1.0 Executive Summary
Market Sentiment: Global markets are trading with a distinct "risk-off" tone as "AI jitters" trigger a broad sell-off in technology stocks, spilling over into commodities and high-beta currencies. The US Dollar has steadied after recent weakness, while the Japanese Yen and Swiss Franc are outperforming as investors seek safety. Geopolitical tensions remain a backdrop, with the market closely watching US-Iran negotiations and the ongoing "noisy" interpretation of US labor data. Key Themes:
Macro Ambiguity: The US January NFP report delivered a "headline beat" of 130k jobs but was undermined by massive negative revisions (-862k through March 2025), complicating the Fed's policy path [Saxo].
JPY Resurgence: Hedge funds have aggressively flipped to a net bullish stance on the Yen, unwinding shorts as the "Buy Japan" trade gains momentum under PM Takaichi's stabilizing fiscal outlook [Bloomberg, Nomura].
AI & Policy: Macquarie warns that the equity market's "AI scare" might paradoxically embolden Fed hawks to delay easing, shifting the "burden of proof" onto those arguing for rate cuts [Bloomberg].
2.0 USD: US Dollar & Macro
Macro View & Fed Policy:
The US Dollar traded with a mixed-to-steady tone as markets digested a complex labor market picture. The January Non-Farm Payrolls (NFP) report showed a headline increase of 130,000, significantly beating the 70k consensus, with the unemployment rate dipping unexpectedly to 4.3% [Saxo]. However, the bullishness of the headline was heavily diluted by severe negative benchmark revisions, which Saxo Bank notes reduced nonfarm payrolls by 862,000 through March 2025. This dichotomy has left the market debating whether the labor market is stabilizing or masking deeper structural weakness. Weekly jobless claims fell slightly to 227,000 but remained near eight-week highs, further muddying the waters [Saxo].
Bank Views:
Macquarie: Strategist Thierry Wizman provides a contrarian macro view on the recent "AI scare" in equity markets. He suggests that rather than prompting a dovish pivot, the slide in tech stocks might allow Fed hawks to justify keeping rates higher. Wizman argues that hawks may rely on real-time inflation and unemployment data—which remain resilient—to argue against easing, effectively placing the "burden of proof" on policymakers who want to cut rates. He notes that AI could enter the monetary policy debate as a factor that complicates the growth/inflation trade-off [Bloomberg].
Citi: Benjamin Wiltshire cautions that markets are "complacent" regarding the US inflation outlook. He argues that the US consumer remains underestimated and that the economy is in a "structurally higher inflation environment." Consequently, Citi sees value in trades that pay out if price pressures surprise to the upside, challenging the consensus view of a smooth disinflationary glide path [Bloomberg].
Saxo Bank: The bank highlights that while the NFP headline smashed forecasts, the revisions indicate the labor market is weaker than previously thought. They note a "bull flattening" in US Treasuries, where 2-year yields jumped initially before settling, as traders pared back bets for imminent Fed rate cuts, with a July cut now fully priced in [Saxo].
Economic Indicators:
Beyond the jobs report, US existing home sales fell 8.4% in January to 3.91 million, missing expectations and hitting the lowest level since September 2024. Despite improved affordability from wage gains, low supply remains a critical constraint. Additionally, initial jobless claims data suggests a gradual cooling, although business disruptions from winter storms have added noise to the continuing claims figures [Saxo].
3.0 G10 Currencies
Japanese Yen (JPY):The Yen continues to be the standout performer, strengthening for a third consecutive session against the Dollar. Nomura reports a decisive shift in market positioning, noting that hedge funds have "reversed course" and are ramping up bets on a stronger Yen. Antony Foster, head of G-10 spot trading at Nomura, observed that trading volume in dollar-yen put contracts (betting on a decline) was running 50% higher than calls. This signals a rush to hedge downside risk in USD/JPY as the "Buy Japan" theme takes hold. The market is increasingly confident that Prime Minister Takaichi will avoid reckless fiscal expansion, allowing the JPY to unwind its risk premium [Bloomberg, Nomura].
