Global FX, bonds steady amid policy, trade uncertainty
Press Hub UCapital
Share:
The global foreign exchange and fixed income landscape opened the week cautiously, with investors parsing mixed signals from central banks, trade negotiations, and evolving fiscal dynamics.
In emerging markets, the Turkish lira continued its downward trajectory, despite recent rate hikes by Turkey’s central bank. Commerzbank flagged that the bank’s policy inconsistencies have eroded its credibility, forecasting continued lira weakness. USD/TRY rose 0.14% to 38.4488, with expectations of further depreciation over the coming quarters, exacerbated by political instability following the arrest of President Erdogan’s rival.
In Asia, Japanese equities advanced modestly, with the Nikkei 225 rising 0.4% to 35,839.99, driven by gains in auto stocks as U.S.-China trade tension fears eased. USD/JPY climbed to 143.87, supported by improved risk sentiment, while 10-year JGB yields fell 1 basis point to 1.320%. Meanwhile, Bank of Japan policymakers are expected to maintain rates steady at 0.5% during their upcoming meeting, with a focus on assessing the impact of U.S. trade measures on Japan’s export-dependent economy.
In G10 FX, the dollar firmed slightly. The DXY index rose 0.1% to 99.5760, buoyed by optimism over U.S. trade talks with Japan and reduced threats to Federal Reserve independence. Analysts also cited the absence of disruptive headlines from the Trump administration over the weekend and potential month-end rebalancing flows as supporting factors.
In Europe, the outlook for Bunds remained cautiously constructive despite the prospect of improved risk sentiment. Commerzbank anticipates this week’s expected weak eurozone GDP and inflation data to support duration trades. Preliminary Q1 GDP figures and inflation data for April, due midweek, are expected to reinforce market bets on an ECB rate cut in June.
UK markets showed growing expectations for a dovish pivot from the Bank of England. Pantheon Macroeconomics suggested that while a quarter-point rate cut remains the base case, a more aggressive 50 basis point move appears unlikely. Despite deteriorating business confidence surveys, underlying economic activity before recent market disruptions remained relatively stable, allowing the BoE to maintain a measured policy response.
U.S. Treasury yields edged lower, with the two-year yield dipping to 3.754% and the 10-year yield at 4.247%, reflecting continued demand for safe assets ahead of a heavy data calendar. Wednesday’s global data cluster, including U.S. GDP, PCE inflation, and eurozone growth figures, is seen as a potential catalyst for a reassessment of positioning.
Attention also centers on the U.S. Treasury’s quarterly refunding announcement. Goldman Sachs expects no changes in nominal coupon auction sizes and only modest increases in TIPS issuance. Maintaining stability is viewed as crucial to avoid reigniting concerns over funding pressures. The borrowing estimates will be released Monday, followed by detailed issuance plans on Wednesday.
Finally, debate continues over the Trump administration's stance on the dollar. Sony Financial warned that pressuring for a weaker dollar could backfire by accelerating U.S. inflation and triggering foreign divestments of Treasurys, especially if Japan intervenes in currency markets. Japan’s Finance Minister Katsunobu Kato denied reports of U.S. pressure to engineer a stronger yen, emphasizing no discussions occurred on FX levels.
In summary, global markets enter the week in a holding pattern, with risk appetite cautiously improving but significant event risks—ranging from critical economic data to policy announcements—likely to drive volatility in the sessions ahead.
In emerging markets, the Turkish lira continued its downward trajectory, despite recent rate hikes by Turkey’s central bank. Commerzbank flagged that the bank’s policy inconsistencies have eroded its credibility, forecasting continued lira weakness. USD/TRY rose 0.14% to 38.4488, with expectations of further depreciation over the coming quarters, exacerbated by political instability following the arrest of President Erdogan’s rival.
In Asia, Japanese equities advanced modestly, with the Nikkei 225 rising 0.4% to 35,839.99, driven by gains in auto stocks as U.S.-China trade tension fears eased. USD/JPY climbed to 143.87, supported by improved risk sentiment, while 10-year JGB yields fell 1 basis point to 1.320%. Meanwhile, Bank of Japan policymakers are expected to maintain rates steady at 0.5% during their upcoming meeting, with a focus on assessing the impact of U.S. trade measures on Japan’s export-dependent economy.
In G10 FX, the dollar firmed slightly. The DXY index rose 0.1% to 99.5760, buoyed by optimism over U.S. trade talks with Japan and reduced threats to Federal Reserve independence. Analysts also cited the absence of disruptive headlines from the Trump administration over the weekend and potential month-end rebalancing flows as supporting factors.
In Europe, the outlook for Bunds remained cautiously constructive despite the prospect of improved risk sentiment. Commerzbank anticipates this week’s expected weak eurozone GDP and inflation data to support duration trades. Preliminary Q1 GDP figures and inflation data for April, due midweek, are expected to reinforce market bets on an ECB rate cut in June.
UK markets showed growing expectations for a dovish pivot from the Bank of England. Pantheon Macroeconomics suggested that while a quarter-point rate cut remains the base case, a more aggressive 50 basis point move appears unlikely. Despite deteriorating business confidence surveys, underlying economic activity before recent market disruptions remained relatively stable, allowing the BoE to maintain a measured policy response.
U.S. Treasury yields edged lower, with the two-year yield dipping to 3.754% and the 10-year yield at 4.247%, reflecting continued demand for safe assets ahead of a heavy data calendar. Wednesday’s global data cluster, including U.S. GDP, PCE inflation, and eurozone growth figures, is seen as a potential catalyst for a reassessment of positioning.
Attention also centers on the U.S. Treasury’s quarterly refunding announcement. Goldman Sachs expects no changes in nominal coupon auction sizes and only modest increases in TIPS issuance. Maintaining stability is viewed as crucial to avoid reigniting concerns over funding pressures. The borrowing estimates will be released Monday, followed by detailed issuance plans on Wednesday.
Finally, debate continues over the Trump administration's stance on the dollar. Sony Financial warned that pressuring for a weaker dollar could backfire by accelerating U.S. inflation and triggering foreign divestments of Treasurys, especially if Japan intervenes in currency markets. Japan’s Finance Minister Katsunobu Kato denied reports of U.S. pressure to engineer a stronger yen, emphasizing no discussions occurred on FX levels.
In summary, global markets enter the week in a holding pattern, with risk appetite cautiously improving but significant event risks—ranging from critical economic data to policy announcements—likely to drive volatility in the sessions ahead.