Intervention Risks See USD/JPY Pullback, But Little Follow Through

The USD sits modestly lower against the G10 currencies, with JPY and NZD the strongest performers. At this stage though currencies have only pared a fraction of the losses seen post the US CPI print on Wednesday. US yields are off Wednesday highs, while US equity futures have recovered from earlier lows, likely weighing on the USD.

• Yen sentiment was aided in the first part of trade amid a fresh round of verbal jawboning from currency chief Kanda. The comments didn't appear to be a step up from what we have heard recently though. USD/JPY fell back through 153.00 and got to lows of 152.76, but we sit higher now, last near 152.90, only 0.15% firmer in yen terms versus end NY levels from Wednesday.
• USD/JPY overnight vols are elevated at +14.5%, but we remain sub earlier 2024 intra-session highs. A firmer JGB yield backdrop, aided by a poor 20yr auction, has helped move US-JP yield differentials off post US CPI highs, a further yen support.
• NZD/USD sits modestly higher, last above 0.5985. AUD/USD was also a touch higher, last near 0.6520. We have mainly had second tier data releases in Australia, although inflation expectations did tick higher.
• The much stronger than expected CNY fixing, coupled with lower USD/CNH levels has likely aided A$ and NZD sentiment at the margins.
• There was also some concern around Iranian related military action against Israel, but that hasn't materialised so far. This may have supported some stabilization in US equity futures.
• Looking ahead, we have the ECB decision as the main focus point in the EU session. In US trade, Fed speak, the PPI and initial jobless claims will be in focus.