The dollar sold off across the board yesterday. This was not a move led by US yields nor the underperformance of US asset markets. Instead, the move looked to be driven by FX decision-makers – be they asset managers hedging US risk or the speculative community (hedge funds and CTAs) adding to short dollar positions on range breakouts.
The ramifications of the Fed potentially participating in USD/JPY intervention continue to seep through the market. Does the US administration just want a stronger yen to help stabilise the JGB and US Treasury market? Or does the US want a broadly weaker dollar for competitive purposes at a time when the US consumer is starting to feel the strain? In the distant past, it tended to be Republican administrations that preferred a weaker dollar. President Trump’s lack of concern about the weaker dollar in comments late yesterday will feed the latter…
