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Yield Surge Continues to Boost USD, Hinder EMFX

FOREX
  • Risk sentiment remains offered in global markets, with equity futures in the red while US yields continue their creep higher. The US 10y yield has touched new cycle highs ahead of the NY crossover, showing further above the July and March highs to clear 4.15% and print 16bps shy of 4.3354% from late 2022.
  • Surging US yields are working further in favour of the greenback, with the USD Index extending the upleg off the mid-July low. This narrows the gap with the key upside level of the 200-dma at 103.6738 - a level last crossed to the upside in June 2021.
  • Emerging markets currencies are among the hardest hit, with currencies from the HUF, MXN and ZAR all notably weaker again on Thursday. JPY and CHF are the sole currencies in G10 firmer against the USD, benefiting from the broad risk-off backdrop and safe haven status.
  • The Bank of England rate decision takes focus going forward, with the bank seen raising rates by 25bps to 5.25% - although there remains the outside risk of a larger 50bps step by the bank today.
  • US weekly jobless claims and the ISM Services Index are set to follow. Markets continue to eye data for any implications ahead of the Friday NFP release, at which markets expect job gains of 200k and an unchanged unemployment rate of 3.6%.
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