Hawkish Fedspeak Keeps Greenback Afloat, Yen Trims Losses Into Tokyo Fix

Fed Governor Waller played down expectations of an imminent peak in the rate-hike cycle, casting doubt on the significance of the latest below-forecast U.S. CPI reading when viewed in isolation. The greenback drew support from these comments, before paring some gains as the BBDXY index failed to break above the 1,280 level.

• Thin morning liquidity accentuated an upswing in USD/JPY in reaction to Waller's comments, with the yen taking a hit due to its sensitivity to relative U.S./Japan yield dynamics. The BoJ is expected to stick to its ultra-loose policy monetary settings for the time being, which makes Fed outlook a key driver.
• After running as high as to Y139.94, spot USD/JPY has trimmed gains into the Tokyo fix and last sits at Y139.24, up 44 pips on the day. USD/JPY risk reversals have extended losses after notable dips last Friday, led by the short end of the maturity curve.
• China's announcement of new support measures for the domestic real estate sector bolstered the Antipodeans in early trade, but Fedspeak applied pressure to AUD/USD and NZD/USD. AUD/NZD has shed 17 pips in line with the move in Australia/New Zealand 2-year swap spread.
• Spot USD/CNH has edged away from session lows after the PBOC fix fell virtually in line with the sell-side estimate.
• Sterling is now the worst performer in G10 FX space. Over the weekend, UK C'llr Hunt said his new financial plan will seek to make any recession "as short and shallow as possible."
• EZ industrial output headlines the thin data docket for the remainder of the day. Comments are due from Fed's Brainard & Williams, as well as ECB's de Guindos, Panetta, Centeno & Nagel.