Dollar Choppy on Trump-Xi Call, Option Bulls Remain
A Bloomberg gauge of the dollar erased gains following details of President-elect Donald Trump’s call with Chinese President Xi Jinping on trade issues. The yen led G-10 losses on the session with a Bank of Japan rate hike this month increasingly priced in by traders.
The Bloomberg Dollar Spot Index was up 0.1%; earlier, rose as much as 0.3%.
Gauge whipsaws on Trump-Xi headlines after call in which they discussed trade, TikTok and fentanyl in a pre-inauguration conversation.
“Trading volumes appear a bit less liquid and markets are jittery,” notes Scotiabank’s Shaun Osborne.
One-week implied volatility in the gauge rises to the highest since the US election on Nov. 5, trades at 10.6 vol.
Yield on 10-year Treasury slips 1.8bp to 4.60%.
USD/JPY gains 0.6% to 156.12 after two sessions of losses.
Swaps traders are pricing around a 90% chance of a 25bp rate hike from BOJ officials at end of meeting on Jan. 24.
“ If the Trump administration does not immediately announce the imposition of onerous tariffs, then expectations of both further Fed rate cuts and continuing BOJ normalization should be conducive to a narrowing of US-Japan interest rate differentials,” wrote Morgan Stanley strategists Koichi Sugisaki, Hiromu Uezato, and Hiroki Yagi.
Morgan Stanley maintains sell recommendation on USD/JPY targeting move to 145 and a stop at 161.
EUR/USD steadies on day, trades little changed at 1.0301.
ECB Executive Board member Frank Elderson said officials must carefully calibrate pace of rate cuts.
GBP/USD drops as much as 0.6% to 1.2161 day’s low after data showed UK retail sales posted a surprise fall around last month’s crucial Christmas period.
Traders are now favoring nearly three interest-rate cuts from the Bank of England this year.
Cable is down 0.1% this week, heading for third weekly decline.
Source : Bloomberg
