A pair like CNH/JPY best characterises the mood in FX markets, ING's FX analyst Chris Turner notes.
Pessimism about US domestic demand is growing
"Asian trading nations are being hit hard with tariffs since the bloc comprises around 60% of the US annual goods deficit. The offshore USD/CNH is sharply higher, although we expect authorities will continue to hold the line in the onshore USD/CNY. Expect an increased focus on the daily PBoC fixings in USD/CNY. Any near-term fixing over 7.20 would trigger another leg lower in Asian FX on the fear that Chinese authorities might tolerate a weaker renminbi after all."
"But away from Asia, the dollar is being sold against the big, liquid defensive currencies of the Japanese yen and Swiss franc and, to a lesser degree, the euro. Here, the blowback of US tariffs onto the US domestic economy leaves the dollar naked. US rates continue to be marked lower, and not until we get some surprisingly good news from the US on tax cuts or deregulation may the dollar start to find some support. Indeed, the dollar sell-off could prove a little problematic for Washington in that it had expectations that the dollar would rally on tariffs to provide insulation to the US consumer from higher import prices."
"And again, this is unlike 2017/18, where a major tax cut went through before tariffs were announced. With pessimism growing about US domestic demand, expect investors to continue using short USD/JPY positions to express this view. 147.00 is pretty strong support, but heavy US equity losses today could drag it back to the 145 area."
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