Related Insights
Market speculation of a currency accord weakening the USD has been rife, but the G7 Finance Ministers meeting in Banff did not mention any currency issues. Instead, the G7 communique underscored a need to address excessive imbalances, particularly those stemming from non-market policies and practices. In addition, Miran, Chair of US Council of Economic Advisers, had confirmed in a podcast that the US is not seeking to bring currency issues into trade negotiations, and he also underscored that Treasury Secretary Bessent made clear that the US will maintain a strong USD policy. Lesser speculation over US currency talks may provide an interim relief to the USD, though there is fiscal unease over proposed Republican tax cuts.
EUR/USD slipped below 1.13 after the Eurozone’s services PMI came in lower than expected at 48.9 for May, which is the lowest read since Jan 2024. Eurozone manufacturing PMI improved a tad to 49.4 for May (Apr:49.0), but it still marks a continuation of sub-50 contractionary readings that began in Jun 2022.
FX markets are also focussing on the ultra-long end of yield curves, with the US 30y yield having risen above 5%, and Japan 30y yield having spiked towards 3.20%, from just 2.30% at the start of the year. We believe that Japan’s ultra-long end sell-off is much more consequential for FX. Most US Treasuries lie under 7y maturity, in contrast to JGBs where most bonds are above 20Y maturity. Unless Japan’s long-term inflation expectations have risen by 1% in 5 months, the current surge in ultra long JGB yields marks a significant jump in the average real rate on offer in the JGB market. This should support an increased allocation to JGBs, encourage repatriation flows from Japanese asset managers, and further support a recovery in the JPY. With the JPY also seeing a positive carry against CHF, we see an opportunity to short CHF/JPY at 174.
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.