Yen Dips As BoJ Steps Up YCC Enforcement, Aussie Gains On Risk Stabilisation

The greenback lost steam after the BBDXY index rallied to its best levels in more than two years on Monday on the back of aggressive hawkish Fed repricing. Fed funds futures are almost fully pricing a 75bp rate rise at the upcoming monetary policy meeting, with a growing number of sell-side analysts tweaking their calls accordingly. Yet, the U.S. dollar slipped against most of its major peers, amid broader stabilisation across G10 FX space.

• The yen was the only major currency to underperform the greenback and it was BoJ's fault again. Spot USD/JPY popped higher alongside other JPY crosses as the Bank stepped up bond-buying planned for Wednesday and added operations covering longer-dated tenors to enforce its YCC policy. The move was interpreted as a sign of the BoJ's unwavering commitment to stick with its ultra-loose policy stance as we approach Friday's monetary policy meeting.
• Continued attempts by Japanese FinMin Suzuki to jaw-bone the yen proved ineffective, despite veiled threats of an FX intervention ("we'll continue to closely communicate with major currency authorities abroad, and will respond with appropriate measures if necessary").
• The Aussie outperformed, ready to snap its four-day losing streak against the U.S. dollar, as domestic financial markets re-opened after a long weekend. Stabilisation of risk lent support to the Antipodean currency, as U.S. e-minis edged higher, highlighting a modicum of reprieve for the equity space, even as regional indices fell on a negative lead from Wall Street.
• German ZEW Survey & final CPI, UK jobs data & Swedish CPI are due in European hours. Later in the day, U.S. PPI will provide the final insights on inflation dynamics ahead of Wednesday's FOMC meeting. The central bank speaker slate features ECB's Schnabel.