EUR/USD, USD/JPY, EUR/GBP flows: Dollar still supported, Japan policy options still in focus

Reminders overnight that the Iran deal will not be plain sailing and the hardest part may still be to come as peace talks are called off amid further Israel strikes in Lebanon. JD Vance meanwhile reminds Israel that Trump is their only ally. The dollar remains well supported and currently has a more consistent tone though all the noise. Oil prices off the lows but not backing up substantially. Difficulties were to be expected. EUR/USD low now within ticks of the mid-March 1.410 low and key 1.14~ mark. Latter becomes a bigger test as through there and the move looks to have more momentum rather than a step adjustment.

In the UK, Burnham wins the by-election (55% to 35% for Reform) to set up a leadership challenge soon. This has long since been in the price though, and somewhat neutralised by pledges to stick to the fiscal rules, albeit with some more market challenging proposals over nationalism remaining.  Nonetheless, higher than expected public borrowing data this morning, GB23.3bn vs mkt 18.5, driven by interest rate costs, underscores the current pressured as well as gilt yield dependent environment, a narrative that always has the potential to break out

USD/JPY still very much in focus around the major highs.  BoJ’s Himino struck a relatively hawkish note emphasising the need not to delay hiking amid risks of inflation overshoot from supply and demand side factors, reinforced by minutes to the April meeting highlighting one argument that hikes should come more quickly. FinMin Katayama reiterated threats on yen and that have ‘confirmed at G7 we can take decisive action’. Intervention on any fast test of the major low is looking pretty high risk with BoJ and G7 out the way and critical levels in frame.