[MARKET ANALYSIS] DXY benefits from higher energy prices, GBP awaits PM Starmer and a potential leadership challenge

Snapshot: G10s are mostly lower against the USD, with action dictated by the strength seen across the energy complex; the CHF and JPY lag whilst the Loonie holds afloat. The NOK is a touch stronger this morning, following an uptick in the region’s core inflation.
DXY is slightly firmer this morning, and trades towards the lower end of a 97.96-98.15 range. The index has been lifted by renewed geopolitical risk, after President Trump called Iran’s latest peace offer as “totally unacceptable” – as such, the crude complex is bid this morning. Domestically, tier 1 data is lacking this morning, but attention will turn to US CPI on Tuesday. Fed speak today includes Kashkari and Hammack (both dissenters at the April confab). ING opines that continued geopolitical unrest this week could see the index traverse back above the 98.00 mark, and trade within a 98.00-98.50 range.
JPY and CHF are underperforming this morning, driven lower by their net-importer of energy statuses. For the USD/JPY specifically, it trades back towards the 157.00 mark, within a 156.55-157.17 range; further upside could see the pair head back towards its 100-DMA at 157.38. Domestic updates have been lacking for the JPY, but focus will be on US Treasury Secretary Bessent’s meeting with Japanese officials early this week. Given recent attempts of intervention carried out by Japan, and officials stressing it remains in contact with the US, it is probable that Bessent will provide comments attempting to support the JPY. There may also be some chance that he clarifies whether this latest bout of intervention was jointly carried out with the US.
GBP is currently incrementally lower, as markets await PM Starmer’s speech at 10:00 BST. He will look to save himself from a leadership challenge, with reports touting that a challenge could begin as soon as today – should Stamer fail to inspire significant change. MUFG writes, “we continue to believe that a shift to the left for the Labour party would trigger at least a temporary period of pound selling”. Cable currently trades just above the 1.3600 mark, within a 1.3557-1.3614 range.
Antipodeans are currently diverging, with the Aussie holding afloat against the Dollar, whilst the Kiwi moves a touch lower. Overnight, both were pressured by the downbeat risk tone, but the Aussie has managed to clamber higher thereafter. Some of the strength may be facilitated by the outperformance in the Yuan, after Chinese trade and inflation data topped forecasts.