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Greenback Extends Recovery Amid Higher US Yields, CHF Underperforms

FOREX
  • After a modest uptick on Wednesday, the USD index has extended its recovery during today’s session amid a substantial move higher for US yields. Lower than expected jobless claims appeared to rekindle a hawkish central bank narrative, enhanced by the earlier strong jobs data in Australia bolstering the theme across global markets.
  • USDCHF is the best performing currency pair on Thursday, having advanced 0.93% as we approach the APAC crossover. Yield differentials the biggest factor underpinning the recovery with USDJPY also retaking the 140.00 handle in the process.
  • EURUSD and GBPUSD were seen grinding lower over the course of US trade, mirroring the adjustment of the broad USD index. For GBPUSD, the price action marks an extension of the prior day’s move following the softer-than-expected UK inflation prints. Markets are on watch for a potential reversal pattern - which gathered strength on the show below 1.2866 - the 50% retracement of the late June upleg. This opens potential for losses toward 1.2801 initially, before 1.2751, the July 10 low.
  • Despite pulling back, the Australian dollar remains an outperformer in G10 following the solid June jobs report. Australia added 32.6k jobs across the month, doubling market expectations.
  • Offsetting the firmer greenback narrative somewhat was USD/CNH, which sits 0.80% lower on the session. The redback benefitted from a much stronger-than-expected lean in the USD/CNY mid-point fixing. The PBoC also tweaked limits to allow companies to borrow more overseas, opening the door to the potential for an uptick in capital inflows, providing further support to the yuan.
  • Japan National Core CPI y/y is the data highlight overnight before next week’s Bank of Japan meeting/decision. On Friday we will also see retail sales data for both the UK and Canada.
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