FX Daily: Seemingly moving in a direction, yet stationary
FOMC minutes today.
Group Research - Econs, Philip Wee21 Feb 2024
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DXY hit a low of 103.80 before ending Tuesday at 104.1. The US Treasury 10Y yield was unchanged at 4.28% for the third session after a brief dip to 4.24%. Dow, S&P 500, and Nasdaq Composite fell by 0.2%, 0.6%, and 0.9%, respectively. Investors took profit ahead of earnings reports by tech giant companies. Today’s FOMC Minutes will shed light on the Fed’s disinflation and growth path. Boston Fed President Susan Collins will unlikely comment on monetary policy during her fireside chat in an event celebrating Black History Month. However, Fed Vice Chair Philip Jefferson and Governor Michelle Bowman should affirm the recent narrative resisting early rate cuts for fear that they will stall inflation’s fall toward the 2% target. Next week’s PCE deflators should also mirror last week’s CPI inflation surprises.

While the US CPI lifted USD/JPY above 150, the currency pair has not deviated far from this significant level from verbal intervention by Japanese officials. Similarly, USD/CHF has gravitated towards 0.88 in the past three sessions. Interest rate futures see a 62% chance of the Swiss National Bank lowering rates next month. GBP/USD had been able to break above 1.2650 or stay below 1.2550 in February. In the same regard, we remain wary of reading too much into EUR/USD’s first close above the 1.07-1.08 range in 2-3 weeks. The Eurozone and UK economies are considered weaker than their US counterpart and face more pressure for rate cuts. 

CNY appreciated modestly by 0.1% to 7.1927 per USD after the People’s Bank of China surprised with a 25 bps cut in the 5Y loan prime rate (LPR) to 3.95%. The 1Y LPR was left unchanged at 3.95%, mirroring last week’s decision to maintain the 1Y medium-term lending facility rate at 2.50%. The Shanghai Composite Index rose by 0.4% to 2993 for the second session after returning from the Lunar New Year holidays. USD/CNY has been capped at 7.20 since the PBOC announced the reserve requirement ratio four weeks ago. Back then, PBOC saw the Fed’s dovish pivot providing the opportunity for more proactive fiscal and monetary policies to stabilize the domestic economy, manage financial risks, keep the CNY market-determined at a stable and balanced level, and enhance the appeal of CNY assets to foreign investors.

AUD/USD appreciated by 0.1% to 0.6550, near its 100-day moving average. However, AUD returned some gains when the USD regained its composure ahead of today’s FOMC Minutes. AUD initially rose to an intra-day high of 0.6580 on China’s surprise rate cut. Australian markets were unconvinced about the Reserve Bank of Australia Minutes keeping the door open for another rate hike. Interest rate futures see the RBA lowering rates in September, with the 10Y yield staying soft below 4.20% this month despite this morning’s higher-than-expected wage price index. Last week, the unemployment rate increased to 4.1% in January for the first time in two years. In its February Statement of Monetary Policy, the RBA projected CPI inflation falling from 4.1% in 4Q23 to 3.3% in the first half of this year, approaching its 2-3% target.

Quote of the day
"Reason has always existed, but not always in a reasonable form.”
     Karl Marx

21 February in history
In 1848, Karl Marx and Friedrich Engels published The Communist Manifesto.


Philip Wee

Senior FX Strategist - G3 & Asia
[email protected]


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