FX Update: Rising yields continue to pressure JPY, and now CHF?
Head of FX Strategy
Summary: The JPY continues to slide in a historic weakening move as US yields press ever higher. The move even accelerated overnight despite fresh verbal intervention from Japanese officialdom. Elsewhere, it is interesting to see the USDCHF breaking the range highs stretching back to early 2020. This could be a delayed reaction to the recent brutal rise in US yields and bears watching, as the franc may have some catching up to do.
FX Trading focus: CHF finally joining the JPY in feeling the pressure from rising yields?
The slide in the JPY took on new energy overnight as USDJPY pulled all the way above 128.00, carving out new 20-year highs, with the next major chart point up at 135.00, the high from early 2002. The move was accompanied by a new modest rise in US long treasury yields, but it seems the situation has developed its own dynamic, and the market was almost thumbing its nose at Japanese officialdom, which overnight escalated its verbal intervention against JPY volatility. The Japanese Ministry of Finance’s Suzuki, who said that the ministry is “monitoring moves in the foreign exchange market with a strong sense of vigilance.” The pressure cooker is set to continue for the JPY until the MoF backs up that strong sense with a few tens of billions of USD in actual currency intervention or, more durably, until the Bank of Japan loosens up its commitment to capping 10-year JGB yields.
Elsewhere, as I discuss below, the Swiss franc is sharply weaker today, a move I can’t help but also attribute in part to the constant pressure from rising yields. Not sure why we are getting the delayed reaction to this now. I have been surprised at EURCHF’s complete lack of correlation with EURJPY of late and its return back lower below 1.0200 recently despite Switzerland joining other countries in sanctioning Russia. The latter seemed to be behind the strong lifting in EURCHF after those sanctions were announced, but then the pair settled back lower and the weekly sight deposits at the SNB have built strongly of late, suggesting that there is some residual safe-haven seeking in the CHF, some of it possibly linked to the French presidential election. If we clear this last hurdle with no Le Pen victory on Sunday and yields continue to lift globally, the CHF could be in for some “catch-up” weakening. For now, USDCHF traders may be front-running this and EURCHF even broke locally higher today.
Yes, the Japanese yen deserves the bulk of our attention of late as it continues weaker at a breath-taking pace, but the movement today in the Swiss franc is interesting as it may suggest that yield pressures are finally making their mark on the franc as well. Note that USDCHF has broken to its highest levels since early 2020 today, and even EURCHF pulled a bit higher. The next test may be the reaction to the French Presidential run-off on Sunday and whether this is the source of the apparent safe-haven demand into CHF. The weekly SNB sight deposit data showed almost no growth in deposits yesterday after a few weeks of strong builds (as SNB intervened to mute pressure on CHF to strengthen).
Elsewhere, the price action seems to be wrapped up in risk sentiment, with the USD rising and falling in negative correlation with equity futures. On that front, watching the technically pivotal USDCAD and AUDUSD. The USDCAD rate has backed up into the pivotal 1.2650 area and bears need to take a stand here or they risk capitulation back into the upper zone toward 1.3000. Similar is the case for AUDUSD, where the move off the early 2022 lows is on life support and looks in danger of a complete failure if the 0.7300 area can’t be held. It is still remarkable that EM is in its own world relative to prior market regimes – EM spreads are crushed back to pre-Ukraine war levels and the rate hikes across most of EM have impressed enough to maintain stability and better in all of the biggest EM currencies, TRY excepted (and looking awfully “managed” of late).
Table: FX Board of G10 and CNH trend evolution and strength.
Little new here, although we are tracking the status of the commodity currencies in coming sessions, given the pivotal levels noted above, as well as monitoring the situation in key CHF crosses now that USDCHF has broken higher. Also watching gold after its feint toward 2,000 was rejected overnight.
Table: FX Board Trend Scoreboard for individual pairs.
Watching the USDCAD and AUDUSD developments as a measure of the USD outside of the moves in the greenback against the lower yielding currencies, though in fact USDSEK and USDNOK look pivotal here as well.
Upcoming Economic Calendar Highlights (all times GMT)
- 1215 – Canada Mar. Housing Starts
- 1230 – US Mar. Housing Starts and Building Permits
- 1605 – US Fed’s Evans (non-Voter) to speak
- 1630 – Switzerland SNB’s Jordan to speak
- 2350 – Japan Mar. Trade Balance
- 0115 – China Rate Decision
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.