Yen, US Dollar Drop in Tandem on Dovish Fed Outlook Shift

Talking Points:

Yen and US Dollar Drop in Tandem as Dovish Fed Outlook Shift Boosts Risk
S&P 500 Stock Index Futures Hint Overnight Dynamics Poised to Continue
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The Japanese Yen underperformed in overnight trade in what appeared to be an improvement in risk appetite. Traders shrugged off a worrisome set of Chinese trade figures that showed the largest imports drop in three months (-13.8% y/y), a possible sign of slowing demand in the world’s second-largest economy, apparently opting to focus on US monetary policy expectations instead.

Indeed, the US Dollar proved to be the weakest currency on the session, with prices dropping alongside yields on US Treasuries. That seems to suggest deterioration in US monetary policy expectations just 10 days before this month’s much-anticipated FOMC meeting.

Investors appear to dread the prospect of monetary tightening in the US against a backdrop of rising global slowdown and financial market instability concerns. With that in mind, the possibility of a delay may yield the opposite effect, boosting sentiment.

The timing of the move is a bit suspect considering the absence of high-profile catalyst to trigger it. A Wall Street Journal article citing a worried tone from San Francisco Fed President John Williams – heretofore a strong supporter of tightening in 2015 – may be one explanation. The return of liquidity following the US market holiday on Monday offersanother explanation, painting price action as pent-up follow-through on Friday’s disappointing US nonfarm payrolls print.

Futures tracking the S&P 500 stock index are pointing firmly higher ahead of the opening bell on Wall Street. Thissuggests that the risk-on move is may carry forward, fostering continuation of overnight trading patterns.

A revised set of second-quarter Eurozone GDP figures headlines the data docket in Europe. Expectations point to confirmation of the flash estimate putting the quarterly increase in output at 0.3 percent. An upside surprise in line with the recent string of outperformance on data from the currency bloc relative to consensus forecasts may undermine ECB QE expansion bets and send the Euro higher. Such an outcome may likewise amplify support for risk appetite.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

22:00

NZD

ANZ Truckometer Heavy (MoM) (AUG)

-0.6%

–

-0.3%

22:45

NZD

Mfg Activity Volume QoQ (2Q)

-0.2%

–

-0.3%

22:45

NZD

Mfg Activity SA QoQ (2Q)

0.4%

–

-2.6%

23:01

EUR

German Manpower Employment Outlook (4Q)

6.0%