US FX WRAP: Dollar attempts to recoup Monday's losses as USD/JPY creeps back towards 158

Analysis details (20:39)

The Dollar was bid on Tuesday and clawed back some of Monday’s Yen-induced losses, after the hot US ECI (1.2% vs. 1.0% expected) saw the DXY reclaim 106.00 to the upside, before printing a peak of 106.26. Elsewhere, Chicago PMI and Consumer Confidence underwhelmed expectations, where consumer 12-month inflation expectations remained stable at 5.3% despite concerns about food and energy prices. Looking ahead, attention turns to the FOMC, JOLTS, ADP, ISM mfg., and QRA all on Wednesday, followed by NFP and ISM Services on Friday. Ahead of the FOMC, note WSJ's Timiraos wrote Wednesday that the Fed is to signal it has the stomach to keep rates "high for longer", noting that firmer price pressures could lead longer-term rates to rise as investors continue paring back expectations of cuts.

The Yen saw notable weakness highlighted by USD/JPY rising to a peak of 157.75 late in the session and on the heels of the hot US ECI data with participants cautious of any intervention. Regarding the move on Monday, a former Japanese top FX diploma said it was highly likely the government intervened to prop up the Yen. BoJ data also suggests they could have intervened, spending c. JPY 5.51-5.26tln or USD 35.3-33.7bln. Elsewhere, IP data beat expectations but retail sales missed.

Antipodeans were the clear underperformers on Tuesday, and relinquished Monday’s gains. For the Aussie, retail sales disappointed while CBA pushed back their first RBA rate cut forecast to November from September. Meanwhile, in New Zealand the ANZ business outlook eased to 14.9% from 22.9% M/M. As such, AUD/USD and NZD/USD hit lows of 0.6480 and 0.5895, respectively, vs. earlier highs of 0.6567 and 0.5979.

CAD, EUR, and GBP all saw losses against the Dollar to varying degrees, but outperformed their aforementioned G10 peers. The Loonie was hit on account of soft M/M Canadian GDP and strong US ECI data, while fresh UK catalysts were light. The Euro was softer as the Dollar caught a bid after the aforementioned ECI data paring the strength in the morning in wake of stronger than expected EZ GDP data and hotter than expected French CPI data, but EZ HICP was in line with forecasts, albeit core was slight firmer. Note, Eurex is closed on Wednesday due to Labour Day market holiday.

EMFX almost exclusively saw losses against the Buck, with only the Lira managing to eke out marginal gains as it was supported by lower oil prices. CLP and ZAR were notably lower and hit by steep losses in copper and spot gold, respectively. COP sold off before the Central Bank cut rates by 50bps to 11.75%, as expected, in a "majority" decision. Ahead of the BCB next week, Director Aquino said they have a very clear inflation target and see inflation expectations de-anchoring from targets, and as such central message is caution and will evaluate the data next week and make the best possible decision. Aquino added major concern is to have serenity and caution for monpol decision next week. Lastly, the Yuan saw slight losses, and overnight the NBS Manufacturing PMI data beat expectations although services PMI missed. Elsewhere, reports suggest China will hold a plenary meeting of the Central Committee in July to discuss economic development and reforms.

30 Apr 2024 - 20:39- Fixed IncomeData- Source: Newsquawk