USD: Quieter bond markets should calm things – ING

How to categorize the first three trading days this week? Monday saw sharp intra-day FX swings on speculation over incoming US tariffs. Tuesday saw Trump's wide-ranging press conference espousing expansionist US foreign policy (including more tariff threats). And Wednesday saw this week's Treasury market sell-off (helped by a couple of poor auctions) lead to broader financial market volatility – enough to shake out long sterling positions, ING FX analyst Chris Turner notes.

Next big move only coming on tomorrow's payrolls

“The good news for those seeking a little calm is that last night's 30-year US Treasury auction came in a little better than expected and that the US bond market should be quiet today on a US Federal holiday and an early bond market close – that Federal holiday to mark the funeral of former president Jimmy Carter. However, we doubt the dollar needs to hand back much of its recent gains. Last night's release of the December FOMC minutes confirmed the Fed's stance that it is ready to slow the pace of its easing cycle amid solid growth and upside risks to its inflation forecasts.”

“We have five Fed speakers later today, but the next big impact on expectations of the Fed easing cycle will be tomorrow's December NFP report, where some see upside risks. Equally, the USD is likely to stay strong into Trump's inauguration on 20 January. If Tuesday's press conference is anything to go by, Trump will come out swinging at the start of his second term – as we discussed in our 'Trump clean sweep' scenario in August last year.”

“Elsewhere of note today is the firm wage data in Japan which we think makes the risk of a Bank of Japan rate hike on 24 January more likely. This – plus the threat of renewed FX intervention – will help firm up the view that USD/JPY will struggle to break through the 158/160 area. Despite the risk of profit-taking, DXY found good support under 108 earlier this week. Expect tight ranges and the c, unless Trump has something to say on Truth Social today.”