USD: Supported despite lack of US data It’s been a quiet start to the week in the currency market, and – as discussed yesterday – lower FX volatility is fuelling a return to carry trades. One of the most popular FX carry trade – long MXN/JPY – has returned 2% since the weekend, despite the risks of more intervention by Japan to support the yen. JPY is, after all, the currency that has moved the most (-1% vs USD) in the G10 this week, and appeared to be helping the dollar strengthen at a broader level overnight. Along with the pressure from its funding character amid falling cross-market volatility, the short-term speculative bias is still apparently to test Japanese authorities’ tolerance for a weaker yen. On the US side, the only highlight today is mortgage application figures in a generally quiet period data-wise ahead of the 15 May CPI report. The Fedspeak calendar includes speeches by Susan Collins and Lisa Cooks, who both stand in the “neutral” part of the hawk-dove spectrum. Yesterday, the more hawkish-leaning Neel Kashkari published a note discussing how tight policy actually is, and suggesting a structurally higher post-pandemic neutral rate. In an interview, he also said another hike cannot be ruled out.