Takeaway

The presenter argues that the US dollar's outperformance is set to continue, driven by a hawkish Federal Reserve that contrasts sharply with the Bank of England holding rates and a less-convincing hike from the Bank of Japan. Upcoming commentary from Fed speakers and US PMI data are the key near-term catalysts that could reinforce this divergence and provide further support for the dollar against Sterling and the Yen.

What the presenter said

• The US dollar has outperformed its major peers this week. [00:04]
• The Federal Reserve hiked rates by 25 basis points and signaled two more hikes are expected this year, with 16 of 18 policymakers backing at least one more. [00:13, 00:19]
• The Fed's hawkish stance helped calm markets, with initial stock declines recovering and Treasury yields falling. [00:35, 00:47]
• Oil prices have fallen this week due to eased supply concerns. [00:55]
• The Bank of England left interest rates unchanged at 3.75% for a sixth straight meeting, putting it behind peers in terms of hikes. [01:06, 01:15]
• The Bank of Japan hiked rates by 25 basis points to 1.25%, but the Yen weakened considerably as the move was priced in and the 7-2 vote was seen as unconvincing. [01:54, 02:01]
• The policy divergence is reflected in USD/JPY, which has rebounded above 157. [02:30]
• The presenter believes upcoming Fed speakers (Goolsbee, Williams) and strong US PMI data could lead to further US dollar gains. [02:48]
• Positive headlines from the upcoming Trump-Xi meeting could improve risk sentiment and potentially lead the Nasdaq higher. [05:10]

Trade ideas

• Instrument: US Dollar

  • Direction: Long
  • Entry/Target/Stop: The presenter's thesis is that hawkish Fed speakers and strong US PMI data could support further gains against major peers, particularly JPY and Sterling.
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: Japanese Yen

  • Direction: Short
  • Entry/Target/Stop: The view is based on the policy divergence between a hawkish Fed and a less hawkish BoJ, which could lead to further weakening against the US Dollar.
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: Sterling (GBP)

  • Direction: Short
  • Entry/Target/Stop: The thesis cites the policy divergence between the Fed and the BoE, along with potential weakness in UK PMI data, as reasons the pair could head lower against the US Dollar.
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: Nasdaq

  • Direction: Long
  • Entry/Target/Stop: The presenter suggests that positive headlines from the Trump-Xi meeting could improve risk sentiment, leading to a breakout towards the 30,000 level.
  • Horizon: Short-term
  • Conviction: Low

Levels and data cited

• Price Levels:
  • USD/JPY: Rebounded above 157.
  • GBP/USD: Testing support at 1.3340, a six-week low.
  • Nasdaq: Potential target of 30,000.
• Data & Policy:
  • Federal Reserve: Hiked rates by 25 basis points this week.
  • Bank of England: Held interest rates unchanged at 3.75%.
  • Bank of Japan: Hiked interest rates by 25 basis points to 1.25%, the highest level in 31 years.
  • Upcoming Data: US, UK, and European PMI data next week.

Risks and what would invalidate this

• The presenter notes that if oil prices continue to rise, the Bank of England may be forced to hike rates.
• A complicated picture emerges for the Bank of England if UK inflation continues to rise while growth slows.