Australian Dollar (AUD):The Aussie Dollar was the "biggest loser" in the G10 space, falling 0.55% amid the broader risk-off environment and sliding commodity prices [Saxo]. Despite the currency's weakness, the RBA remains hawkish; Deputy Governor Andrew Hauser explicitly stated that inflation remains "too high," suggesting the central bank is not yet ready to join the global easing cycle. However, the external drag from falling iron ore and copper prices is currently outweighing domestic yield support [Saxo].
British Pound (GBP):Sterling traded softer, slipping below 1.3620, despite data showing the UK economy grew by 0.1% in Q4 2025. While this avoided a contraction, the growth was below the 0.2% forecast, with the construction sector falling 2.1% [Saxo]. Citi maintains a bearish medium-term outlook for GBP, forecasting a drop to 0.88 EUR/GBP by mid-year due to political risks and expected BoE cuts [Bloomberg].
Swiss Franc (CHF):The Swiss Franc outperformed alongside the Yen, acting as a primary safe haven as equity markets wobbled. The Franc brushed off recent SNB intervention threats to trade at multi-year highs against the Euro and Dollar. Investors are flocking to the CHF as an alternative to the Dollar amid trade war fears and geopolitical instability in the Middle East [Bloomberg, Saxo].
Canadian Dollar (CAD):The Loonie faced headwinds from falling oil prices, with WTI dropping below $63/bbl. However, USDCAD gains were capped by relatively resilient Canadian economic data. TD Securities expects the Bank of Canada to deliver a "nuanced" message in its upcoming deliberations, acknowledging cooling activity while remaining cautious on core inflation sticky points [Saxo].
4.0 Asian Currencies (EM Asia)
Singapore Dollar (SGD): Citi's Head of FX Trading for Asia Pacific, Nathan Swami, explicitly backs the Singapore Dollar as a "key Asia haven." Swami argues that the SGD's appreciation is "not by accident" but a result of the MAS's unique exchange-rate-based monetary policy, which provides low volatility and predictability. Citi notes that investors in the region are actively positioning in SGD as a defensive play against broader market turmoil [Bloomberg].
Chinese Yuan (CNY):Data shows persistent deflationary pressure, with China's annual inflation falling to 0.2% in January (down from 0.8% in Dec), missing forecasts. Nomura attributes this partly to Lunar New Year distortions but flags weak core demand [Saxo]. Structurally, economists from CICC and Tsinghua University are urging Beijing to seize the "strategic window" of a weaker Dollar cycle to loosen capital controls. They argue this would boost the Yuan's global appeal and encourage its use in trade settlement, particularly for commodities [Bloomberg].
Korean Won (KRW):The Won remains sensitive to the "tech wreck" in global equities given its heavy exposure to the semiconductor cycle. However, Citi sees potential for the KRW to appreciate later in the year. Swami notes that once the current wave of retail outflows and the impact of Korea's $350bn US investment pledge stabilize, the currency is fundamentally undervalued and poised for a recovery [Bloomberg].
Indonesian Rupiah (IDR): Standard Chartered reports that Indonesia's GDP rose 5.4% YoY in Q4, driven by robust domestic demand and household consumption. The bank maintains a constructive outlook, forecasting 5.1% growth for the full year 2025. This strong domestic backdrop provides some support to the Rupiah, although it remains vulnerable to external risk sentiment and US Treasury yield moves [FXStreet].
Indian Rupee (INR):The Rupee's outlook is being shaped by significant shifts in trade policy. Reports indicate that India "intends" to purchase $500bn worth of US products, including energy and coal, under a newly announced trade deal. This move, aimed at reducing the trade surplus with the US, could structurally alter INR demand dynamics. Meanwhile, Petronet LNG expressed willingness to buy US LNG if prices are reasonable, further signaling a pivot in India's energy sourcing strategy away from Russian flows [Argus].
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