Wider Aversion To Risk Underpins USD Outperformance, Yen Fails To Benefit

The overhang from expectation-beating NFP report released out of the U.S. in local hours Friday supported the greenback at the start to the week, with participants converting data signals into hawkish Fed bets ahead of this week's CPI figures. Headwinds for the equity space nudged investors towards safer assets, amplifying appetite for the U.S. dollar.

• Offshore yuan went offered, testing the prior trading day's lows against the dollar, as China COVID-19 worry lingered, while local antitrust regulator took action against Alibaba & Tencent. Shanghai outbreak continued to spread, while Macau shut almost all of local business premises.
• The yen failed to benefit from cautious mood music as BoJ Gov Kuroda stuck with his usual lines on monetary policy despite speculation that the death of ex-PM Abe might undermine political support for the Bank's ultra-loose stance in the longer term.
• On top of that, a strong mandate handed to the ruling LDP-Komeito coalition in this weekend's Upper House election has been interpreted as a promise of stabilisation in domestic politics, allowing Japanese equities to outperform.
• Demand for USD/JPY emerged after the Tokyo fix, driving the pair above its recent cyclical high (Y137.00) and to its best levels since 1998, with the yen landing at the bottom of the G10 pile. USD/JPY 1-month risk reversal climbed to a fresh monthly high.
• Risk-off price action was evident across European FX space. Recessionary fears were fuelled by the prospect of continued weaponization of gas supplies by Russia.
• Focus turns to Norwegian CPI and a handful of second-tier releases from across the Eurozone, while ECB's Nagel is due to speak.