Societe Generale Research discusses its current bias on EUR/USD, GBP/USD, and USD/JPY.
"Yesterday’s reaction was exaggerated thanks to the ‘inflation is peaking’ narrative which fuelled the soft-landing story and helped equities rally. Where do we go now? The dollar got a lift, but I don’t think this latest surge can take us very far. The market has pushed up pricing of terminal Fed Funds buy almost 50bp in a week, to above 4%, but the Dollar Index is pretty much where it was a week ago. It still seems more likely that EUR/USD, GBP/USD and most of the major crosses settle for a period of choppy range-trading, with volatility staying elevated, rather than we see the start of a new dollar uptrend," SocGen notes.
"The yen, will remain very difficult to trade. It’s been doing a good job of tracking long-term US rates, and a very poor job of reacting to any moves in Japanese rates, assets, or economic developments. The Government would like the market to stop selling it, and a verbal intervention campaign has begun. But a change in monetary policy doesn’t seem imminent," SocGen adds.
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