US FX WRAP: Dollar extends on recent gains as G10 FX loses out

The Dollar Index continued to move higher following Tuesday’s hawkish Fed repricing, in the wake of Waller’s remarks and the hotter-than-expected CPI report. Along the same lines, Paulson (2026 voter) said overnight that the Fed will move more aggressively if the inflation landscape worsens, but reiterated the party line that further gradual rate hikes are appropriate given high inflation, and that the exact path of policy depends on how the economy evolves. Newsflow was otherwise very thin, with no Fed speak or data due to Veterans Day. On geopolitics, Ukraine-Russia rhetoric was more constructive, albeit with no significant breakthrough, while Iran’s Rezaei struck a punchier tone than in recent talks. Separately, the WSJ reported that US VP Vance is considering a meeting with Rezaei in a push to end the war, although plans are at a preliminary stage and are being handled through mediators. Looking to Thursday, there is plenty of Fed speak (Hammack, Barr, Goolsbee, Daly, Schmid and Williams), alongside a 30yr bond auction and weekly jobless claims.

As on Tuesday, G10 FX was lower to varying degrees, driven by broad Dollar strength rather than currency-specific newsflow. The havens, CHF and JPY, lagged amid widening yield differentials. For the Swissy, SNB’s Schlegel said the SNB is ready to be active in FX markets. For the Yen, the latest Reuters Tankan showed a broad upswing in Japanese manufacturing sentiment to a five-year high. Despite this, USD/JPY tested 160 to the upside, although ING writes that it increasingly thinks investors will look to buy cheap yen should USD/JPY push above 160 again.

High-beta FX also lost ground, but fared relatively better. On central banks, BoE’s Greene said it is appropriate “to proactively tighten our monetary policy stance to lean against the risk of wage growth getting stuck at higher levels”. Newsflow out of Europe was light, but EUR/USD hit a YTD low of 1.1083, with little scheduled in the Bloc for the rest of the week.

In EMFX, the PBoC’s Q3 Monetary Policy Implementation Report said the central bank will implement a moderately loose monetary policy to support stable economic growth. Meanwhile, BCB Governor Galípolo spoke, although there was little reaction in the Real.