Dollar rebounds; blast from the past for yen & Argentina

While President Trump’s return to the trade war path this afternoon has led to a drop in the dollar, it has risen, on net, this week – despite (or perhaps because of) the absence of most US economic data releases. Indeed, a key driver of the dollar’s gains has been political developments elsewhere, notably Japan and France. We have revised down our yen forecast to account for the surprise ascent of Sanae Takaichi and the potential impact of “Abenomics 2.0”. While the ongoing US shutdown appears likely to limit the dataflow for a while yet, our sense remains that the money market is discounting too many FOMC cuts and that, accordingly, the dollar’s rebound has further to run.