Macro, FX and Rates Strategist

Ishaan Dev Kapoor

FX & Rates

Legacy Government (Sovereign) Generic Index-key ticker

<ul>
<li>The September 2027 contract prices three further hikes and a one-in-three chance of a fourth, 55bp above the committee's own projected path. We buy ZQU7 at 95.325 (4.675%), $7.5k DV01.</li>
<li>Diesel is 67% above a year ago, yet core PCE is running at 2% annualised. Firms are absorbing the shock, wages show no pass-through and inflation breadth is narrowing.</li>
<li>Policy is near neutral and financial conditions have tightened since September. Two further hikes would make policy restrictive in a supply shock; a less hawkish 2027 committee makes them unlikely.</li>
</ul>


The September 2027 contract prices three further hikes and a one-in-three chance of a fourth, 55bp above the committee's own projected path. We buy ZQU7 at 95.325 (4.675%), $7.5k DV01.
Diesel is 67% above a year ago, yet core PCE is running at 2% annualised. Firms are absorbing the shock, wages show no pass-through and inflation breadth is narrowing.
Policy is near neutral and financial conditions have tightened since September. Two further hikes would make policy restrictive in a supply shock; a less hawkish 2027 committee makes them unlikely.


A Terminal Rate the Data Do Not Support: Buying September 2027 Fed Funds Futures

<ul>
<li>The EUR/USD seagull was salvaged at 3 pips against 19.5 paid after the 16 September hike, having been marked +181% on 21 August. The USD/INR short expired flat at 95.98.</li>
<li>The euro trade paid on fiscal dominance, not the US front end we entered on. We overrode the Iran exit rule because we read misread a three-week regime</li>
<li>FCNR carried the INR through a 20% rise in oil, but faltered as prices soared 37%. We still see US disinflation in the data, and think 3 hikes are rich.</li>
</ul>


The EUR/USD seagull was salvaged at 3 pips against 19.5 paid after the 16 September hike, having been marked +181% on 21 August. The USD/INR short expired flat at 95.98.
The euro trade paid on fiscal dominance, not the US front end we entered on. We overrode the Iran exit rule because we read misread a three-week regime
FCNR carried the INR through a 20% rise in oil, but faltered as prices soared 37%. We still see US disinflation in the data, and think 3 hikes are rich.


Learnings from Two Short-Dollar Positions in an Oil Crisis

The US dollar is the official currency of the United States of America.

<ul>
<li>The dollar reacted to one macro factor all year, with a sensitivity statistically indistinguishable across five regimes; what changed was which driver moved the factor and whether others followed it.</li>
<li>Gold led before the Iran war, VIX during it and again in the fiscal-dominance weeks; since Jackson Hole the dollar has traded the factor itself, led by the front end.</li>
<li>A dollar factor and the same macro drivers explain 72%-85% of every G10 currency except the yen; beyond the dollar, NOK traded oil, CAD the BoC, NZD the RBNZ.</li>
</ul>


The dollar reacted to one macro factor all year, with a sensitivity statistically indistinguishable across five regimes; what changed was which driver moved the factor and whether others followed it.
Gold led before the Iran war, VIX during it and again in the fiscal-dominance weeks; since Jackson Hole the dollar has traded the factor itself, led by the front end.
A dollar factor and the same macro drivers explain 72%-85% of every G10 currency except the yen; beyond the dollar, NOK traded oil, CAD the BoC, NZD the RBNZ.


Five Regimes, One Reaction Function-  What the Dollar and G10 Have Traded on in 2026

<ul>
<li>Japan's 30-year yields 4.16%, 236 basis points over the Bank of Japan's neutral midpoint. Part is fiscal premium; the rest is the price of a domestic bid returning at 4%</li>
<li>Post-Covid inflation was supply-driven, imported through the yen, oil and food. Inflation excluding food and energy never exceeded 2.7%. Real wages are rising, consumption grows 1%: neutral, not above it.</li>
<li>The buyers' strike is ending. Life insurers sold ¥2.1 trillion of super-longs in FY2025 and are buying again; Meiji Yasuda doubled its plan; GPIF is pressed to add domestic assets.</li>
</ul>


Japan's 30-year yields 4.16%, 236 basis points over the Bank of Japan's neutral midpoint. Part is fiscal premium; the rest is the price of a domestic bid returning at 4%
Post-Covid inflation was supply-driven, imported through the yen, oil and food. Inflation excluding food and energy never exceeded 2.7%. Real wages are rising, consumption grows 1%: neutral, not above it.
The buyers' strike is ending. Life insurers sold ¥2.1 trillion of super-longs in FY2025 and are buying again; Meiji Yasuda doubled its plan; GPIF is pressed to add domestic assets.


Priced for a Japan That Has Not Existed Since 1991, Long the 30-Year JGB at 4.16%

The New Zealand dollar is the official currency of New Zealand.  

<ul>
<li>The September RBNZ resolved as we projected: a 25bp hike with the OCR path modestly trimmed, citing on-target core, anchored expectations, and a softening labour market. Hawkish previews were wrong.</li>
<li>Market pricing followed our mechanism. With the terminal effectively reaffirmed, the one-in-four weight on a hawkish 4% terminal priced out: the terminal fell 20bp to 3.28%; October halved to 30.5%.</li>
<li>Key risk arrived before the catalyst: right on the RBNZ, stopped trade. US-Iran escalation on 1 September took us out at -15bp; Brent hit $97.04, spiking the 1y1y to 4.14%.</li>
</ul>


The September RBNZ resolved as we projected: a 25bp hike with the OCR path modestly trimmed, citing on-target core, anchored expectations, and a softening labour market. Hawkish previews were wrong.
Market pricing followed our mechanism. With the terminal effectively reaffirmed, the one-in-four weight on a hawkish 4% terminal priced out: the terminal fell 20bp to 3.28%; October halved to 30.5%.
Key risk arrived before the catalyst: right on the RBNZ, stopped trade. US-Iran escalation on 1 September took us out at -15bp; Brent hit $97.04, spiking the 1y1y to 4.14%.


The Flightless Hike, Marked to Market: The RBNZ Did What the Data Said

FX & Rates
FX & Rates Insights

A Terminal Rate the Data Do Not Support: Buying September 2027 Fed Funds Futures

September 2027 fed funds price 55bp more tightening than the FOMC’s own path. With underlying inflation near target and conditions tightening, we...

Ishaan Dev Kapoor

Learnings from Two Short-Dollar Positions in an Oil Crisis

Post-mortem on two short-dollar trades through the oil shock: a EUR/USD seagull salvaged at −85% and a flat USD/INR short. What paid, which exit...

Ishaan Dev Kapoor

Five Regimes, One Reaction Function- What the Dollar and G10 Have Traded on in 2026

The dollar traded one macro factor all year with an unchanged sensitivity; though underlying drivers shifted In G10, four currencies traded beyond...

Ishaan Dev Kapoor

Priced for a Japan That Has Not Existed Since 1991, Long the 30-Year JGB at 4.16%

The 30-year JGB is priced for an economy Japan has not had since 1991. The insurers are back, the GPIF is being told to buy, and 4% is the level....

Ishaan Dev Kapoor

The Flightless Hike, Marked to Market: The RBNZ Did What the Data Said

Published six days before the RBNZ, our note said the track would hold and the hawkish premium would die on the projections. It did, in 40 minutes....

Ishaan Dev Kapoor