2026-02-10 08:06

Key takeaways Weakened opposition now holds less sway over fiscal policy in Japan. FX intervention warnings could buy time to strengthen credibility and ease political and fiscal risks. USD-JPY is likely to remain choppy and elevated in 1H26, before moderating more sustainably in 2H26. Following Japan’s Prime Minister Sanae Takaichi’s surge in approval ratings, the Liberal Democratic Party (LDP) has secured a historic 316 out of 465 seats in the Lower House by itself, granting a two-thirds supermajority. This outcome enables the LDP to override decisions made by the opposition-controlled Upper House. Given the large victory, in our economists’ view, Takaichi now faces less pressure to accommodate her junior coalition partner or the opposition when it comes to the proposed consumption tax cut on food or other fiscal measures. For the JPY, Prime Minister Takaichi’s strong mandate presents both opportunities and challenges. While some market participants anticipate that this mandate could reinforce the Prime Minister’s “reflationary” policy stance, others suggest that reduced political compromise may result in greater fiscal discipline. At present, there remains uncertainty regarding potential changes to fiscal spending, funding strategies, monetary policy, and foreign policy following the election. With USD-JPY trading near the intervention zone of 158-162 during April-July 2024, the immediate focus for the FX market is whether Japan’s Ministry of Finance (MoF) will engage in verbal intervention as assertively as it did in January, and whether the prospect of coordinated intervention with US authorities will be highlighted once again. While FX intervention does not resolve underlying concerns about Japan’s fiscal sustainability, it could prompt some market participants to temporarily close short JPY positions to mitigate volatility. Such intervention can also provide time for the government to implement measures, such as tax adjustments to Nippon individual savings accounts (favouring domestic assets), regulatory measures or incentives for pension funds and insurers to increase FX hedging or shift towards domestic assets, and potential rate hikes by the Bank of Japan (BoJ), and more disciplined fiscal policy. A sustained recovery in the JPY is likely to require a more proactive BoJ, clear evidence of fiscal discipline, and supportive capital flow measures. However, the JPY could still strengthen if external factors deteriorate, such as a sharp decline in US real yields, increased US fiscal risks, or a severe global economic shock prompting major central banks to cut rates. Overall, we expect USD-JPY to remain choppy but elevated over the near term, before moderating in a more sustained way in 2H26. Our economists continue to forecast a single 25bp rate hike by the BoJ in July, though the risk of earlier or additional hikes is increasing, given ongoing JPY weakness and the likelihood of continued fiscal expansion under the new administration. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/jpy-takaichi-wins-an-overwhelming-supermajority/

2026-02-09 12:02

Key takeaways The RBA raised rates, with the next hike expected in 2H26. The BoE’s dovish hold raised near-term rate cut expectations, with the GBP likely lagging the AUD. The ECB kept rates steady and downplayed concerns about EUR strength; EUR-GBP may raise over the near term. On 3 February, the Reserve Bank of Australia (RBA) increased its cash rate by 25bp to 3.85%, in line with market expectations. The RBA also revised its nearterm growth, and inflation forecasts upwards to 2.1% and 4.2% by June 2026 (previously 1.9% and 3.7%), assuming the cash rate reaches 4.2% by end-2026. Our economists view the RBA’s overall stance as fairly hawkish, indicating potential for further tightening, and anticipate an additional 25bp increase in 3Q26. The AUD’s recent rally looks a bit stretched, up c3.5% against the USD year-to-date (Bloomberg, 6 February). Consequently, AUD-USD is likely to consolidate over the coming weeks, with external factors − rather than rate differentials − driving moves over the near term (Chart 1). Source: Bloomberg, HSBC Source: Bloomberg, HSBC The Bank of England (BoE) narrowly voted (5 to 4) to keep rates steady at 3.75% on 5 February, with Swati Dhingra, Alan Taylor, Dave Ramsden, and Sarah Breeden favouring a 25bp cut − more dovish than markets expected. The overall messaging was also dovish, with CPI inflation now forecast to fall to 1.8% in two years. Markets are now almost fully pricing in a 25bp cut for 30 April, with a c60% chance of an earlier move in March (Bloomberg, 5 February). Unsurprisingly, the GBP weakened after the announcement. Meanwhile, the European Central Bank (ECB) kept rates unchanged as expected in February, but struck a slightly hawkish tone, highlighting resilient growth (Chart 2). ECB President Christine Lagarde downplayed the recent inflation dip and signalled rates will remain on hold for some time. She also dismissed concerns about EUR strength, noting FX moves are already factored into forecasts and the EUR remains within its average range. In summary, the BoE’s dovish tilt and the ECB’s comments on the EUR suggest some upside risk for EUR-GBP. The GBP may also lag behind currencies that are in a monetary tightening cycle, like the AUD. However, US factors are likely to drive GBP-USD and EUR-USD higher over the near term. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/aud-eur-and-gbp-central-banks-in-focus/

