Bank of Korea Holds Interest Rates Steady as Weak Won Limits Policy Flexibility 
Fed Near Neutral Signals Caution Ahead, Shifting Focus to Fixed Income in 2026 
Europe Confronts Rising Competitive Pressure as China Accelerates Export-Led Growth 
European Stocks Rally on Chinese Growth and Mining Merger Speculation 
RBA Holds Rates but Warns of Rising Inflation Pressures 
Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes 
U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift? 
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures 
Japan’s Rising Inflation Strengthens Case for a Near-Term BOJ Rate Hike 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
Wall Street Analysts Weigh in on Latest NFP Data 
With markets focused on tomorrow’s US Fed monetary policy announcement most major currencies were little changed yesterday.
The reduction of the Fed balance sheet that is likely to start tomorrow. This aspect that heavily drives FI analysts is hardly relevant for FX markets. The Fed has made it clear that it will implement it in a manner that takes consideration of the market. Of course, there may be some glitches at some stage or other. But the reduction of the balance sheet will not become a tool of everyday monetary policy – that much is clear already.
Sometimes monetary policy tools are used in such a manner that it hurts the market – if that is necessary to achieve a superior target. That is explicitly not the case with the balance sheet reduction. The Fed will implement it in such a manner that it produces as little market friction as possible. And as a result, it is not relevant for the FX market, which is not directly affected. We will have to focus on other aspects of tomorrow’s Fed communication. But more on that in tomorrow’s issue.
We nevertheless pare exposure versus a tactically more balanced dollar by closing longs in CHF and NOK and convert a short-dated EURUSD option into a cash long.
Stay short USDSEK in cash and take profits in options. The FOMC will determine whether it is safe to re-build exposures if the dots are dropped, or whether a selective USD recovery can extend.
The rally in 3M-6M ATM vols and compression of USD risk-reversals of the past 3 months is due a pause as the dollar consolidates.
Short dollar portfolios can consider selling USD puts as a yield-enhancing, delta reducing strategy that has historically improved risk-adjusted returns of cash USD shorts.
AUD and EUR calls are relatively rich within the USD-universe.
FxWirePro launches Absolute Return Managed Program. For more details, visit:
