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Greenback Edges Higher As Front-End US Yields Reach YTD Highs

FOREX
  • The dollar index has been creeping higher across the US session, in line with the shift higher for US yields. Overall, G10 ranges have remained fairly contained ahead of significant event risk this week, however, emerging market currencies have been more negatively impacted to start the week.
  • Naturally, ahead of the Bank of Japan early Tuesday, the focus will be on the Japanese Yen as the central bank debates whether to immediately terminate its negative interest rate policy or postpone such action for another month and a half. USDJPY is unchanged today in anticipation, hovering just above the 149.00 mark approaching the event.
  • USDJPY is consolidating after extending its most recent bounce from 146.49, the Mar 8 / 11 low. The recovery appears to be a correction and a bear threat remains present following the recent sharp sell-off. A resumption of weakness would signal scope for a move towards 145.90, the Feb 1 low and a key support. A continuation higher would instead signal scope for gains towards 150.08, the Mar 6 high, ahead of the 150.89 key resistance, Feb 13 high.
  • The most notable move in G10 today has been the Swiss Franc, with USDCHF 0.47% higher on the session as we approach the APAC crossover. Franc weakness comes ahead of the SNB decision later this week, which could go either way. Markets are currently split between a hold at 1.75% and a 25bps cut. CHF has depreciated in nominal and real terms during first months of 2024 as SNB switch to a neutral FX approach.
  • As mentioned, the EM basket has been under pressure and most noticeable moves have been in ZAR and MXN, both weakening by close to 1% to start the week. The Mexican peso could likely stay in focus this week as we approach interest rate decisions in both the US and Mexico. Following Wednesday’s Fed meeting, Banxico is due to hold a key monetary policy meeting on Thursday, when it is broadly expected to start its easing cycle with a 25bp cut to 11%.
  • BOJ takes focus in APAC Tuesday; however, the RBA are also meeting. Tuesday’s data highlight will be Canadian CPI for February.
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