2026-01-30 12:02

Key takeaways The FOMC left rates unchanged and did not shift its stance despite two dissenting votes. Fed Chair Powell stuck to previous data dependent guidance; our economists expect rates to remain steady. The USD is likely to face near-term pressure from structural concerns, rather than monetary policy changes. Following a series of 25bp rate reductions at the Federal Open Market Committee (FOMC) meetings in September, October, and December last year, the Committee voted by a margin of 10 to 2 to maintain the federal funds target range at 3.50- 3.75% during its 27-28 January meeting, in line with market expectations. The forward guidance portion of the policy statement was little changed. The two dissenting votes came from Fed Governors Stephen Miran and Christopher Waller, both of whom advocated for a further 25bp cut. Notably, Governor Miran, who had previously pushed for larger 50bp cuts, moderated his position, while Governor Michelle Bowman − who has previously indicated that rates have room to fall (The Wall Street Journal, 16 January) − did not dissent on this occasion. It is important to note that two dissenting votes fall well short of the consensus required for additional easing in future meetings. Fed Chair Jerome Powell emphasised that these dissenting views represented a minority, highlighting “broad support” within the FOMC − including non-voting members − for holding rates steady. The FOMC comprises 19 policymakers in total (12 voters and 7 non-voters), with voting rights rotating annually. For markets, Fed Chair Powell’s press conference offered the prospect of two main strands of inquiry – guidance around the likely policy path and Fed independence. On the latter, Chair Powell basically said he had nothing to say on the topic, leaving markets to interpret the policy guidance. The overall tone was relatively hawkish, with no indication of imminent further easing. Powell reiterated that no decisions had been made regarding future meetings, noting that the US economy is growing at a solid pace, the unemployment rate is broadly stable, and inflation remains somewhat elevated (Bloomberg, 29 January). He also noted that both upside risks to inflation and downside risks to employment had “diminished a bit”. This position allowed the USD to remain steady, supported by US Treasury Secretary Bessent’s earlier comments that the US “has a strong dollar policy”, and the Treasury is “absolutely not” intervening in the currency market (Bloomberg, 29 January). Fed Chair Powell’s remarks were consistent with a wait-and-see approach regarding future rate changes. Our economists’ view remains that the FOMC will keep rates steady through 2026 and 2027, though as always there will be important double-sided risks to this outlook to consider as the US economy evolves. Market expectations, however, also remain largely unchanged, with two additional rate cuts still anticipated later this year (Bloomberg, 29 January). In summary, we expect the USD to face ongoing downward pressure in the near term, driven primarily by structural concerns, such as questions around Fed independence and potential FX intervention to weaken the USD against the JPY, rather than the immediate trajectory of US monetary policy. While Fed Chair Powell did not address these structural issues in his latest remarks, they remain relevant for market sentiment. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-fed-pauses-headwinds-remain/

2026-01-29 12:01

Key takeaways As expected, the FOMC decided to keep the federal funds target range steady at 3.50-3.75% in January, following a sequence of rate cuts at the September, October and December policy meetings last year. While the Fed didn’t ease at this meeting, the 10-2 vote split, with two FOMC voters favouring a 0.25% rate cut, indicates a modest bias towards less restrictive rate policy within the Fed. Although the latest FOMC dot plot implies roughly one 0.25% cut in 2026 and another in 2027, we maintain our view that there will be no further rate cuts through 2026 and 2027, with double-sided risks to this outlook as the economy evolves. Chair Powell noted that the growth outlook has improved since the last FOMC meeting and reiterated that inflation remains above the Fed’s target, with tariffs likely to result in a one-time price increase. We continue to overweight investment grade credit, where we still see opportunities for investors to capture solid yields. For equity investors, robust economic growth and strong corporate earnings continue to be supportive. Combined with the ongoing tech revolution led by AI, this backdrop underpins our bullish view on global equities, with an overweight stance on US stocks. We expect the USD to remain under selling pressure in the coming weeks, mostly on structural concerns. 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/policy-on-hold-as-the-fed-signals-patience/

