The US dollar is on a roll, riding high on the wave of increased optimism surrounding Donald Trump's potential presidential comeback, thanks to a favourable Supreme Court ruling and a dismal debate performance from President Joe Biden. It's almost like the dollar says, "The King is back, baby!" However, don't pop the champagne just yet. This week's macroeconomic backdrop might not be as supportive of the dollar's continued ascent.

There are some storm clouds on the horizon. Not only is there a growing chorus expecting the upcoming job figures to bolster the case for a September rate cut, but there is also the possibility of a dovish tilt from Fed Chair Jerome Powell during his speech in Sintra. If Powell hints at a more dovish approach to interest rates or even hints at 2 cuts, it could temper the dollar's momentum. Imagine the dollar getting a little too cocky at the party, only to be gently reminded that the night is still young and anything can happen.

As markets juggle these political and economic developments, the interplay between these factors will be crucial in determining the dollar's trajectory. While the political risk on both sides of the bond gives the dollar a nice boost, the harsh realities of macroeconomic conditions and central bank rhetoric will ultimately guide its path. It's a classic case of "easy come, easy go" in the world of currency markets, and we'll have to wait and see how this drama unfolds.

After the first U.S. presidential debate, markets are increasingly factoring in the prospects of a Trump presidency. It seems they're already bracing for the inflationary consequences of policies like immigration control and tariffs while conveniently turning a blind eye to some lacklustre U.S. data. Sure, the data's not great, but hey, it's Tarrif Man Trump!

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U.S. nominal yields have climbed to 4.45% from below 4.3% pre-debate. Market-based inflation expectations have also ticked, with 10-year breakevens rising to 2.32%. Meanwhile, the U.S. dollar has flexed its muscles, leaving low-yielders like the Japanese yen (JPY) and Swiss franc (CHF) in the dust.

Regarding equity risk sentiment, the impact has been a mixed bag, although higher US yields, if they stick around, tend to push stocks lower.

Asian FX markets kicked off the week with a lacklustre vibe. The South Korean won (KRW) stumbled out of the gates while the USD/CNH pair breached the 7.30 mark. This weaker Yuan often acts as a magnet for the ASEAN basket of currencies, pulling them into its orbit.

The underperformance of KRW suggests some regional pressures, but the broader trend seems to hinge on how the USD/CNH dynamic plays out, impacting the basket currencies accordingly.

Most ASEAN currencies, including G-10’s JPY and AUD, have a high historical correlation coefficient with the Yuan, more so when US Tariffs are the game's name.

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