European FX Still On Firmer Footing, Yen Vulnerability Persists

European currencies received a boost in morning Asia trade amid the prospect of further ECB rate hikes and reports on the progress of Ukraine's counteroffensive in Russia-occupied territories. Demand for the European FX bloc sent EUR/USD and GBP/USD to new monthly highs, albeit both crosses have given back the bulk of their earlier gains by this point.

• Several ECB members pointed to the need to keep tightening monetary policy in pursuit of the inflation target, while Reuters ran a source story suggesting that "ECB policymakers see a rising risk that they will have to raise their key interest rate to 2% or more," which is broadly in line with current market pricing. Elsewhere, Ukrainian troops continued to advance in the Kharkiv region, recapturing the strategically important railway hubs of Izyum and Kupiansk. Russian forces retaliated with missiles strikes at critical civilian infrastructure, causing power outages across several cities.
• The yen lags all its G10 peers just after the Tokyo fix, despite weekend warnings from Japanese officials. Deputy Chief Cabinet Secretary Kihara noted that the authorities "have to take necessary steps while closely monitoring developments including excessive, one-sided moves in the exchange rate." The uptick in U.S. e-mini futures likely helped sap some strength from the yen, even as all three main contracts have eased off highs.
• Liquidity in Asia will remain sapped by public holidays across mainland China, Hong Kong and South Korea. After hours, focus will move to UK activity indicators and comments from ECB's de Guindos & Schnabel.