2026-01-29 08:06

Key takeaways The EU-India FTA has been announced, bringing together two large regions with complementary trade baskets and large potential to integrate. For both sides, the trade deal will likely bring diversification benefits beyond goods trade. The aim is to double bilateral trade in five years; sectors to benefit include textiles, jewellery, and engineering goods for India, automobiles and defence for the EU. After a two-decade long negotiation, India and the EU have finally sealed a Free Trade Agreement (FTA). The implementation is likely in 2027, following legal vetting and EU parliamentary approval. This is amongst the larger global trade deals recently negotiated. India and the EU combined account for around 25% of global GDP, and the deal is billed as the largest ever made by both sides. The potential for growth is substantial, given the trade in this region is only 0.6% of global trade. The benefits could eventually go beyond goods trade, including larger FDI flows, more services trade, and strategic diversification. The FTA is described as the “mother of all deals” – which is balanced, yet ambitious and mutually beneficial for both parties.In FY25, India-EU goods trade was almost USD140bn. Details show that the India-EU trade is built on complementary value chains. The EU sells capital goods and industrial inputs to India (such as high-end machinery, electronic components, aircraft, and medical devices). India sells labour-intensive and consumer-focused goods to the EU (such as smartphones, garments, footwear, pharmaceuticals, auto parts, and diamonds, though fuel tops the list). As per the press release, the trade agreement aims to liberalise 92-97% of tariff lines. Officials hope the deal will double bilateral trade within five years. In detail, several sectors are to be liberalised, while respecting red lines on both sides: Labour-intensive exports like textiles, leather, marine products, gems and jewellery are set to gain from preferential access and tariff elimination. India to cut import duties on automobiles from 110% to as low as 10% (quota of 250k). Indian-made automobiles to get access to the EU market. Tariffs on the EU’s export of wine to be cut from 150% to 75% (and eventually reduced to 20%). Both sides to get preferential access to each other’s agricultural markets, while safeguarding sensitive sectors (e.g. dairy for India and chicken/beef for the EU). Services trade is likely to benefit from preferential access (e.g. in financial services). Labour may benefit from easier mobility norms. Investment may get a boost from supply chain integration and deeper partnerships (for instance, in defence) 0.6% of global trade EU-India trade remains limited, with room to grow For India, just when it was needed Meaningful unrealised potential. As a block, the EU is India’s largest trading partner. In FY25, India exported USD76bn of goods to the EU and bought USD61bn of goods from the EU. Prior to this trade deal, the ITC export potential map showed that c50% of India’s export potential to the EU remains untapped. As per ITC, large gains are possible across several sectors – machinery, jewellery, electronics, pharmaceutical components, and textiles. c50% of India’s export potential to the EU remains unrealised Substitute for US exports. The 50% tariff imposed by the US on India’s exports has led to efforts by Indian exporters to look for new destinations. Interestingly, India’s exports in value terms to the EU (USD76bn in FY25) and the US (USD87bn) are in the same broad range, and the products traded are also similar (see exhibit 5, barring the large fuel exports to the EU). From that perspective, the EU could be a region that India wants to focus on, to redirect some of its exports. Indeed, labour intensive sectors, such as textiles and gems and jewellery, were most at risk with the US tariffs (see exhibit 6). These may now benefit from tariff elimination in the India-EU trade deal. In the medium term, gains could be larger and beyond goods trade, spilling over into FDI flows (India currently gets 16% of its FDI from the EU), and more integration in services trade (c20% of India’s IT exports currently go to the EU). External reforms strengthen. This trade deal follows other recent external sector reforms. India signed several trade deals last year, including deals with the EU, New Zealand, and Oman. It is opening up more sectors for FDI (e.g. FDI limits in insurance have been raised from 74% to 100%). And it is lowering tariffs on imported intermediate inputs (we expect more on this in the 1 Feb budget). As we have previously described,these steps should help grow India’s manufacturing sector, which has been a laggard, especially when compared with India’s services exports. For the EU, a deal with trade but also strategic implications From the EU’s point of view, the deal also represents an opportunity to improve its access to a large market (1.4 billion people) that is still relatively closed. Today, India represents only 0.8% of the EU’s exports in goods, versus 3.6% for mainland China for example. Given the focus on cars in the deal, there is potential to increase the share of India in EU exports in machinery and transport equipment (1.1% versus 4.9% for mainland China), a sector that represents the largest part of EU exports to India (see Exhibit 7). There could also be an opportunity for the European defence industry, given the willingness to strengthen defence ties via the EU-India Security and Defence Partnership. The trade deal could especially benefit Germany, France, and Italy as they are the EU countries that export the most to India in absolute terms (with respectively 35%, 15%, and 11% of EU exports to India, see Exhibit 8). In relative terms, India represents the higher share of total exports for France (1.4%), Belgium (1.3%), Germany (1.2%),and Finland (1.1%). Beyond trade, the deal also has strategic implications for the EU as it allows to strengthen the diplomatic and defence ties with a key strategic partner in Asia. It also supports diversification away from China and the US, extending the push seen with the recent EU-Mercosur deal. Risks: That said, EU farmers may protest against agricultural imports from India. The FTA still needs to be approved by the European Parliament (EP), which would take at least a year. Recently, the European Court did not approve the EU-Mercosur deal, which now awaits judgement by the EP. Secondly, the EU’s carbon border levy could blunt some tariff gains for India, especially for sectors such as steel, although today’s press release mentions some flexibility has been secured. Either way, key sectors like pharma and textiles are relatively less carbon intensive. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/finally-done-meaningful-benefits-to-come/

