US FX WRAP: Dollar choppy in thin newsflow as as Pound outperforms as Streeting backs Burnham for PM after Starmer resignation

The Dollar was broadly firmer against G10 FX peers, although the Pound was the clear gainer, in what was pretty light newsflow stateside to start the week. On that, there was no US data or Fed speak, ahead of PCE later in the week. Recapping, over the weekend, Iran announced it shut the Strait of Hormuz due to continued Israeli strikes on southern Lebanon. However, the rhetoric and readouts became more positive overnight as Iran, Qatar and Pakistan all announced positive updates regarding talks with the US, while VP Vance later affirmed that a lot of progress was made and that the Strait is open. 

GBP was the sole G10 currency in the green against the Greenback, and saw little move after PM Starmer resigned, leading the way for Burnham to lead his PM campaign. However, UK assets were bid after Streeting released a statement endorsing Burnham, significantly reducing the odds of a leadership contest and also potentially setting Streeting up to be Chancellor, an outcome which would be much more welcome than other options, such as Miliband.

Attention was on the Yen, whereby USD/JPY hit a peak of 161.93, and saw a couple of sharp moves lower through the US session, with reports in Nikkei attributing the moves to media reports that the Japanese Finance Minister Katayama and US Treasury Secretary Bessent held talks online, where they likely discussed the foreign exchange market. Meanwhile, overnight, Finance Minister Katayama said they are ready to act suitably on currency fluctuations whenever necessary, but declined to comment on particular FX rates. Meanwhile, BoJ Deputy Governor Himino remarked that it takes some time for policy to have an impact on the economy and that accommodative conditions are expected to continue. Himino added that risks of price overshoots could materialise if there is a delay in the necessary adjustment in the degree of monetary easing.

Elsewhere, Canadian inflation metrics were hotter than expected, while ECB President Lagarde appeared somewhat dovish; she noted that there is no evidence yet of de-anchoring of inflation expectations or second-round effects that would warrant a more forceful policy response at this stage.