US FX WRAP: Dollar and Yen benefit from flight to quality, Antipodes and Scandi's lag

Analysis details (19:45)

The Dollar was broadly firmer against peers as a risk-averse theme was seen across the markets with the threat of US tariffs growing with US President Trump showing no signs of relinquishing the April 2nd tariffs. Trump also threatened 200% tariffs on alcohol products from France and EU-represented countries in response to the 50% tariff they imposed on US whiskey; EUR/USD saw immediate downside on the news. Thereafter, US PPI eased more than expected on both the headline and core prints, however, the prior saw upward revisions. Also, the metrics that feed into PCE mostly accelerated from the prior month. Initial and Continued jobless claims unexpectedly fell. DXY saw initial weakness on the PPI before moving to fresh highs of 104.08. Elsewhere, geopolitics was a key subject for the day as US Envoy Witkoff landed in Russia to engage in talks. Russia's President Putin agreed to the idea of a ceasefire in Ukraine but stated it should lead to long-standing peace, and he has lots of questions about the ceasefire. Regarding US/Russia energy cooperation, Putin said a gas pipeline for Europe could be provided if both countries cooperate. Friday's US calendar will offer the preliminary figures for March on consumer sentiment, with UoM due. Sentiment will closely be watched as it fell to its lowest level since November 2023 in February to 64.7. Expectations are for a continued decline to 63.1, while inflation expectations will be carefully watched, given the surge to 4.3% in February to multi-year highs.

G10 FX was largely softer, in fitting with risk-off trade. The Yen was the sole gainer in the space as lower US yields across the curve supported, while its Haven peer, CHF, saw modest losses. BoJ's Ueda echoed Wednesday's comment that underlying inflation remains slightly below 2%, but expects it to "gradually accelerate as the economy recovers". At pixel time USD/JPY sits ~ 147.70 . In typical fashion, Scandi's and Antipodeans were hit the hardest, while the CAD trimmed the majority of gains seen post-BoC amid Trump saying he won't bend on Canada metals, adding, that they don't need Canada's cars, energy or lumber.

In Europe, the main event was the debate in Germany over fiscal reform. Conflicting opinions were voiced by the CDU and the Greens party, with the leader of the former noting they have carried out good talks with the Greens and changed the proposal on the infrastructure fund to also include climate protection measures. While the Greens Leader said they "do not trust a word of CDU Leader Merz". To summarise, it appears the Greens will continue to reject the draft legislation of the CDU and SPD, as highlighted by earlier remarks from a Greens spokesperson. EUR/USD trundled lower after US PPI and as markets digested updates from Germany before paring some of the losses into APAC trade as remarks from Putin offered some hope regarding a ceasefire between Ukraine, although there are still clearly sticking points. Accompanying the Euro bounce, TTF gas prices slumped after Putin's aforementioned comments on a ceasefire and a possible gas pipeline for Europe. ING notes "Our view for the remainder of March remains that a decline to 1.080 is more likely than another rally to 1.10 in EUR/USD".

EMFX: MXN, INR, and CLP led gains in the EM space, while losses were seen in the CEE space, albeit to varying degrees. In Brazil, sector growth fell shy of expectations, potentially limiting gains on later reports that the Brazilian government decided certain coffee products and unrefined cane sugar should have zero import tax. Out of South Africa, a top ANC official said the ANC is prepared to engage with all other parties on the budget. This follows the DA and MK parties on Wednesday rejecting the budget; USD/ZAR was flat.

13 Mar 2025 - 19:45- ForexUS Research- Source: Newsquawk