[MARKET ANALYSIS] USD weaker against all G10 peers into month-end

• Some USD weakness emerged this morning with DXY falling to a base around 99.50 which is the 50% Fibonacci retracement of the 99.19-99.72 rally seen after Warsh’s speech. Sell side commentary viewed the speech as hawkish, but Morgan Stanley said it was “not convinced it means hikes are coming” while GS said nothing yet is baked in and with focus on incoming data. Some also note algos reacted to Warsh’s use of “hike” within the context of “hikes on the trails”, in his use of a Kohn/Bernanke analogy. Note, month end may be playing a part in some of the moves seen this morning, where Barclays sees moderate USD selling.
• Action elsewhere paints the picture of the weaker USD, with all majors firmer vs. the Buck.
• JPY leads with earlier, modest losses accelerated around 160.00 where it fell to a 159.74 base. Data overnight showed better-than-expected Japanese Industrial Production and Retail Sales data though nothing which moved JPY at the time.
• EUR keeps focus on French politics where PM Lecornu’s preview of the 2027 budget ruled out tax increases and de-indexing small pensions. In terms of the 2027 presidential election, an Elabe poll showed Le Pen victorious in every run-off tested, while Philippe (centre) currently appears best placed to challenge, polling at around 47.5%. On the left is Mélenchon, whose odds have ticked lower in recent days, perhaps a welcome development to EUR and EGBs. For now, EUR within a thin 1.1578-1.1606 with UK participants away on Bank holiday. To remind, Barclays sees moderate EUR buying vs USD.

Broad USD softness against the entire G10 into month-end is a pattern associated more with rebalancing flows than with fresh information: bank month-end models flagging moderate dollar selling have historically been self-fulfilling over short horizons, with the move tending to fade once the fix passes and the new month begins. The trigger here is layered, with a hawkish-leaning speech initially rallying the dollar before sell-side pushback reframed it as conditional on data, and reported algo reaction to a single word illustrates how thin liquidity and machine parsing can amplify noise around officials' remarks. The distinction worth drawing is between flow-driven and fundamentals-driven dollar weakness: the former reverses quickly, the latter requires the incoming data the sell side is pointing to. JPY leading the majors alongside a round-figure level giving way is consistent with positioning and stop-driven acceleration rather than the domestic data, which passed without reaction at the time. French political risk polling of the kind described has in past episodes widened OAT-Bund spreads and weighed on EUR episodically rather than durably, with budget arithmetic the nearer-term transmission channel than a distant election. Worth watching are the month-end fix, follow-through in the next data prints, and whether EGB spreads corroborate the rates-market read of French politics.