The DXY firmed towards 99 after Trump dialled back tensions over Greenland in his speech at the World Economic Forum. Not only did Trump ruled out the use of force, but he also dropped his tariff threats against Europe after striking the “framework of a future deal” with NATO’s Secretary General Rutte. Selling pressure on US assets may abate for now following Trump’s de-escalation. Despite this, confidence in US policy has been undeniably dented, and this could lead to a broader reallocation from US assets and weigh on the USD’s longer-term prospects.
USD/JPY has stayed buoyant around 158 due to fiscal worries, which had been aggravated by PM Takaichi’s election pledge to suspend consumption taxes on food for two years. A rout in long end JGBs has been stemmed after Finance Minister Katayama called for calm, but the volatility underscores significant doubts over fiscal policy that will need to be ameliorated with concrete policy details. The good news is that Japan’s average interest cost will not rise too sharply despite surging yields given the long tenor of its outstanding debt, and debt sustainability risks are thus manageable.
USD/KRW has eased to 1465 after President Lee signalled a strong KRW stance at a press conference. Lee said that Korea’s FX authorities expect USD/KRW to fall to around 1400 in 1-2 months, with the government implementing many policies to stabilize FX. Notably, media reports this week suggest that Korea will delay fulfilling its pledge to invest as much as USD20bn in the US this year, which was part of the trade deal with the US. KRW is likely to recover as Korea rolls out more policy measures to support the KRW.
Quote of the Day
“It is amazing what you can accomplish if you do not care who gets the credit.”
Harry S. Truman
January 22 in history
The Boeing 747, the world's first "jumbo jet", entered commercial service in 1970.
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