2026-01-27 07:04

Key takeaways USD-JPY fell sharply amid possible US-Japan joint FX intervention. History shows coordinated FX intervention can be impactful, though not a guaranteed solution. Japan faces fiscal consolidation challenges, with FX intervention and policy changes under consideration. USD-JPY experienced a sharp decline late Friday during the US trading session, following reports that the New York Federal Reserve (Fed), on behalf of the US Treasury, conducted rate checks (The New York Times, 23 January). This move came after an earlier surge in USD-JPY during the Bank of Japan (BoJ) Governor Ueda’s press conference, and subsequent remarks from Finance Minister Katayama highlighting the Japanese government’s heightened vigilance over FX market developments (Bloomberg, 23 January). Given how the Japanese and US authorities have already emphasised their shared concerns about the JPY a couple of weeks ago (Bloomberg, 13 January; US Treasury’s readout on 14 January), this recent rate check suggests joint intervention is possible over the near term. Source: Bloomberg, HSBC Historical precedent suggests that coordinated FX intervention between Japan and the US, such as the impactful action on 17 June 1998, tends to be more effective than unilateral measures. On that occasion, both parties sold modest amounts of USD (USD0.8bn by the US and USD1.7bn by Japan), resulting in a 6% move in USD-JPY, with no further intervention for an extended period. However, frequent joint interventions over May 1989-April 1990 (where the US sold USD12bn and Japan sold USD22bn in total over numerous occasions) did not provide a lasting solution, indicating that US involvement is not necessarily a game-changer or a panacea for the JPY’s weakness. Currently, a risk premium is evident for the JPY, as reflected by the divergence between USD-JPY and yield differentials. Market concerns regarding Japan’s fiscal sustainability have intensified amid inflation and political shifts. With general elections on 8 February and ongoing discussions around consumption tax relief, concrete strategies to address fiscal gaps remain under debate. While fiscal dominance is not inevitable, restoring credibility will require time and further action from Japanese authorities. Meanwhile, FX intervention and measures to encourage domestic investment over foreign assets may provide support for the JPY. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/jpy-intervention-speculation/

