Post-U.S. CPI Musings, China COVID-19 Situation Trigger Flight To Safety

Risk-off flows have taken hold as regional reaction to U.S. expectation-beating CPI data released Friday has overlapped with resurfacing China COVID-19 worry. Over the weekend, Beijing admitted that a cluster linked to a popular bar is proving difficult to control, while Shanghai punished several officials for missteps in implementing quarantine measures, with rising case counts in both megacities leading to partial re-tightening of virus rules.

• The greenback has been the main gainer from renewed risk aversion, drawing further support from purchases against the struggling yen. Bloomberg trader sources mentioned USD buying linked to weakness in U.S. e-mini futures.
• The yen has resumed losses as participants call into question the risk of an FX intervention, with one of Japan's ruling LDP noting that "now is not the time" for the authorities to step in. Her comments undermined the credibility of earlier verbal interventions by various Japanese financial officials, leaving the yen exposed to the impact of rising U.S. Tsy yields. Positioning ahead of this week's FOMC/BoJ monetary policy decision is likely reinforcing these dynamics, with Gov Kuroda et. al expected to reinforce their ultra-dovish stance. Spot USD/JPY has soared to fresh two-decade highs and is approaching the psychologically significant Y135.00 figure.
• Antipodean currencies have fallen prey to risk aversion and sit at the bottom of the G10 pile. Liquidity is sapped by a public holiday in Australia, which results in the closure of local financial markets.
• UK economic activity indicators are about the only notable data release today. Comments are due from ECB's de Guindos, Holzmann & Simkus as well as Fed's Brainard.