US

Brent crude oil prices are little firmer but holding under $100 a barrel. The MSCI world stock index rose to a record high, long-term sovereign bond yields are modestly lower across major economies, and the dollar recovered yesterday’s losses.

Markets continue to look beyond the IMF’s gloomier growth forecast and trading the recovery narrative. We agree. After all, Wayne Gretzky did famously say to “skate where the puck is going to be, not where it has been.” The US “Open for All or Closed to All” approach to navigation for vessels transiting the Strait of Hormuz is more likely to accelerate a reopening of that crucial waterway because shared economic pain raises the incentives for all parties to reach a workable diplomatic off-ramp.

We don’t expect USD to make new cyclical lows in the next few months. Interest rate differentials between the US and other major economies continues to keep the DXY (USD index) anchored within its nearly one-year 96.00-100.00 range.

Moreover, foreign demand for US long-term securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds) remains strong. The US Treasury International Capital (TIC) data showed that in the twelve months to February, foreign investors accumulated $1615bn of long-term US securities. While down from the record high of $1656bn in January, the amount still dwarfs the -$776bn accumulated US trade deficit over the same period.

Nevertheless, we expect foreign appetite for US long-term securities to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That’s pure balance of payments mechanics and is a structural drag on USD.

The April Fed Beige Book struck a measured tone. “Overall economic activity increased at a slight to modest pace…On balance employment was steady to up slightly…Price growth mostly remained moderate overall…” However, the Beige Book stressed that “The conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making around hiring, pricing, and capital investment, with many firms adopting a wait-and-see posture.”

Fed funds futures imply 45% probability of a 25bps cut by year-end to 3.25-3.50%. Our base case is for the Fed to deliver one cut by year-end, in line with the FOMC’s projection. The US labor market is mixed with risk skewed to the downside, consumer spending is almost flat in the first two months of the year, and wages are growing in line with the Fed’s 2% inflation goal given productivity growth of 2%.

Second-tier US economic data is due today: April New York Fed services business activity, weekly initial jobless claims, April Philadelphia Fed business outlook, and March industrial production. New York Fed president John Williams gives keynote remarks.

JAPAN

USD/JPY recovered back above 159.00 after a kneejerk drop to near 158.30 overnight. Japanese officials issued fresh warnings of possible intervention to support JPY. Finance Minister Satsuki Katayama emphasized she was prepared to take “bold action” to support the yen following discussions with US Treasury Secretary Scott Bessent yesterday. In parallel, Japan’s FX chief Atsushi Mimura confirmed that they are working with the US on the FX market at the deputy level.

We remain constructive on JPY. First, worries over Japan fiscal profligacy are overdone given that growth comfortably exceeds borrowing costs. Second, Japan’s mix of loose fiscal policy and tighter monetary policy is JPY positive.

The BOJ’s next policy rate decision is on April 28 and will include the Outlook Report. Our base case is for the BOJ to deliver a 25bps rate hike to 1.00% at that meeting (20% priced-in) given Japan’s positive output gap (0.45% in Q3 2025) and solid results from the latest spring wage talks.

UK

GBP/USD is lower after testing a two-month high near 1.3600. UK real GDP growth overshot expectations in February. The economy grew 0.5% m/m (consensus: 0.1%) vs. 0.1% in January (revised up from 0%) driven by all three sectors. Services output rose by 0.5%, production rose by 0.5%, and construction rose by 1.0% in February.

However, the UK economic outlook is poor. In fact, the IMF slashed UK 2026 GDP growth forecast by -0.5pts to 0.8% (the biggest downward revision within the G7) reflecting the war and a slower pace of monetary easing.

Provided the worst of the energy shock is behind us, BOE rate hike bets can ease further against GBP given the UK’s negative output gap (-1% of potential GDP, according to BOE estimates). The UK swaps curve still price in hikes over the next twelve months (30bps, down from a high of 100bps a month ago).

AUSTRALIA

AUD/USD rallied towards key resistance at 0.7200 before giving back some of its gains. Australia’s March jobs report was good and backs additional RBA rate hikes. The economy added +17.9k jobs (consensus: +20k) vs. 49.7k in February driven entirely by full-time employment (+52.5). The unemployment rate was steady at 4.3% for a second straight month, in line with the RBA’s 2026 projection.

At its last March 17 meeting, the RBA delivered a back-to-back 25bps cash rate target hike to 4.10% in a narrow 5-4 vote. The four dissenters wanted a hawkish hold, citing in part uncertainty surrounding the extent of tightness in the labor market. The latest labor force report reduces that uncertainty and raises the likelihood of a follow-up 25bps rate hike to 4.35% at the next May 5 policy decision (72% priced in, vs. 65% yesterday). Bottom line: AUD/USD has room to edge higher, with 0.7500 a reasonable target by year-end.

CHINA

USD/CNH is a figure higher after dropping to fresh cyclical lows around 6.8100 earlier this week. China real GDP grew a bit less than expected over Q1. The economy expanded 1.3% q/q (consensus: 1.4%) vs. 1.2% in Q4, tracking China’s 4.5% to 5% growth target for 2026. China’s growth target is a government-set growth goal used as a policy tool to guide economic/social planning rather than a reflection of underlying supply and demand dynamic. That means the quality and sources of China’s growth is more relevant for investors.

From that perspective, China’s long-term economic health remains weak. Net exports continue to be the main growth engine, consumer spending is struggling to gain traction, and fixed-asset investment remains a drag. However, continued CNH appreciation can help the country stimulate consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact.