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Upward Pressure on US Yields Weighs Further on EMFX

FOREX
  • Despite the sell-off in treasuries resuming on Thursday, moves for the broad USD index and across G10 have remained fairly contained. The majority off the negative sentiment has continued to be seen impacting the emerging market currency space, with a particular focus on LatAm FX.
  • Moves have been most noticeable in USDMXN (+1.54%), with the pair extending its most-recent bounce to over 4% from last Friday’s lows. A larger than expected Brazil rate cut and profit taking dynamics in Colombia prompted widespread losses among regional currencies.
  • In similar vein, the likes of PLN, HUF and the ZAR have all weakened by over 1%, highlighting the broad spectrum of declines.
  • In G10, the most notable moves were seen in the Japanese Yen, following the Bank of Japan coming into the market for the second time this week to slow gains in benchmark sovereign bond yields and providing a JPY tailwind. USDJPY printed as low as 142.07 from a 143.89 overnight high, with the Yen also benefitting from safe haven flows amid the downturn in equities. However, as markets stabilised, the pair has been lifted back to the 142.75 region ahead of the APAC crossover.
  • Price action for GBP was very limited after the Bank of England hiked rates by 25bp. Recent price action has reinforced bearish conditions for GBPUSD, after breaking both the 50-day EMA and the base of a bull channel, drawn from the Mar 8 low. This strengthens a bearish theme and signals scope for weakness towards 1.2591, the Jun 29 low.
  • Friday’s focus will be on the release of US non-farm payrolls as well as Canada employment figures.
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