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Apart from those trading in JPY today, FX traders find themselves in a deadlock, caught in the tug-of-war between the Federal Reserve easing and the Trump Trade.

Despite the uptick in U.S. real retail sales, there's a consensus that the retail sector faces potential headwinds. Factors such as tempered consumer spending growth, moderate inflation, and rising unemployment rates are expected to shape the future. This outlook continues to support the narrative of anticipated lower Fed rates.

Thus, the retail data didn't dent the market's dovish expectations for the Fed. A September rate cut is fully priced in, and 65 basis points of easing are anticipated by year-end. The dollar's resilience, despite increasing dovish bets, can be attributed to the emergence of “hedges” against higher inflation, tariffs, and geopolitical risks, especially as a Trump re-election appears more likely after the weekend incident.

So, after the initial algorithm-driven knee-jerk reaction to buy the dollar, interbank voice desks were quick to counter the move. This reinforces our stance that there was no fear in shorting USD/JPY going into the data release.

EUR/USD continues to hover around 1.090, reflecting the current equilibrium between USD-positive U.S. political developments and USD-negative Fed rate repricing.

The biggest mover during the overnight Asian trading session has been the New Zealand dollar, bolstered by the latest CPI report. This report pushed the NZD/USD rate to an intra-day high of 0.6082, while the AUD/NZD rate dropped to an intra-day low of 1.1073. Consequently, our long AUD/NZD position is back to square one, and with Kiwi inflation not cooperating, neither are we with this trade as New Zealand rate market participants are less confident about how soon the RBNZ will begin to cut rates.

The main economic data release at the start of the European trading session was the latest UK CPI report for June. The report revealed that headline inflation remained steady at the Bank of England's target of 2.0% for the second consecutive month, despite expectations of a slight slowdown. Services inflation, which the Bank of England is closely monitoring, is still a whopping 5.7% year-over-year in June. and doesn't support additional easing bets ahead of the BOE meeting. We remain long on GBP/USD, as today's inflation data wasn't quite what the Cable shorts were hoping for. Expectations of an August rate cut have been pared back from nearly 50% to 25%, with services inflation proving to be a significant obstacle.

Not wholly unexpected as per the fall in US yields and the narrowing UST vs JGP differential, USD/JPY is trading sub 157. The London open gap is somewhat mysterious, possibly massive stops being triggered or rumours of another rate check. However, with the U.S. rate cut frenzy driving cross-assets, it seemed inevitable that someone would attempt to take long USD/JPY positions to the woodshed.

Gold's relentless climb to new heights continued as investors bet heavily on a Fed rate cut, fueled by signs of slowing inflation and compounded by lackluster economic indicators. In a worrying trend, U.S. car repos surged 23% year-on-year in the first half of 2024, surpassing 2019 levels by 14%, underscoring growing consumer financial strain. This backdrop is bolstering expectations that policymakers will loosen monetary policy.

Adding to the gold rush, there's mounting anticipation of Donald Trump reclaiming the White House, which could further buoy precious metals amidst geopolitical uncertainty—a hedge against economic instability, like the Asian demand during trade wars.

While gold remains our prized goose, delivering solid returns, rapid 10% jumps in just two weeks may be a bit too much, prompting a slight retracement from recent Asian highs

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