New Iranian Proposal Helps Bolster Risk Appetites snbchf.com

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Marc Chandler
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New Iranian Proposal Helps Bolster Risk Appetites

The breakdown of talks between the US and Iran initially warned of a risk-off session, but a new Iranian proposal appears to have revived the hopes of a resolution. The US dollar is trading softer and equities in Asia Pacific and Europe rose while bond yields were under pressure. The front month crude oil contracts are trading around $2 a barrel higher.

There are two other developments to note. First, with the Justice Department suspending its probe into the Federal Reserve, Warsh is set to be confirmed as the next Fed chair on Wednesday. When Justice Department made the announcement, the implied chances of a Fed cut by the end of the Beijing’s shadow trade with Iran, sanctioning shipping vessels and a large Chinese refinery. Lastly five G10 central banks meet this week, starting the BOJ tomorrow. None are expected to adjust policy, but hawkish holds are anticipated.

Prices

G10

• The euro snapped a three-day slide ahead of the weekend, encouraged by reports that US-Iran talks would continue and that the Justice Department was ending the probe into the Federal Reserve’s renovations. The euro slipped slightly below our $1.1675 target on Thursday before recovering to almost $1.1725 on Friday. The talks were canceled but news late yesterday that Iran has made another proposal helped the euro extend the pre-weekend bounce, rising to $1.1750 in Europe. Options for 3.4 bln euros expire there tomorrow. The intraday momentum indicators are stretched. Support is seen in the $1.1720-30 area.

• Since mid-March, the dollar has been trading sideways against the yen, mostly between JPY157.50 and JPY160.40. This month, it traded above JPY160 once and that was only by a few pips. Continued range trading seems to be the most likely near-term scenario. The dollar rose last week for the first time in four weeks, and implied one-month volatility (~7.4%) is at the lower end of where it has been for the last couple of years. These conditions suggest that risk of official intervention is low. The dollar reached almost JPY159.85 at the end of last week and saw JPY159.10 today. It looks poised to recover back toward JPY159.40-50 area in say in late Asia-Pacific trading today.

• Sterling eased to an eight-session low near $1.3450 on April 23 before recovering ahead of the weekend to slightly above $1.3535 and almost matched last week’s high (a little above $1.3540). It reached almost $1.3560 today. The $1.36 area offers a more formidable cap. Initial support in North America may be around $1.3530.

• The Canadian dollar fell to five-session low on April 23 and rebounded ahead of the weekend. The greenback rose to about CAD1.3715 after bottoming earlier last week near CAD1.3630. It pulled back ahead of the weekend a little below CAD1.3665 but has taken another step lower today to about CAD1.3610, its lowest level since March 12. The intraday momentum indicators are stretched, cautioning against chasing it in early North American activity.

• The Australian dollar reached four-year highs on April 17 slightly above $0.7220. It pulled back last week and found support in the $0.7110-15 area. It recovered to $0.7155 before the weekend and to $0.7190 today. Expectations are running high that the central bank’s third consecutive rate hike will be delivered next week (May 5). Given positioning of the momentum indicators, the Aussie may stall again as the $0.7200-20 area is approached.

• The risk-on mood ahead of the weekend helped stem the Mexican peso’s losses after it reached a two-week low on April 23. The domestic news from Mexico was not favorable. President Sheinbaum has seen her support wane in the face of high-profile crimes and the weak economy. The IGAE report on economic activity is seen as a proxy for a monthly GDP report. The median forecast in Bloomberg’s survey looked for a 0.7% increase in February. Instead, ahead of the weekend, it was announced it fell by 0.26%. The dollar is trading with a slightly heavier bias today with support seen near the low recorded on April 23 near MXN17.33.

• The offshore yuan posted its lowest weekly close in three weeks as a consolidative phase unfolded. The US dollar reached a multi-year low on April 14 (~CNH6.8060) and poked above CNH6.84 ahead of the weekend. The greenback fell to almost CNH6.82 today. The PBOC seems to be signaling caution. Coming into today, it had set the dollar’s reference rate higher for the six of the past seven sessions. With the greenback, the PBOC lowered the fix today to CNY6.8579 (CNY6.8674 on Friday), its biggest adjustment in nearly three weeks.

• The rupee began today with a five-session losing streak in tow. On April 20, the central bank eased some of the foreign exchange restrictions that it announced earlier this month. The rupee lost almost 1.45% last week, its largest weekly decline since September 2022. It edged slightly higher today. The dollar slipped from INR94.2550, the pre-weekend close, to about INR94.1060 today before settling near INR94.1950.

Other Markets

• Equities in Asia and Europe are mostly firmer. There were a few notable exceptions in the Asia Pacific region, including Hong Kong, Australia, and Singapore, but the Taiwan’s Taiex rose nearly 1.9% and South Korea’s Kospi surged by 2.15%. Europe’s Stoxx 600 is up about 0.25% in late morning turnover. If sustained, it would be the largest gain in a little more than a week. US index futures are narrowly mixed.

• Benchmark 10-year yields are higher. The 10-year JGB yield rose almost four basis points to 2.45%. European yields are up mostly 2-3 bp. The US 10-year yield is up a little more than one basis point to approach 4.32.%. It was below 3.95% before the war began.

• Gold is trading quietly even if a little softer within the pre-weekend range. It is about a $30 range on both sides of $4700. Silver is also a little softer and is also within last Friday’s range.

• June WTI is firm near $96.40. It settled about $2 lower before the weekend. Last week’s high was close to $98.40. Last week’s low was slightly below $85.50.

Data

• Ahead of the outcome of the FOMC meeting on Wednesday and the press conference, the US economic agenda is light. The Dallas Fed April manufacturing survey is on tap for today, and more surveys tomorrow (Richmond Fed and Conference Board) and February house prices.

• Mexico reports March goods trade figures. In the first two months of the year, its trade deficit has nearly doubled to about $6.95 bln from $3.55 bln in Jan-Feb 2025 period. The driver is the 15.2% increase imports, while exports have been solid, rising 12.2%. These are nominal value and could suggest the possibility a term of trade adjustment.

• The German GfK March consumer confidence survey was in line with the deterioration reported last week by the ZEW and IFO survey (-33.3 vs -28.1). Pundits talk about China Shock 2.0, and while it is serious, the shock emanating from the US, first its threat to use force to take Greenland, and now the disruptive war in the Middle East is also powerful. There is little doubt that the ECB, which meets later this week, is on hold. Warnings by Lagarde that significant efforts by governments to cushion energy shock will boost the need for the central bank to hike rates, could be cast as a hawkish hold.

• Japan’s leading economic indicator bottomed last April (104.2) and has been trending higher. It reached 113.3 in February, its best level since August 2022. Last week, Japan reported that core inflation fell for the fourth consecutive month in March and was below the 2% target for the second consecutive month. A rate hike tomorrow would be a surprise and that is a powerful argument against a move. There is around a 72% chance of a hike for the next meeting in the middle of June discounted in the swaps market.

• China reported that Q1 industrial profits rose 15.5 from year ago, the most in five years. In Q1 25, they were up less than 1%. To be sure, there is an aggregate estimate, which conceals divergence between sectors. The low return on investment is a symptom of China’s excessive investment. Moreover, it often seems like the competition between regional governments underpins the “ruinous” competition between companies.

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About Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

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