[MARKET ANALYSIS] DXY marginally softened in quiet overnight trade after holding up yesterday despite softer PPI data
DXY: -0.1%
- Marginally softened overnight but ultimately held up against its major peers yesterday despite a decline in 2yr yields as the softer-than-expected PPI data spurred further bets for the Fed to remain on hold in September. There were also several comments from Fed speakers, but did little to shift the dial as Hammack reiterated calls for rate hikes and Barkin remained uncertain on the future path of policy, while Goolsbee stated they have been getting a little bit better readings on inflation, which he hopes will continue.
EUR/USD: +0.1%
- Eked slight gains but is confined within tight parameters amid quiet macro drivers and with participants awaiting looming data including the latest EU Employment and GDP figures.
GBP/USD: Flat
- Lacks direction after its recent choppy performance and failure to sustain a brief reclaim of the 1.3500 level despite the recent stronger-than-expected GDP.
USD/JPY: Flat
- Trades steadily overnight in the absence of any tier-1 data releases and following the recent bounce off support around the 159.00 level, while there were some comments from Japan's former top FX diplomat Furusawa, who said the BoJ likely wants to eventually raise rates to around 1.50%-1.75%, and that US-Japan coordinated action in the FX market could occur again if the yen returns to pre-intervention levels.
Antipodeans: AUD/USD Flat / NZD/USD +0.2%
- Somewhat mixed price action as AUD/USD is little changed and NZD/USD continues its rebound from the lows seen following yesterday's softer inflation expectations.
An overnight dollar holding its ground after a soft producer price print is a familiar pattern in this phase of the cycle: a single sub-expectations inflation release that reinforces the on-hold base case tends to steepen rate-cut bets at the margin without dislodging the dollar, because the same data also leaves the rest of the G10 without an independent driver. Divergent Fed commentary of the kind noted, one official entertaining hikes, another flagging better inflation readings, is characteristic of a committee in a wait-and-see posture, and remarks at that dispersion have historically shifted the front end only when the centre of gravity moves, not when the tails restate positions. The euro's containment ahead of its own activity and employment data and sterling's failure to hold a round-number reclaim after a GDP beat both fit the established pattern that single-tier releases rarely break ranges without a second confirmation. The yen line is the structurally interesting one: comments from former FX officials about coordinated action carry a specific precedent, in that verbal signalling from that quarter has historically escalated in stages, from individual remarks to joint language to actual intervention, and the 159 area has been treated by the market as approaching the zone where such rhetoric thickens. The follow-ons are the scheduled European data, any uptake of the hike versus hold framing among further Fed speakers, and whether Japanese officials echo the intervention reference, since repetition across multiple mouths has been the tell in past episodes.