FX Update: Tough to keep USD down if yields remain here or higher. FX Update: Tough to keep USD down if yields remain here or higher. FX Update: Tough to keep USD down if yields remain here or higher.

FX Update: Tough to keep USD down if yields remain here or higher.

John Hardy

Head of FX Strategy

Summary:  A wild few days in equity markets have distracted FX traders, with risk correlated USD pairs jolted around on the swings in sentiment, but USDJPY traders haven’t lost sight of the most important ongoing background factor: US treasury yields remain elevated and near the highs for the cycle, making any further broad USD downside difficult as long as they remain here or higher. Elsewhere, we are noting increased breadth in CNH weakness.

FX Trading focus: Amidst the noise in risk sentiment, the signal is high US treasury yields.

US equities rose some 9% from the lows at the start of this week at one point yesterday, a move that coincided with a few wobbles in the US dollar, especially against the usual risk-correlated currencies. USDJPY, on the other hand, has hardly wobbled outside of an intraday spasm yesterday, as the focus there remains on higher US yields, with the 10-year Treasury benchmark posting a modest new cycle high just this morning. And well they should, in fact USD traders should keep both eyes on treasuries, because risk sentiment will not likely sustain any further recovery if yields remain here or head higher.

Overnight, rhetoric from Bank of Japan Governor Kuroda did nothing to bring the weak JPY any support, as he pushed back against “excessive” and “one-sided” moves in the JPY while at the same time saying that a weak, stable JPY is a net positive for the country. Another BoJ official defended the current negative short rate and yield-curve-control (YCC) policy, predicting that inflation would fall back even if it is set to persist rising through the end of this year. That leaves all of us to guess at what point the USDJPY rate is deemed too one-sided and excessive and will see futile billions thrown at the market – best guess is somewhere not far above 150.00, but let’s see.

Elsewhere in Asia, the broadening CNH weakness is notable, as we see USDCNH posting new cycle highs today, and well on its way to doing so earlier in the session before today’s USD rally got under way in earnest. A look at other CNH crosses shows that the currency is on the move, and an expansion of this move could unsettle global markets as it drives concerns that China is exporting deflation.

GBPUSD correcting back lower, as the last two rallies found resistance just ahead of 1.1500 and more recently, just below 1.1450. The next focus lower is the 1.1150 area and then the psychological 1.1000 level and 1.0923 nominal low. Any new broad, risk-off move could see 1.0800 and lower levels coming quickly into view, as we have argued that the fundamental outlook for sterling has been stabilized, but that stability doesn’t necessarily lead to strength.

Source: Saxo Group

As I am writing today’s update, a chaotic PMQs (Prime Minister Questions) session in the UK House of Commons shows the massive pressure Prime Minister Liz Truss is under as she may be in the final weeks, if not days, of her time in office. The recent chaos in UK gilts market and sterling that have forced a reversal of the majority of her budget-busting initiatives means that the imperatives of fiscal austerity are in the driver’s seat for now. New Chancellor Jeremy Hunt is setting the agenda, with the latest a possible move to assess windfall tax on banks’ and energy companies’ profits. Whether Truss survives may be largely immaterial to the backdrop and we have to remember that tight fiscal is a currency negative, with a Bank of England unable to providing any real offsetting support, given the ugly UK recession that is heaving into view.

Table: FX Board of G10 and CNH trend evolution and strength.
While the JPY still features the weakest reading among the major currencies, the broadening CNH weakness is a newer and far more impactful development. Curious to see if the AUD catches some further contagion on this as well.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
As noted yesterday, have a hard time believing that we are in a new uptrend in GBPUSD – that would require a rally clear of 1.1450-1.1500 – note levels above in the GBPUSD chart. Elsewhere, likewise having a hard time with the idea of even an AUDJPY up-trend with CNH on the move south… if it achieves a new up-trend, will likely be more to do with JPY weakness rather than AUD strength. Elsewhere, EURCHF continues to tease in the important 0.9800 area.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1230 – US Sep. Housing Starts & Building Permits
  • 1230 – Canada Sep. CPI
  • 1300 – UK Bank of England’s Cunliffe to testify
  • 1700 – US Fed’s Kashkari (Voter 2023) to speak
  • 1700 – US Treasury auctions 20-year T-notes
  • 1800 – US Fed Beige Book
  • 2230 – US Fed’s Evans (Voter 2023) to speak
  • 2230 – US Fed’s Bullard (Voter) to speak
  • 2350 – Japan Sep. Trade Balance
  • 0030 – Australia Q3 NAB Business Confidence
  • 0030 – Australia Sep. Employment Change/ Unemployment Rate 


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.