FX Daily: It looks like it’ll be volatile into FOMC

Stay vigilant! US 2Y bond yield could break above 4%.
Group Research20 Sep 2022
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    Dow, S&P 500 and Nasdaq Composite rose 0.6%, 0.7% and 0.8% respectively. After languishing most of the session, the recovery came in the last hour of trading. Investors remain wary of a third 75 bps hike at tomorrow’s FOMC meeting. In its Summary of Economic Projections, the Fed will also indicate how high above 4% the Fed Funds Rate will peak and pause in 2023. The US Treasury 10Y yield firmed 4.1 bps to 3.491%; 2Y rose 6.9 bps to 3.936%. For currencies, the sell-off during the Asian session stabilized during the European session before recovering in the US session. However, players remain wary of more volatility going into tomorrow’s FOMC. 

    DXY was barely changed at 109.73 on Monday.It rallied during the Asian and European sessions to a high of 110.18 before falling during the US session slightly below last Friday’s close of 109.76. Except for SEK (-0.25%) and JPY (-0.20%), most DXY components – CAD (+0.1%), GBP (+0.1%), EUR (+0.08%) and CHF (+0.05%) – ended marginally higher. However, CAD did depreciate to 1.3344 per USD at one point, its weakest level since November 2020. GBP almost hit last Friday’s low of 1.1351. The same can be said for the JPY, around 143.70. CHF’s intra-day low was near 0.97 per USD, its weakest since 9 September. We expect the Bank of England and the Swiss National Bank to hike by 50 and 75 bps at their Thursday meetings.

    US stock futures are positioning for a positive open today. Many Asian currencies are recovering from yesterday’s lows this morning. USD/CNH hit a high of 7.0257 before falling back around 7 this morning. USD/KRW gapped to 1390 this morning from its 1394. USD/SGD retreated after failing to break above 1.41 for a second session. USD/THB is also looking at last Friday’s 36.8 support level after backing off from 37. USD/IDR did not test 15000 and consolidated chiefly between 14965 and 14990 on Monday. However, sentiment can turn quickly when stock futures turn negative or when the 2Y UST yield rises above 4% for the first since October 2008.

    Quote of the day
    “In a gentle way, you can shake the world.”
          Mahatma Gandhi

    20 September in history
    In 1932, Mahatma Gandhi began a hunger strike against the way Hindu untouchables are treated.

    Philip Wee

    Senior FX Strategist - G3 & Asia


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