US
Crude oil prices are firmer as confidence in a swift reopening of the Strait of Hormuz continues to fade. President Donald Trump warned yesterday “I would say the ceasefire is on massive life support…with only a 1 per cent chance of living”. USD is up against most major currencies. Energy-sensitive NOK is the outperforming outlier.
USD can extend recent gains in the near-term. Stabilizing US labor demand and anchored long-term inflation expectations tilt the macro narrative back toward Goldilocks rather than stagflation. Overall, we expect the dollar index (DXY) to remain anchored within its nearly one year 96.00-100.00 range in the next few months.
US April CPI takes the data spotlight today (1:30pm London, 8:30am New York). Headline and core inflation are expected to quicken to 3.7% y/y (vs. 3.3% in March) and 2.7% y/y (vs. 2.6% in March), respectively. Higher gasoline prices and a one-off statistical upside boost to owners’ equivalent rent (26% of CPI basket) to correct for shutdown-related missing data from October 2025 are seen keeping inflation hot in April.
As such, CPI less food, shelter & energy and the Cleveland Fed 16% trimmed-mean CPI will provide a cleaner read on the underlying US inflation backdrop. Both measures are running close to the Fed’s 2% target.
UK
GBP and UK government bonds are underperforming their major peers. Pressure on UK Prime Minister Keir Starmer to resign has increased. 78 of Labour’s 403 MPs, just below the 81 MPs needed to trigger a leadership contest, have called on the prime minister to step aside. Meanwhile, junior minister Miatta Fahnbulleh quit Starmer’s government and urged him to “set a timetable for an orderly transition.”
The growing backlash against Starmer is not surprising as he’s the most unpopular British prime minister since record began, even worse than Liz Truss’s 49-day in office. Starmer indicated again this morning he intends to stay in office, telling his cabinet he will “get on with governing.”
Regardless, with or without Starmer, the governing Labour Party faces an uphill battle to restore fiscal credibility. UK nominal GDP growth is tracking below 10-year gilt yields, making stopping debt growth very difficult.
For markets, the bigger question is succession risk. A tilt further left (Angela Rayner or Andy Burnham) would intensify fiscal concerns, while a more centrist replacement (Wes Streeting) could limit the damage. Until then, political uncertainty risks weighing on both GBP and gilts.
See here for a primer on a Labour Party leadership contest.
JAPAN
USD/JPY rebounded to 157.75 after testing a two-month low near 155.00 last week, with 160.00 remaining the major line in the sand on the topside. The Bank of Japan (BOJ) Summary of Opinions from the April 27-28 board meeting did not move the needle on rate hike expectations. The swaps market continues to price-in about 75% odds of a 25bps BOJ rate hike to 1.00% next month.
The April Summary of Opinions reflected the 6 hold-3 hike votes split while signaling a lower bar to raise rates. One member noted “it is quite possible that the Bank will raise the policy interest rate” at the next June 16 meeting. Another key quote was “the Bank should raise the policy interest rate soon.”
Japan's Finance Minister Satsuki Katayama was deliberately vague on whether intervention took place on April 30 and May 6. Katayama said “regarding recent currency moves, we confirmed that Japan and the US have been coordinating very well and have maintained close communication.”
We suspect the latest intervention on was around ¥5 trillion based on the 2024 playbook – the last time the MOF/BOJ intervened to curb JPY weakness - and scale of USD/JPY pullbacks. The MOF’s report on Foreign Exchange Intervention Operations for April 28 through end-May will be released on May 29.
