European Currencies Find Poise, PBOC Shows Weak Bias In Yuan Fixing

Ongoing talks between Ukrainian and Russian envoys have seemingly outweighed a slew of negatives as the new week got underway. The Kremlin confirmed that negotiations will resume in video format today, with Ukrainian President Zelensky noting that Kyiv will insist on eventually elevating talks to presidential level.

• As envoys were preparing for their upcoming videoconference, Russian troops fired a barrage of rockets on a Ukrainian base close to the border of NATO member Poland and reportedly shot an American journalist in Irpin.
• The wider risk backdrop is further complicated by escalating Covid-19 flare-ups in China (resulting in a snap lockdown in Shenzhen) and heightened tensions in the Middle East, where Iran fired missiles on northern Iraq and suspended diplomatic talks with Saudi Arabia.
• G10 FX price action reflects improvement in sentiment surrounding the trajectory of geopolitical situation in Eastern Europe. The euro and Scandinavian currencies trade on a slightly firmer footing, with safe havens JPY and CHF bringing up the rear. The Antipodeans have slipped amid softer crude oil prices.
• Considerable weak bias was evident in today's yuan fixing, with the PBOC setting the reference rate at CNY6.3506, 150 pips above sell-side estimate. Offshore yuan has retreated after the fixing, with spot USD/CNH rallying to levels last seen a month ago.
• It is a quiet start to the week in terms of data releases, with Swedish CPI coming up in European hours. Fallout from Russo-Ukrainian talks and a separate meeting between top-level U.S. and Chinese officials may provide interest.