Summary: JPY slide accelerated yesterday and continued overnight after US Treasury yields rose on stronger-than-expected US ISM services survey in August. Verbal interventions from Japan’s Ministry of Finance have barely registered in the market, which would need to see a sharp drop in interest rates or a policy shift from the Bank of Japan to have any reason. Why to stop valuing the yen.
FX Trading Focus: Yen drop accelerates after strong US ISM Services survey. NOK as Prime Minister of Norway agrees in principle to cap energy prices.
Selling volume was broad and deep yesterday and overnight after the US ISM services survey was stronger than expected, seeing relatively strong sub-components including 61.8 new orders and price levels paid 71.5 is still high, with employment rebounding at 50.2. That inspired US Treasury yields to hit new domestic highs, with the 10-year benchmark peaking at 3.3% and closing almost all but two days of the rally. brief spike in mid-June. The already plummeting yen suffered further widespread losses, and the noise from Japanese Finance Ministry officials did not make an impression for more than a few minutes. Chief Cabinet Secretary Matsuno said that „the government will continue to monitor movements in the foreign exchange market with a sense of urgency and will take the necessary responses if this pattern of developments continues.” And Finance Minister Suzuki added that he is watching the yen’s weakness with „great interest”, as reported by Bloomberg. It will take more than major interest rates to stem the weakening of the JPY if central banks continue to tighten and yields continue to rise – a few billion interventions will likely only slow the decline and make it easier. more volatile, so the only way to reverse the JPY decline more than better is through a change in policy by the BoJ or the Fed in aggressive easing mode. The latter is definitely not just hanging around.
Elsewhere, the US Dollar has been stronger after the ISM Services survey, quickly sending EURUSD to new cycle lows, but we seem to have a lot to add with each rally of the US Dollar, a volatile picture and suggests that its bullish trajectory is perhaps more difficult at these levels. There will certainly be an important test for the EURUSD pair itself tomorrow with the ECB meeting, which I have argued that President Lagarde and company must surprise with a 100 basis point move if they want to make a good impression. It is likely that some breakthrough in the energy situation is the key ingredient needed to provide more relief to the euro – and sterling – and will outperform any move by the ECB or anything else for European currency. Russian leader Putin is playing the game ahead of an EU energy summit this morning, saying he is ready to turn gas back on through the Nord Stream I pipeline if 'they’ provide turbines to drive the lines. gas and even said that Nord Stream 2 can be activated at any time. This contradicts stories of days before Russia publicly acknowledged the militarization of gas flows.
Regarding the energy price cap, Norwegian Prime Minister Støre said that Norway is ready to cap the price, warn only against anything that might limit production and hand it over to the main oil/gas companies due to State controls such as Equinor agree to both short-term deliveries. and long-term contracts. Equinor’s share price has been falling sharply lately and today, but NOK is taking the news pretty well. NOKSEK is likely to demonstrate volatility among NOKs if the end result improves risk sentiment in Europe through lower gas prices, as SEKs tend to trade with a high beta versus EU outlook. Figure
NOKSEK is on a number of interesting topics for Europe – mainly energy prices, which are a big boon for Norway’s current account, but less so for NOK, which is capital. tend to grapple with low risk sentiment and weaker liquidity conditions. Falling oil prices from June highs have partially offset fall gas earnings. The Swedish krona traded weaker as Sweden is often seen as a leveraged economy for its exports to the EU growth outlook. Any slight pullback in European energy prices can be strongly felt in the pair, which recently broke above the 1.1000 region which has often provided resistance in recent years. An additional risk to NOK could be any deal that sees the country agree to supply gas flows significantly lower than has been traded in recent months in the dormant EU futures market. dynamic and illiquid when the EU meets in Brussels on Friday to tackle the gas issue. surge. / electricity price.
The Liz Truss pound bailout rally so far has been a very short one – as with the euro, we will likely need a sharp short-term decline in electricity/fuel prices to sentiment improves on the British pound. EURGBP rebounded strongly at the upper end of the range and remains watched for the relative weakness of the pound, especially as recent highs are not far from the 0.8700 region, the upper boundary of the euro. The range is set from early 2021 when the exchange rate stabilizes. post-Brexit.
China continues to grapple with CNH weakness, setting the benchmark for the domestic CNY surprisingly strong-than-expected again overnight. Chinese President Xi Jinping encouraged Bank of Canada
higher later in the day – projecting a 75 basis point increase to 3.25%, thus staying slightly ahead of the Fed on key interest rates.