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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
USD
US data continues to surprise on the downside, weighing on USD performance. However, as we highlight in this short update, current correlations between the Citi EASI and G10 FX are quite divergent.
- The first chart below updates the Citi US and EU Economic Surprise Index readings. The US reading, post the weaker business survey and housing data released overnight, is now back to lows last seen in October 2021. The wedge between the US and EU readings is significant.
- This is hurting USD sentiment via lower yields and some softening in Fed tightening expectations. Growth expectations are also starting to be revised lower.
- More hawkish rhetoric from the ECB has also clearly benefited EUR.
Source: MNI - Market News/Bloomberg
- If we continue to see downside US data surprises, current correlations suggest the EUR and JPY should benefit the most within the G10 FX space, see the second chart below.
- Interestingly, all other G10 FX (except CAD) have a positive correlation with the EASI for the past month. This may well reflect the risk channel, whereby downside surprises in US data weighs on broader risk appetite, and supports the USD against higher beta currencies, all else equal.
- Such a scenario could unfold over the coming period, particularly if recession fears heighten further. This could limit the benefit to higher beta currencies from any further shift lower in US Fed expectations if data continues to disappoint.
Fig 2: Citi US EASI & G10 FX Correlations - Past Month
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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