[MARKET ANALYSIS] G10FX quiet into US Payrolls; JPY underperforms
BoE Governor Bailey says Fed Chair Warsh is "right to see some dangers in forward guidance"
Micron (MU) says no agreement has been reached in mediation with Taiwan's Taoyuan union; second meting has been scheduled
[MARKET ANALYSIS] G10FX quiet into US Payrolls; JPY underperforms
DeepSeek reportedly aims to deploy over 160k Huawei AI chips in China, Bloomberg reports
"Oman and Qatar are intensifying efforts to resume Iran-US talks", Nour News reports citing diplomatic sources; "the Strait of Hormuz, sanctions, and the nuclear file are the focus of new disputes"
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- Mixed action across G10FX where there is no real bias. Stealing leads for no particular reason, JPY lags after large gains this week.
- Choppy USD action this morning which sees EUR/USD within a narrow 10 pip range and DXY flat into NFP. Some broad based, but modest USD upside was seen after the EU cash open, lifting DXY from 99.00 to a high just below 99.10 with EUR and GBP pairs sent to lows. Drivers this morning are essentially absent, with a marginal move to an FT article detailing the Norway’s SWF proposed slashing UST holdings by about USD 80bln amid fiscal concerns, while raising JGB allocation by 2.8ppts and not touching Gilt allocation. The article also said dollar exposure would fall by 0.5ppts. While NFP is the highlight of the day, officials’ keen eye on inflation will be the deciding factor in the Fed’s September meeting, especially after Waller’s remarks on Thursday. CME’s Fedwatch tool implies a 50-50 probability of tightening, down from c. 70% pre-Waller.
- With a 25bps ECB hike next week fully priced, EUR will likely remain at the whim of the Buck into Payrolls. Focus will be on the first of three significant state elections in September, Saxony. Polling has AfD clearly in the lead with 40-43% of the vote; if materialised, will add to the pressure on the German Grand coalition nationally, though not change the power balance or impact economic/fiscal policy. Lane did not add anything, given ECB is in blackout. EUR/USD choppy, but found support at 1.1620.
- GBP saw some weakness on the DMP which showed easing 1yr inflation expectations, though the reaction was limited to around ten pips and Sterling is still the best G10 performer with BoE’s Bailey not providing commentary on monetary policy. Cable’s 1.3550 will likely provide resistance to further Cable gains absent an NFP surprise. JPY is the underperformer today as it pulls back from recent gains of over 3% vs. the Buck. The pair bottomed at 155.22 and now lies just above 156.00.
Pre-payrolls sessions of this kind follow a familiar pattern: G10 ranges compress, positions are squared rather than built, and the dollar takes its cue almost entirely from the print and the wage and unemployment components beneath it, with the front-end repricing of the Fed path doing the transmission into DXY rather than any cross-specific flow. The cited even-money pricing on the next meeting after a single official's dovish remarks is the standard configuration in which a consensus-adjacent NFP does little and the tails do the damage; asymmetric reactions tend to favour whichever side the labour data confirm, and revisions have historically mattered as much as the headline when the rate debate is this finely balanced. The reported sovereign wealth fund UST-to-JGB rebalancing, if it proceeds, fits a recurring template in which large Nordic and Asian reserve and pension shifts matter for the long end of Treasuries and for JPY demand at the margin but rarely drive day-to-day FX; the mechanism would run through term premium and funding flows rather than through spot directly. The yen's pullback after a strong week is consistent with its habit of giving back sharp appreciation stretches when US yields stop falling, and verbal or actual intervention proximity has historically been the check on further USD/JPY upside at elevated levels rather than a driver of reversal on its own. The state election polling is a political-pressure story for the German coalition rather than a policy one, and episodes of this kind have tended to move EUR only when they feed into fiscal expectations, which this does not. Worth noting is the sequence after the print: rate-path repricing first, then the dollar, then the crosses, with JPY the highest-beta expression of any surprise given positioning after the week's gains.
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