DXY, EUR and CNY staying close to 90, 1.22 and 6.40 respectively.

Group Research – Econs, Philip Wee8 Jun 2021

DXY eased to 89.95 but did not deviate far from 90. Dow and S&P 500 fell 0.4% and 0.1% respectively overnight. The US Security and Exchange Commission warned that it was monitoring meme stocks for misconduct that may disrupt markets. US 10-year treasury yield regained composure around 1.569% after last Friday’s dip to 1.553%. On Thursday, US CPI inflation as per consensus, is set to extend its rise to 4.7% yoy in May from 4.2% in April, core inflation is seen firming to 3.5% from 3.0%. Worries remain that the Fed may start discussing tapering asset purchases at next week’s FOMC meeting, more so after US Treasury Secretary Janet Yellen’s comment that higher US interest rates would be good for the economy.

EUR was higher on better data but did not break above 1.22. EU Sentix investor confidence improved to 28.1 in June, its highest level since March 2018. Despite the encouraging data, the European Central Bank is likely to reaffirm, at its governing council meeting this Thursday, the need to continue its very accommodative monetary policy to ensure the recovery. Neither will the ECB be overly concerned about headline CPI inflation hitting its 2% target in May; core inflation data has remained low at 0.9% yoy. Preserving favourable financing conditions remain a priority after its assessment that corporate insolvencies could rise as EU nations lift their pandemic-related support measures.

CNY stabilized around 6.40 per USD. The People’s Bank of China has issued a statement in late May that the CNY was not a tool to boost exports or to offset price pressures from high commodity prices. Consensus expects CPI inflation tomorrow to pick up to 1.6% yoy in May from 0.9% its previous month which is still below the official 3% cap set this year. China’s 10-year bond yield has risen to 3.14% on Monday from its 3.05 low on 26 May but this was probably attributed to fears of tightening liquidity. Export growth in USD terms remained robust at 27.9% yoy in May but has slowed from 32.3% in April, a sign that the low base effects were wearing off.  However, import growth rose to 51.1% from 43.1% but was not enough to prevent the trade surplus from widening to USD45.5bn from 42.9bn. 

Philip Wee

FX Strategist – G3 & Asia