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PBoC Rate Cut Results in Fresh USD/CNH YtD High

CROSS ASSET
  • The People’s Bank of China cut the 7-day repo rate by 10bps overnight. The key policy rate was reduced to 1.9% from 2%, the first cut since last August. The move resulted in another fresh YtD high for USD/CNH (CNH7.1782) though the pair ticked away from session highs on the back of a BBG source report which suggested that “China is considering a broad package of stimulus measures”. Subsequent weakness in May money supply and aggregate financing data will have underscored the need to ease policy - with aggregate financing failing to post a meaningful bounce off the April figure.
  • Elsewhere in EM, CEE FX has seen a slight downtick despite the bid in the EUR in recent trade. Nevertheless, HUF and CZK sit at the top of the EM pile while USD/ZAR pauses its 8-day losing streak and sits 0.5% higher on the day.
  • Despite a strong jobs report bolstering the case for a rate hike at the upcoming BoE meeting, GBP trades mixed in the G10 space amid an aggressive round of hawkish repricing in UK bonds. EURUSD has traded higher again Tuesday having already pierced initial resistance at 1.0779, the Jun 2 high. A clear breach of 1.0790 would improve short-term conditions for bulls and allow for a stronger correction.
  • The US inflation report is the key release of the day. Consensus puts core CPI inflation at 0.4% M/M in May but with skew to the downside. German ZEW survey data is on the docket shortly.
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