[MARKET ANALYSIS] USD action mixed against G10 peers, weaker vs. cyclicals, firmer/flat vs havens
- Quiet action in FX after broad based USD weakness vs all peers on the surprise Treasury announcement yesterday, an update which led to significant curve flattening with the 30yr yield falling in excess of 10bps. Although the figure announced by the Treasury was modest, it shows Bessent’s commitment to keeping yields in check when above 5% in the long segment; alongside this, FOMC minutes encouraged some dovish action in shorter dated USTs. Yields will remain in focus and we have Fed speakers Daly and Musalem set to speak on business TV later today, likely to be asked on this topic. USD action is mixed against G10 peers, weaker vs. cyclicals, firmer/flat vs havens. DXY is modestly weaker after slipping below May’s support around 98.80, it is essentially no man's land below with 98.00 the likely next support.
- SEK weakness after the Riksbank announcement which, in short, was broadly as expected but failed to convince some market expectations of tightening later in the year (i.e. Danske expecting two hikes, JPMorgan seeing one). While keeping the door open to tightening later in the year, some dovish leads can also be interpreted from the mood of language on the economy, where the reiterated language comes despite a rebound in domestic GDP. EUR/SEK moved higher throughout the morning to a peak just below 11.06, +0.4% on the day.
- Action elsewhere is quiet. AUD lags despite the constructive risk environment; underperformance a function of disappointing jobs data in which headline Employment Change contracted and the Unemployment Rate rose. AUD/NZD fell in excess of 40 pips after the data, selling which was halted just under the 1.1950 mark, AUD/USD is flat despite a kneejerk lower after the data.
The session carries three distinct threads, each with its own precedent. The Treasury refunding surprise is the dominant one: in past episodes where a debt manager has signalled willingness to lean against long-end yields at a perceived ceiling, the initial reaction has been pronounced curve flattening and a softer dollar, with follow-through dependent on whether the signal proves durable in subsequent auctions rather than the size of the first adjustment. Dovish-leaning FOMC minutes compound that at the front end, which makes the scheduled remarks from sitting officials the natural next test of whether the market's read of the minutes reflects the committee's centre of gravity. The Riksbank outcome fits a familiar pattern in which a central bank broadly in line on policy still sells the currency when it fails to validate priced tightening, and the gap between bank forecasts for hikes and the statement's language is exactly the kind of divergence that has tended to resolve through the next inflation prints. The Australian employment miss and AUD underperformance despite constructive risk is the standard case where domestic data overrides the beta channel, with AUD/NZD the cleanest expression. The DXY break of prior support leaves technical levels as the near-term reference absent fresh catalysts.