Yen Remains Out Of Favour, Yuan Salvaged By Upbeat Activity Data

The yen got no reprieve in Tokyo trade, with USD/JPY rising to a new five-year high ahead of this week's monetary policy meetings of the Fed & BoJ. Reduced demand for safe havens and suspected Gotobi Day flows conspired to amplify pressure on the Japanese currency. FinMin Suzuki pledged to closely monitor the impact of a weak yen on domestic economy and stressed the need for stability in FX markets.

• Softer crude prices undermined oil-tied FX space, with the Antipodeans joining JPY and CHF near the bottom of the G10 pile. CAD also struggled for topside momentum but the Norwegian krone remained afloat as most European currencies garnered some strength.
• Risk-on flows in European FX space may have stemmed from optimism about the ongoing Russo-Ukrainian talks, despite the absence of any real breakthrough on that front. The Swedish krona led gains in the region, with the Danish krone, euro and sterling also trading on a firmer footing, while the Swiss franc brought up the rear.
• Another boost to risk appetite was provided by China's upbeat activity indicators for the first two month of the year, even as the data may have been distorted by the LNY holiday, while subsequent weeks saw deterioration in the local Covid-19 situation and the global geopolitical situation.
• Nonetheless, better than expected activity data allowed offshore yuan to claw back its earlier losses, registered in reaction to the latest PBOC fix. China's central bank retained its weak bias, setting USD/CNY mid-point 129 pips above sell-side estimate, signalling preference for a softer redback.
• Spot USD/CNH showed above the CNH6.4000 figure after the PBOC fix and topped out within touching distance from its 200-DMA, before the release of Chinese data knocked the rate on its head. The pair printed its best levels since the final trading session of October 2021 in the process.
• Focus turns to U.S. PPI data & Empire State Manufacturing, UK jobs market report, German ZEW Survey & final French CPI. ECB Pres Lagarde will give a speech at WELT Economic Summit.