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Greenback Heads Into FOMC Meeting On Back Foot, Yen Gains Despite Risk-On Tone

FOREX

The greenback traded on the back foot amid positive risk tone and pre-FOMC positioning. The BBXY index shed 2 figs through the session, with short-end U.S. Tsy yields easing off in a steepening move. E-mini futures crept higher, trimming Tuesday's losses, underpinning positive market sentiment.

  • The yen bucked the risk-on trend which sent other safe havens (USD and CHF) losing altitude. Spot USD/JPY fell 1.20 fig. top-to-bottom, before trimming losses to last trade at Y147.58. U.S./Japan 2-Year spread tightened 3.8bp & 10-Year differential stayed little changed, which may have aided the downswing in USD/JPY.
  • Bloomberg cited trader sources attributing sharp yen purchases to the BoJ minutes, which showed that several board members made reference to FX markets at the September meeting. The minutes underscored the central bank's intention to maintain dovish bias, but Governor Kuroda told lawmakers that Japan is no longer in deflation since the launch of the current easing programme.
  • High-beta currencies traded on a firmer footing, outperformed only by the yen. The kiwi paced gains in the space, after New Zealand's Q3 employment and wage data smashed expectations, driving a marginal uptick in RBNZ rate-hike pricing.
  • Offshore yuan garnered some strength, while holding yesterday's range, amid broader dollar weakness. The PBOC set its USD/CNY reference rate at a new cyclical high and 643 pips below sell-side estimate, while Governor Yi reiterated his pledge to keep the yuan stable.
  • When it comes to scheduled events, Wednesday is all about the Fed's monetary policy decision, with policymakers expected to raise interest rates by 75bp.
  • Outside of the much awaited Fed Chair Powell's presser, we will hear comments from ECB's Makhlouf, Villeroy & Nagel.
  • U.S. ADP employment change, German jobless rate and manufacturing PMI readings from several European economies will take focus on the data front.
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The greenback traded on the back foot amid positive risk tone and pre-FOMC positioning. The BBXY index shed 2 figs through the session, with short-end U.S. Tsy yields easing off in a steepening move. E-mini futures crept higher, trimming Tuesday's losses, underpinning positive market sentiment.

  • The yen bucked the risk-on trend which sent other safe havens (USD and CHF) losing altitude. Spot USD/JPY fell 1.20 fig. top-to-bottom, before trimming losses to last trade at Y147.58. U.S./Japan 2-Year spread tightened 3.8bp & 10-Year differential stayed little changed, which may have aided the downswing in USD/JPY.
  • Bloomberg cited trader sources attributing sharp yen purchases to the BoJ minutes, which showed that several board members made reference to FX markets at the September meeting. The minutes underscored the central bank's intention to maintain dovish bias, but Governor Kuroda told lawmakers that Japan is no longer in deflation since the launch of the current easing programme.
  • High-beta currencies traded on a firmer footing, outperformed only by the yen. The kiwi paced gains in the space, after New Zealand's Q3 employment and wage data smashed expectations, driving a marginal uptick in RBNZ rate-hike pricing.
  • Offshore yuan garnered some strength, while holding yesterday's range, amid broader dollar weakness. The PBOC set its USD/CNY reference rate at a new cyclical high and 643 pips below sell-side estimate, while Governor Yi reiterated his pledge to keep the yuan stable.
  • When it comes to scheduled events, Wednesday is all about the Fed's monetary policy decision, with policymakers expected to raise interest rates by 75bp.
  • Outside of the much awaited Fed Chair Powell's presser, we will hear comments from ECB's Makhlouf, Villeroy & Nagel.
  • U.S. ADP employment change, German jobless rate and manufacturing PMI readings from several European economies will take focus on the data front.