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Higher US Yields & Lower Equities Prompting Further JPY Declines

FOREX
  • Further upward pressure on US yields, and the notable 15bp move for the 2-year, has prompted an extension of overall greenback strength on Wednesday. The 0.2% advance for the USD index screens as more moderate than the prior session, but extends the week’s advance to 1.12%. Greenback gains have once again been most notable against the struggling Japanese Yen.
  • USDJPY registered another near 1% range on the session, reaching as high as 148.52 in the aftermath of the stronger-than-expected US retail sales data, and in particular the substantially higher control group figure. The data has weighed on the front-end of the Treasury curve, which continues to filter through to a weaker JPY, which remains the most sensitive to diverging yield differentials.
  • Additionally, risk-off sentiment continues to permeate through to equity markets, with the S&P 500 dropping close to 1% on the session, weighing on the likes of AUD and NZD. Notably, AUDUSD’s low of 0.6525 closely matches a strong medium term pivot point and touted key support at the December 7 low.
  • Bucking the trend in G10 is GBP, which relatively outperforms following the above-estimate inflation data this morning, with headline, core and services all surprising to the upside. As such, GBP retains its crown as one of the best performing major currencies this year, with cable up 0.32% as we approach the APAC crossover.
  • In emerging markets, it’s worth noting that USDMXN had a decent extension higher early on Wednesday, reaching as high as 17.3860, briefly extending yesterday’s impressive 2% advance by a further percentage point, before those gains were steadily pared across the afternoon.
  • Australian employment will headline Thursday’s APAC docket, before focus will turn to US jobless claims and Philly fed manufacturing data. Wires will continue to be monitored for any significant headlines emanating from officials at the World Economic Forum in Davos.
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