FX Daily: Softer USD ahead of FOMC
Strong RMB inflows may soften; KRW gains hindered by exports.
Group Research - Econs, Chang Wei Liang1 Feb 2023
Article image
Photo credit: Unsplash Photo
Read More

The DXY eased towards 102 overnight as markets digested a softer US employment cost index outturn. With employment cost inflation moderating to 1% (q/q) in Q4, the Fed should be comfortable to downshift to a 25bps rate hike in the FOMC meeting tonight, in line with expectations. Meanwhile, the Euro Area looks to have averted a recession, with Q4 GDP coming in at 0.1% (q/q sa) yesterday. While this was a better than expected read, it still marks the weakest sequential growth since Q1 2021, with both Germany and Italy registering a q/q contraction individually. 

USD/CNY continues to hover around 6.75.China’s manufacturing and non-manufacturing PMIs improved sharply in Jan to 50.1 (Dec:47.0) and 54.4 (Dec:41.6), as China’s reopening lifted sentiment and supported activity. The IMF’s latest GDP forecasts also showed a large upward revision for China’s 2023 growth to 5.2% (Oct: 4.4%). Despite such positivity, the CSI 300 index declined by 1% yesterday, with markets having priced in a reopening boost already. The US reportedly getting both Japan and Netherlands to restrict advanced semiconductor equipment exports to China may also have weighed, raising geopolitical risks a tad. Foreign equity inflows may become a smaller driver for the RMB going forward, setting the stage for more two-way price action.

USD/JPY has softened and even broke below 130 briefly amid a modest decline in the US 10y yield to 3.50%. Looking ahead, the JPY may see renewed volatility with the Japanese government set to announce its choice for the next BOJ Governor this month. The new Governor’s outlook will be closely scrutinized, given intense speculation on whether there could be more tweaks to yield curve control. Deputy Governor Amamiya and former Deputy Governor Nakaso are seen as the top contenders, with Nakaso possibly viewed to be less dovish.

Korea’s Jan exports came in worse than expected, tumbling by 16.6% (y/y) amid a cyclical downturn in the semiconductor sector. This contributed to a monthly trade deficit of USD12.7bn, which is the worst on record for Korea. The KRW has rallied strongly since November amid optimism over China’s reopening, but USD/KRW could now hold above 1220 if Korea’s large trade deficit persists.

Quote of the day
“The secret to humour is surprise.”

1 February in history
Kuala Lumpur became a city by a royal charter granted by the Yang di-Pertuan Agong of Malaysia in 1972.


Chang Wei Liang

FX & Credit Strategist
[email protected]



Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.

Disclaimers and Important Notices

GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)

The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.

This report has been prepared by a personnel of DBS Bank Ltd who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).  This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited.

DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. 

DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply.  The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.