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Apr 09 - 04:55 PM

COMMENT - US Recap: EUR/USD Slips, USD/JPY Rebuffed Again By 152 Pre-CPI

By Randolph Donney  —  Apr 09 - 02:55 PM

The dollar index was about flat after risk-off flows into the London close pushed the yen and dollar havens higher and EUR/USD off its highest in eleven days ahead of Wednesday's key U.S. CPI report.

The drop in U.S. stocks into midday came amid geopolitical tensions, as markets prepare for Wednesday's CPI report and upcoming U.S. tax deadline.
That after February's firmer than forecast CPI and PPI reports and Friday's hot jobs data trimmed Fed cut pricing and sent Treasury yields above key resistance on Monday, before retreating.

Two- and 10-year Treasury yields fell 4.4bp and 5.8bp, respectively, Tuesday, likely driven primarily by position-squaring before Wednesday's CPI report.
If CPI is hotter than forecast, a June Fed rate cut will be less likely than a hold, and total 2024 cut pricing might favor just two, rather than the three in the latest FOMC dot plots.

U.S. small business sentiment slid in March to its lowest in 11 years, with inflation a lingering negative.

EUR/USD fell back below breakeven, as bund 2- and 10-year yields fell 3.9bp and 7.3bp.
A June ECB cut is fully priced in, with 85bp of cuts by year-end.
Thursday's ECB meeting may add to that view.

Hopes that global manufacturing and Chinese demand are rebounding, as the recent run-up in commodity prices hints, has some looking for a recovery in the euro zone's core industrial sector, just as the ECB eyes easing.

Potentially delayed Fed easing could also make U.S. growth less exceptional over time.

USD/JPY fell 0.07% after yet another close encounter with 34-year highs by 152, its 15th straight day and third consecutive year with highs huddled just below that level.

With the MoF and BoJ repeatedly warning all options for supporting the yen remain on the table and today's brief bout of derisking boosting the yen, the focus is on whether or not Wednesday's U.S. CPI will fuel a charge at 152 barriers and potential intervention above it.

If CPI is hot, the BoJ may wait before intervening, but with commodity prices on the rise again, a major yen slide would lift imported cost inflation and damage the still struggling economy.

Sterling rose 0.12%, but was well off its earlier 1.2709 high by the midpoint of the late-March slide.
Two and 10-year Gilts yields fell 3.7bp and 6bp, with a June BoE rate cut priced as slightly more probable than one from the Fed, and 68bp of cuts by year-end in line with Fed pricing.

The pound may have gotten a boost from March BRC retail sales, but the increase was seen due to an early Easter.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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