ING: The USD - FJElite

The sell-off on Coreweave assets saw a modest reversal yesterday after Nvidia's CEO, Jensen Huang, said that Coreweave's financial strength was improving and its cost of capital was declining. Perhaps those comments should not be surprising from a major shareholder in Coreweave; let's see how long this bounce in Coreweave assets lasts. The big takeaway this week has been the recovery of the long-end of the US Treasury market, even as inflation data continues to come in hot. Here it seems that investors are starting to find value in long-dated Treasuries and are viewing those as a middling hedge against a correction in the AI trade. Were the tech sell-off to gain momentum, that Treasury buying would move to the shorter end of the curve.

While fears of an AI correction may be growing, inflation data continues to come in hot. Yesterday it was US September PPI data blowing away consensus. And today, import prices should come in near 8% year-on-year, the highest since summer 2022. Inflation data is keeping short-dated interest rates supported and has delivered a near 20bp flattening in the 2-10 year Treasury curve this week.

What does that mean for FX? Typically, an environment where the Fed is applying the brakes while growth prospects are being revised down is good for the dollar against activity and emerging market currencies. It is only when short end rates break lower that the dollar is ready to drop. And we are not there yet.