Risk sentiment soured as disappointing news re: China COVID-19 situation added to the concerns over the prospect of decisive Fed tightening. Shanghai reported two infections in the community, which quashed hopes for imminent loosening of restrictions. The authorities would only be able to ease curbs after three consecutive days of no community transmission and there were zero cases outside designated quarantine facilities on Wednesday. The official confirmation of first COVID-19 infections in North Korea helped fuel worries over the resurgence of the virus.
- The redback got some reprieve as firm appreciation bias returned to the daily yuan fixing, but USD/CNH staged a strong rebound as the session progressed. The rate's upswing seemed driven by comments from PBOC Dep Gov Chen, who noted that the central bank has guided loan interest rates to decline. USD/CNH extended gains upon the breach of Nov 4, 2020 high of CNH6.7745 on its way to a fresh cycle high at CNH6.7890.
- The Aussie and Kiwi dollars were hardest hit among G10 currencies, owing to the dependence of Antipodean economies on demand from China. The kiwi dollar paced losses, paying little attention to the RBNZ's Q2 Survey of Expectations, which showed a further uptick in two-year inflation expectations.
- The yen took the lead on safe haven demand but USD/JPY failed to test yesterday's low. By contrast, regional risk barometer AUD/JPY retreated past yesterday's worst levels to a new multi-week low, consolidating under the Y90.00 mark.
- The HKMA intervened in defence of its currency peg for the first time since 2019 after USD/HKD tested the upped end of its permitted trading band late doors Wednesday.
- On the data front, focus turns to UK GDP (flash) & Swedish CPI as well as U.S. PPI & weekly jobless claims. Central bank speaker slate features ECB's de Cos & Makhlouf as well as Riksbank's Ingves.