CPI printed at 0.6% y/y and 0.3% y/y for a second straight month, respectively. Core CPI matched consensus. Headline CPI was a tick lower than expected (0.7%) and tracking a tick above the Swiss National Bank’s (SNB) Q2 forecast (0.5%).

Overall, inflation remains well within the range of price stability of less than 2% per annum. As such, the SNB can afford to keep rates at 0.00% for some time. The swaps curve price-in one 25bps rate hike to 0.25% in the next twelve months. USD/CHF has broken above its 200-day moving average (0.7907) and eyeing next important resistance at 0.8000.

SWEDEN

SEK outperforms most major currencies. Sweden May CPI inflation ran hot. CPIF rose 1.5% y/y (consensus: 1.3%) vs. 0.8% in April, while CPIF ex-energy increased 0.5% y/y (consensus: 0.3%) vs. 0.0% in April. Still, both CPIF and CPIF ex-energy and tracking below the Riksbank’s May forecast of 1.6% y/y and 0.9% y/y, respectively.

Sweden’s benign inflation backdrop alongside ample spare capacity in the economy argue for an extended Riksbank hold. As such, the swaps curve has room to adjust lower towards the Riksbank’s more subdued tightening path which remains a headwind for SEK.

In March, the Riksbank penciled in the policy rate to remain at 1.75% until Q4 2026, followed by a first full 25bps hike to 2.00% by Q1 2028. The swaps curve is more aggressive and price in 60bps of hikes in the next twelve months.

SOUTH KOREA

KRW is underperforming across the board, with USD/KRW surging to 1540.55, the highest level since March 2009. The slide in KRW largely reflects South Korea’s negative net energy balance and negative real rates. KRW is the second worst performing currency since the start of the Iran war on February 28.

South Korea vowed again today to curb excessive one-sided FX move. However, until the energy shock fades, FX intervention is more likely to slow KRW depreciation than unwind its massive undervaluation.

INDONESIA

USD/IDR rallied to a fresh record high above 18’000 and the Jakarta Stock Exchange Composite Index plunged to its lowest level since November 2020. The trigger is the potential erosion of Bank Indonesia’s (BI) independence.

Indonesia's parliament passed today a legislation that explicitly adds support for economic growth and job creation to the BI’s objective, alongside price and financial stability. This could tilt BI policy toward supporting President Prabowo's ambitious 8% real GDP growth target rather than focusing on inflation and the rupiah.

IDR and Indonesian equities sit at the bottom of their respective league table year-to-date undermined in part by a potential MSCI reclassification and cautious shift from debt rating agencies. The energy supply disruption triggered by the Strait of Hormuz blockade has amplified Indonesia’s financial market woes. Indonesia is a net crude oil importer with around 25% of its oil imports passing through the strait.

Bottom line: IDR undervaluation looks excessive relative to domestic fundamentals. But until the energy shock fades, IDR will remain under downside pressure.