The medium-term bearish outlook for the Yen remains, as a landslide victory for the ruling LDP is largely priced in, while a loss of their majority could paradoxically be more negative. An opposition win could lead to greater fiscal expansion and political uncertainty, potentially weakening the yen more severely in the long run.
The market focus on Kevin Warsh's potential nomination as Fed Chair is misplaced for FX strategists. His dovish inclination is already priced into rates markets, no significant "uncertainty premium" existed to be removed, and the eventual impact of any balance sheet adjustments on interest rates is too slow and minimal to drive the dollar strategically.
Despite a dovish Bank of England and political noise, the bullish case for Sterling holds. Stronger economic data, like blockbuster PMI prints, counters the "doom loop" where fiscal tightening worsens growth. When activity improves, it becomes much harder for markets to price in a significant fiscal risk premium, underpinning the currency.
The Reserve Bank of Australia's recent rate hike is a major structural shift. It has created positive policy rate spreads against the US dollar, a dynamic unseen in five years. This positive carry provides a new, fundamental support for the AUD beyond just general risk appetite or commodity prices.
The Swedish central bank's verbal intervention against a strong Krona doesn't kill the bullish thesis but reframes it. The underlying supportive growth narrative remains intact. However, the currency may now lag other high-beta currencies, like the Australian Dollar, where the central bank is less resistant to strength, making it a relative value play.
The Israeli Shekel has reached historically expensive levels compared to its Asian tech-geared peers like the Taiwanese Dollar and Korean Won, diverging from historically stable relationships. This, combined with palpable central bank and exporter concern over its strength, makes the Shekel a prime candidate for a valuation-driven reversal against its Asian counterparts.