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[MARKET ANALYSIS] DXY pauses after recent gains, while yen outperforms despite a lack of drivers and is unfazed by weak Japanese data

This is a positioning-led session rather than a news-led one: a DXY consolidation after a yield-driven push higher, with the follow-through interrupted by dovish commentary from a Fed official of the centre rather than the periphery.

Newsquawk StaffPublished On the live feed at , 20 minutes before this page
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[MARKET ANALYSIS] DXY pauses after recent gains, while yen outperforms despite a lack of drivers and is unfazed by weak Japanese data

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DXY: Flat

  • Takes a breather after gaining yesterday amid a rise in long-term yields, albeit with some of the gains pared following dovish remarks from Fed's Williams, who sees no need for urgency after the September rate hike and noted there is time to gather more information to provide greater clarity on the underlying economic trends and associated risks, while participants now await a slew of data including final Q2 GDP and the Fed's preferred PCE inflation gauge.

EUR/USD: Flat

  • Trades sideways after having trickled lower for most of the prior day despite hawkish-leaning rhetoric from ECB officials, but with a floor seen after dovish comments from Fed's Williams provided some relief for the single currency.

GBP/USD: Flat

  • Struggles for direction after recently giving up ground to the greenback and with the currency not helped by PM Burnham's vow to scrap the pension triple lock, although downside was cushioned by support near the 1.3200 level.

USD/JPY: -0.5%

  • Retreated beneath the 157.00 handle and breached a weekly low, despite the lack of obvious drivers behind the move and with Japan's currency unfazed by disappointing domestic activity data.

Antipodeans: AUD/USD -0.3% / NZD/USD +0.1%

  • Mixed price action with AUD/USD pressured following a slew of data, including the softer-than-expected headline monthly inflation and a worse-than-feared contraction in building approvals, but with the downside stemmed as participants also digest the encouraging Chinese PMI releases.
Context

Remarks of the no-urgency, more-information-needed kind from a New York Fed president have historically carried weight beyond a routine speech because the role sits close to the committee's core, and they typically soften the front end and the dollar until the next hard print settles the argument. The mechanism here is the standard one: the dollar is trading off the rate differential and off incoming US data, so the final GDP revision and the PCE release are the events that determine whether the pause becomes a reversal, and in past episodes of this kind FX has tended to range until the inflation print resolves it. The yen leg is the anomaly worth flagging: a move through a weekly low in USD/JPY with no catalyst and against soft domestic data has, on previous occasions, been the signature of position unwinding or of official jawboning risk building at elevated levels, and such moves have often extended beyond what the fundamentals would justify. Sterling's domestic political noise on pension policy has historically been a second-order driver unless it touches the fiscal trajectory, while the antipodean split follows the usual pattern: the Aussie trades its own data first and the Chinese PMI read-through second.

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