2026-01-26 08:04

Key takeaways The JPY has stayed weak amid domestic political uncertainty. “Risk-on” G10 currencies have outperformed, supported by global risk appetite and easing trade tensions. Domestic drivers are supporting AUD and NZD strength. The JPY has kicked off 2026 on a weak note (Chart 1), with attention on the snap election set for 8 February (Bloomberg, 19 January). Political uncertainty in Japan has pushed USD-JPY away from the usual yield differential trends (Chart 2), signalling a growing risk premium for the JPY. With market nerves unlikely to settle over the near term, JPY weakness looks set to persist. However, Japan’s Ministry of Finance may intervene if USD-JPY rises further. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Meanwhile, “risk-on” currencies − AUD, NZD, NOK, and SEK – have outperformed other G10 currencies year-to-date, each posting notable gains against the USD (see Chart 1). Their outperformance appears to be somewhat supported by a favourable global risk environment, with international equities (excluding the US) outperforming the S&P 500 Index (Bloomberg, 22 January). Additionally, market sentiment might have improved following the recent easing of tensions surrounding US-EU trade issues related to Greenland. Recent developments have highlighted the potential for rapid shifts in US policy, with periods of escalation followed by sudden reversals. This volatility has weighed on the USD, as well as US equities and bonds − a combination referred to as the “Triple Threat”. These developments warrant close monitoring (see “FX Viewpoint Flash” USD: The “Triple Threat” reminder, 21 January for further details). On the domestic front, several factors are supporting the AUD and NZD. Our economists expect both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) to deliver two rate hikes in 2026, with the RBA anticipated to begin tightening on 3 February. Markets currently price in a c60% chance of this move (Bloomberg, 22 January), suggesting further potential for rates-driven AUD strength. While New Zealand’s rate hikes may come later, its economic recovery is gaining momentum, aided by supportive fiscal policy ahead of the general election on 7 November (ABC news, 21 January). All this could present upside risks for the NZD over the coming months. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/g10-currencies-leaders-and-laggards/

2026-01-22 07:04

Key takeaways The “Triple Threat” occurred on 20 January, marking the first simultaneous move in months across USD, equities, and yields. This rare combination may indicate reduced confidence in the US and present challenges to traditional portfolio diversification. If it persists for consecutive days, it could signal deeper structural concerns, which warrant close monitoring. On 20 January, we observed a rare market event: the USD weakened, US equities (S&P 500 Index) declined, and US Treasury yields rose − a combination we refer to as the “Triple Threat”. This was the first instance of such a pattern since the aftermath of “Liberation Day” in April last year. Under typical market conditions, rising Treasury yields are associated with stronger growth expectations or higher inflation, which generally support equity markets. Conversely, when both equities and bond yields fall, it usually signals a deterioration in risk appetite, with the USD often strengthening as investors seek safety. The distinguishing feature of the recent “Triple Threat” is the simultaneous weakness in the USD. A declining US Dollar Index (DXY) alongside rising Treasury yields suggests that nominal yields are not sufficiently attractive to draw in capital. This may reflect concerns about real returns, policy uncertainty, or doubts regarding the sustainability of US fiscal and monetary frameworks. Rather than indicating healthy global risk appetite, USD weakness in this context points to reduced confidence in the US. From a portfolio perspective, this scenario challenges traditional diversification strategies, as both risk assets and defensive holdings like the USD can experience drawdowns at the same time. This shift in correlations raises important considerations for portfolio construction and risk management. Historically, “Triple Threat” has been relatively infrequent. Since 2000, it has occurred on 455 out of 6,797 trading days (around 6.7%), with a maximum run of three consecutive days. Looking further back to the early 1970s, the longest stretch was four days. In summary, the “Triple Threat” serves as a signal of underlying structural concerns in the market, rather than typical cyclical fluctuations. If this pattern persists for consecutive days or over the coming days, it may warrant closer attention and a reassessment of market positioning. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-the-triple-threat-reminder/