[MARKET ANALYSIS] Dollar trades flat, while CNH weakens after the PBoC cut the FX risk reserve ratio to 0% which signals an intent to slow yuan appreciation

DXY: Flat

• Trades flat amid the mixed performances in its major Asian counterparts, with the yen firmer after Tokyo CPI data and with the CNH pressured after the PBoC lowered the FX risk reserve ratio to 0% from the 20% level, which had been in place since September 2022 and with the move seen as an effort to slow the yuan's appreciation. Elsewhere, there was more Fed rhetoric, but it continued to have a muted impact on the FX space with Fed's Goolsbee (2027 voter) stating that rates can come down, but does not want to front-load before inflation eases, and that he wants the Fed to be careful.

EUR/USD: Flat

• Lacks direction after its recent choppy mood with prices contained near the 1.1800 focal point, while participants await several CPI releases from some of the bloc's key members.

GBP/USD: Flat

• Languishes beneath the 1.3500 level following the prior day's underperformance owing to credit concerns, and with overnight price action not helped by UK consumer confidence falling to its lowest level that was last seen in November.

USD/JPY: -0.2%

• Retreated amid the subdued risk appetite in Japan and following a slew of data, including Tokyo CPI, which printed firmer-than-expected across the board, but slowed from the previous, with Core inflation back beneath the BoJ's price goal.

Antipodeans: AUD/USD +0.2% / NZD/USD +0.1%

• Rebounded from the prior day's trough but with further upside contained by the mixed risk appetite and amid a weaker CNH after the PBoC actions to slow currency appreciation, in which it cut the FX risk reserve ratio to 0% and set a weaker-than-expected CNY fix by maintaining it at the prior day's level.

The PBoC's decision to cut the FX risk reserve ratio to 0% signals a proactive approach to managing yuan appreciation, reflecting concerns over currency strength. This move is likely to put downward pressure on the CNH, while the broader USD remains flat as mixed data and Fed comments have led to indecisiveness in the FX market. Traders should monitor potential spillover effects on major currency pairs, especially involving the CNY and CNH, as this could influence risk sentiment across the board.