2026-02-04 07:06

Key takeaways Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-trends/g10-currencies-a-bumpy-ride/

2026-02-03 12:02

Key takeaways In the FY26-27 Union Budget, the government guided towards a slower pace of fiscal consolidation, and continued its thrust on capex and slightly higher-than-expected borrowing. The Reserve Bank of India (RBI) is unlikely to cut interest rates at the upcoming Monetary Policy Committee (MPC) meeting on 6 February, given that inflation seems to be trending higher towards its target range. The Budget was largely mixed for Indian equities. Commitment to fiscal consolidation and the announcement of taxation of buybacks at the capital gains tax rate are structural drivers. The hike in the Securities Transaction Tax (STT) is likely to be a negative for equities. We favour domestically oriented sectors, including consumer discretionary, financials and industrials. Indian local currency bonds continue to offer attractive absolute and relative yields, as well as diversification benefits due to their lower correlation with global bonds. Please refer to the full report for details about the event and our investment view. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/union-budget-provides-a-supportive-backdrop-for-long-term-growth/

2026-02-02 12:02

Key takeaways The USD is the worst-performing G10 currency so far this year, closely followed by the CAD. Structural issues are likely to keep the USD under pressure over the near term, in our view. USD-CAD may drop with broad USD weakness, though trade uncertainty could drive it up. Year-to-date, the USD has been the weakest G10 currency, with the CAD close behind (Bloomberg, 29 January). While the CAD has strengthened against the USD − reflecting movements in the broader USD Index and a reduction in net short positions (Chart 1) − it remains the laggard within the G10 group (Chart 2). This is mainly due to uncertainty around US-Canada trade relations, especially the upcoming US-Mexico-Canada Agreement (USMCA) review. The Bank of Canada highlighted these concerns at its 28 January meeting, where the policy rate was kept at 2.25%, in line with expectations. Given these uncertainties, we maintain a cautious outlook for the CAD in 2026, despite robust domestic data that would usually support a stronger currency. Over the near term, USD-CAD could drop further, reflecting broad USD weakness, though trade uncertainty may present upward risk. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Turning to the USD, its near-term direction appears to be shaped more by structural concerns than by immediate monetary policy decisions. The Federal Reserve (Fed) kept interest rates unchanged at its 27-28 January meeting, with two members dissenting (see FX Viewpoint Flash – USD: Fed pauses; headwinds remain, 29 January 2026). Although markets still anticipate two 25bp rate cuts from the Fed this year, expectations for any easing at the next two meetings (17-18 March and 28-29 April) remain low (Bloomberg, 29 January). The USD is likely to remain under downward pressure over the near term, primarily due to structural factors, such as concerns about Fed independence, the possibility of abrupt shifts in US policy, and speculation around joint US-Japan FX intervention (FX Viewpoint Flash – JPY: Intervention speculation, 26 January 2026). Some market participants characterise this trend as “USD debasement” or a “de-dollarisation” trade − a view based on expectations of a long-term decline in the USD’s purchasing power, driven by unpredictable policy decisions, persistently large fiscal deficits, and growing US isolation (Bloomberg, 29 January). https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-and-cad-continued-underperformance/

2026-01-30 12:02

Key takeaways Geopolitical tensions have increased market volatility, with recent developments around Greenland and Iran adding to the complexity. However, we anticipate that any sell-off will be less severe than that of last April. Our investment strategy aims to capture the broadening opportunities driven by AI-led innovation while navigating geopolitical uncertainties through multi-asset diversification, including increased exposure to alternatives and gold. While we remain positive on global and US stocks and continue to position in Asia for geographical diversification, we have adjusted our equity allocation by upgrading Materials across regions and underweighting Europe ex-UK stocks after taking profits on European peripheral markets. UK Gilts have performed well since the Autumn Budget and benefit from favourable tailwinds, supporting our upgrade to overweight, and aligning with our investment grade credit positioning. We also upgrade Japanese government bonds to neutral following the recent sell-off. Asia’s growth drivers remain robust, underpinned by resilient domestic demand and strong AI-related exposure, along with solid upstream industrial activity. Fiscal stimulus, supportive monetary measures and investment boosts outlined in China’s 15th Five-Year Plan provide a positive backdrop for the equity market. Hong Kong benefits from an improving property market outlook and strong capital inflows. Japan’s expansionary policy and solid earnings growth, South Korea’s rising memory-chip cycle, and Singapore’s safe-haven appeal add to Asia’s allure for investors. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/diversifying-further-amid-evolving-geopolitical-risks/