[MARKET ANALYSIS] USD weaker against all G10 peers as questions arise over US fiscal position; Antipodeans outperform on potential Chinese fiscal measures
- G10s are entirely firmer against the Buck with Antipodeans the clear outperformers after China signalled further fiscal measures; CAD and NOK helped by oil prices which eke gains.
- DXY sits at the lower end of its 98.63-98.84 range, with the recent move lower coinciding with the gradual downside seen in global bond yields. The Buck saw some modest weakness after Bessent hinted at further measures to temper yields, action which was reversed through the US afternoon, but an area which DXY has returned to this morning. Most desks this morning are skeptical of a meaningful solution to fiscal consolidation, ING reckons a task force like Musk’s “DOGE” would be insignificant compared to the 6% budget deficit, while MUFG flags the mid-terms ahead and GOP not having the numbers within congress. All in all, measures to temper the fiscal situation are likely net-negative whether effective or not; the most decisive factor will be Iran developments, which are set to linger for some time. The session ahead is quiet, with just S&P PMIs scheduled (see EZ figures below).
- As expected, July's UK Retail metrics were weak, echoing the BRC monitor for the same period. And despite the 3M commentary around the weather, the ongoing heatwave and end of the World Cup appear to have hit activity. For the BoE, the print does not change the narrative, and instead we look to Flash PMIs later today. Cable saw around 8 pips of downside after the data, action which was swiftly pared in choppy trade. Flash PMIs failed to spur a reaction, despite broadly printing further into expansionary territory. With GBP/USD breaching the resistance at 1.3654, chartists will be focused on the next resistance high at 1.3712.
- EZ flash PMIs supported the bullish EUR bias today as figures indicating solid third quarter GDP growth, a return to hiring by companies for the first time this year, and inflation remaining elevated by historical standards. EUR/USD looks to Thursday's 1.1710 high, thereafter may resistance around 1.1750.
- Antipodeans outperform after China’s Vice Finance Minister pledged to roll out additional fiscal policy measures, remarks which follow similar rhetoric from July’s Politburo meeting. Attention will be on further measures to be released in the coming days, which could continue to help the Antipodes. AUD and NZD each firmer by 0.6% against the Buck, with Aussie looking to 0.72, Kiwi eyeing 0.5980, thereafter 0.60.
Broad dollar softness against all G10 peers is the kind of tape that historically signals a shift in the dollar narrative rather than idiosyncratic currency stories, and episodes driven by US fiscal credibility questions have tended to be slow-burn rather than one-day affairs: the usual sequence is term premium and deficit chatter first, reserve diversification and haven-flow arguments second, with the dollar's reaction often lagging the rate market's. The note of desks treating consolidation efforts as marginal against a deficit of this size fits the established pattern, where fiscal anxiety has weighed on the dollar more through erosion of the growth and yield advantage than through any single policy announcement. Antipodean outperformance on Chinese fiscal pledges follows a well-worn template: vice-ministerial rhetoric after Politburo signalling has typically produced knee-jerk AUD and NZD strength, but follow-through has historically depended on whether concrete measures, and specifically ones targeting domestic demand and construction, arrive in the days after, since headline pledges without implementation detail have faded before. The oil-linked support for CAD and NOK is the standard commodity-beta overlay rather than an independent story. Worth observing is whether the dollar weakness persists through a quiet data calendar, since moves that survive low-catalyst sessions tend to reflect positioning rather than event risk, and whether Chinese announcements materialise on the pledged timeline.