USD rally expected if PM Takaichi wins decisive victory

Matthew Ryan, CFA Ebury

“The dollar has posted mild gains against its peers this week as investors react to the latest sell-off in US tech stocks in typical fashion - by flocking to safe-haven assets such as the greenback.

“Global stock markets have suffered their latest weekly drop since November amid renewed fears that the recent splurge in AI spending will not deliver the gains in productivity that had been expected.

“Recent history would suggest that these bouts of AI related jitters prove short-lived, and the correction in US equities that we’ve seen so far remains contained for now. Today’s nonfarm payrolls report has been delayed until Wednesday, and Wednesday’s inflation report now won’t be released until next Friday as a result of the temporary federal closure.

“Focus this weekend will be on the outcome of Japan’s election, which will have implications for both the yen and, by extension, the US dollar.

“We think that a decisive victory for PM Takaichi could amplify fears over greater fiscal spending and the debt risk premium, which could trigger a fresh sell-off in the yen and a mechanical rally in the dollar.”

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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