UBS: Week Ahead - FJElite
- USD strength appears increasingly vulnerable as markets question the Fed's willingness to follow through on its hawkish rhetoric. With July's policy pause, softer inflation and labor market data, crowded long-USD positioning, and aggressive Fed pricing, the bar for more USD gains remains high ahead of the 16 September FOMC meeting.
- The debate over how to measure inflation could help the Fed avoid further tightening. Chair Warsh's preference for trimmed-mean inflation gauges, coupled 'with upcoming revisions to the core PCE methodology that may lower measured inflation, reinforces the narrative that the Fed is closer to achieving its inflation objective than headline measures currently suggest.
- We favor positioning for fading of intervention- induced JPY strength through a tactical AUDJPY long, reflecting our view that intervention alone is unlikely to alter underlying yen fundamentals. For yield pickup opportunities, we favor selling JPY upside risk versus the AUD and USD. selling USD upside versus the NZD, and selling EUR upside versus the NOK.