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Jun 13 - 10:55 AM

SocGen: Dollar to Stay Range-Bound Until Carry Party Ends; Short EUR/JPY Ahead of BoJ Meeting

By eFXdata  —  Jun 13 - 09:30 AM


SocGen expects the dollar to remain range-bound due to current Fed policy expectations and sees short EUR/JPY as an attractive trade ahead of the BoJ’s June meeting. The recent US CPI data supports the view that the Fed is more likely to cut rates rather than hike, while European political risks and Japanese securities flows add further dimensions to the currency dynamics.

Key Points:

  1. Dollar and Fed Policy Expectations:

    • The dollar is closely tracking Fed policy expectations, with current market pricing indicating an 80bp cut in rates over the next year.
    • Recent CPI data has aligned rate expectations back to early June levels, reducing the likelihood of further rate hikes.
  2. CPI Data Impact:

    • The CPI data has diminished the chances of the Fed hiking rates, reinforcing the likelihood of rate cuts.
    • This has left the dollar strong but without significant domestic drivers for further appreciation.
  3. Focus on European Politics and BoJ Meeting:

    • European political risks are contributing to the dollar's current strength, with about a 0.5% risk premium priced into the Dollar Index.
    • The upcoming BoJ meeting is also a focal point, with potential policy changes impacting currency flows.
  4. Japanese Securities Flows:

    • Japan's recent securities flow data showed a record weekly net sale of foreign assets, including a significant sale of foreign bonds.
    • If the BoJ announces a reduction in bond purchases, this could further influence currency movements.
  5. Short EUR/JPY Trade:

    • Given the current market conditions, SocGen sees short EUR/JPY as an attractive trade ahead of the BoJ meeting.
    • The potential for reduced bond purchases by the BoJ could lead to further JPY strength against the EUR.


SocGen anticipates the dollar will remain range-bound due to Fed policy expectations, with no significant domestic reasons for further strength. The recent US CPI data has reinforced the likelihood of rate cuts, while European political risks and the upcoming BoJ meeting add to the market dynamics. In this context, short EUR/JPY is seen as an attractive trade, particularly if the BoJ announces a reduction in bond purchases.

Société Générale Research/Market Commentary


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