Yen Climbs to Fresh Session High as Greenback Stays on Defensive

  • Euro sets fresh 13-month high over 1.1440, eyes 1.1447/79
  • Pound climbs above 1.3000 as Haldane repeats rate hike call

The dollar remained on a defensive footing versus nine of its G-10 peers and the euro climbed to a fresh high since May as traders recalibrated positions to reflect that central banks are starting to follow the Federal Reserve in shifting toward higher interest rates.

The greenback was nursing slender losses overall as gains versus the Mexican peso offset losses against the euro, pound and yen in the Bloomberg dollar index. The Canadian dollar bolstered its position as the best performing G-10 currency against the greenback this month, only to later pare gains. The Japanese currency reversed losses as U.S. stocks tumbled, though the dollar is still considered attractive against the yen after Bank of Japan Governor Haruhiko Kuroda on Wednesday stood out from other central bankers by signaling that the nation needs a sustained period of growth before wage pressures begin to build.

  • USD/JPY dropped to a fresh low of 111.82 as the dollar completely erased morning gains that stalled near 113.00. USD was weighed by a retreat in U.S. stocks and the 10Y UST yield from session highs. USD/JPY tripped stop-loss sell orders below the 112.14 interim low and again below 112.00, retaining a heavy tone, a trader in New York said. Tech support eyed at the 100-DMA of 111.80 and Wednesday’s low 111.83
  • CAD pared gains after rising to its highest in almost five months vs the USD, following a climb in WTI crude oil that turned flat. CAD had also been supported following signals from BOC Governor Poloz and other officials that the central bank may consider a rate hike in the near future
  • GBP also got a boost Thursday, trading as high as 1.3015 vs USD, after Bank of England economist Andy Haldane added to the hawkish tilt by repeating his notion from a week ago that the BOE must consider of raising rates to “keep a lid on those cost of living increases.” On Wednesday, the pound rallied as much as 1.2% after BOE Governor Carney also raised the prospect of rate hikes while warning that there’s a limit to the bank’s patience with above-trend inflation
  • As the pound rose, so too did the euro, adding to the softer tone of the dollar. EUR/USD climbed to 1.1445, its highest since May 2016. The shared currency gained some additional lift in morning trading after German harmonized inflation rose 1.5% y/y vs estimates for a gain of 1.3%
    • EUR approaching resistance from the May 11, 2016, high at 1.1447; offers are in place at 1.1450, according to traders in Europe
  • The dollar briefly rose to its high of the morning after data was revised to show that 1Q U.S. GDP expanded at a 1.5% annual pace vs 1.2% expected, led by a rise in personal consumption; separately, St. Louis Fed President James Bullard -- a nonvoter this year -- repeated his view that current rates are appropriate and said plans for a Fed balance-sheet unwind won’t roil markets 
    • S&P sees U.S. real GDP growth at 2.2% this year, 2.3% in 2018
  • The U.S. Congressional Budget Office said the government will run out of cash by early- to mid-October; forecasts FY2017 budget deficit of $693b vs prior March est. of $559b and $585b gap in FY2016, according to separate report; market shouldn’t be concerned about debt limit, Treasury Secretary Mnuchin says
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