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Jan 10 - 03:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Firms On ECB Comments, But Yen Drop Main Mover Pre-CPI

By Randolph Donney  —  Jan 10 - 01:35 PM

The dollar index fell 0.1% amid big gains against the BoJ-defenseless yen and losses versus the euro due to 2-year bund-Treasury yield spreads rising to the highest since July, partly in response to comments from ECB hawk Isabel Schnabel.

The yen was sold broadly on Japanese data showing regular wages rose just 1.2% and real wages fell 3.0% year-on-year in November.

The drop in real wages highlights lingering inflation, but also the lack of domestic demand-driven wage gains the BoJ has said are a precursor to ending negative rates.

The real wage drop comes amid tumbling Japanese household spending that should remain a drag on growth and inflation that the disinflationary December Tokyo CPI report this week reinforced.
And perhaps part of why BoJ governor Kazuo Ueda last week said he was in no rush to unwind ultra-loose monetary policies.

In contrast, on the eve of the U.S. CPI report on Thursday, markets are trying to gauge the probability of a U.S. soft-landing and cuts to the Fed's current 5.5% policy rate versus the -0.1% BoJ rate.

BoJ accommodation has sent the Nikkei 225 to its highest since just after 1990s record bubble high, fostering risk-on flow out of the haven yen and into USD/JPY the N225 is positively correlated with.

USD/JPY rose 0.8% toward Friday's 145.98 post-payroll peak by key resistance that looks pivotal into Thursday's CPI release.

EUR/USD rose 0.34% to near the 10-day moving average, but remains within Friday's U.S. jobs data day 1.0877-1.09985 range on EBS.

Other than Schnabel's comments, ECB policymakers pointed to a tepid euro zone economic recovery outlook from a likely late 2023 recession in the face a grim outlook for the German property market and supplychain risks.

Sterling rose 0.24% helped by higher gilts-Treasury yield spreads, though spreads remain below their November and December highs, despite BoE 2024 rate cuts pricing of roughly 30bp less than for the Fed.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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