FX Update: Rising yields continue to pressure JPY, and now CHF?

FX Trading focus: CHF finally joining the JPY in feeling the pressure from rising yields?

The slide in the JPY took on new energy overnight as USDJPY pulled all the way above 128.00, carving out new 20-year highs, with the next major chart point up at 135.00, the high from early 2002. The move was accompanied by a new modest rise in US long treasury yields, but it seems the situation has developed its own dynamic, and the market was almost thumbing its nose at Japanese officialdom, which overnight escalated its verbal intervention against JPY volatility. The Japanese Ministry of Finance’s Suzuki, who said that the ministry is “monitoring moves in the foreign exchange market with a strong sense of vigilance.” The pressure cooker is set to continue for the JPY until the MoF backs up that strong sense with a few tens of billions of USD in actual currency intervention or, more durably, until the Bank of Japan loosens up its commitment to capping 10-year JGB yields.

Elsewhere, as I discuss below, the Swiss franc is sharply weaker today, a move I can’t help but also attribute in part to the constant pressure from rising yields. Not sure why we are getting the delayed reaction to this now. I have been surprised at EURCHF’s complete lack of correlation with EURJPY of late and its return back lower below 1.0200 recently despite Switzerland joining other countries in sanctioning Russia. The latter seemed to be behind the strong lifting in EURCHF after those sanctions were announced, but then the pair settled back lower and the weekly sight deposits at the SNB have built strongly of late, suggesting that there is some residual safe-haven seeking in the CHF, some of it possibly linked to the French presidential election. If we clear this last hurdle with no Le Pen victory on Sunday and yields continue to lift globally, the CHF could be in for some “catch-up” weakening. For now, USDCHF traders may be front-running this and EURCHF even broke locally higher today.

Chart: USDCHF
Yes, the Japanese yen deserves the bulk of our attention of late as it continues weaker at a breath-taking pace, but the movement today in the Swiss franc is interesting as it may suggest that yield pressures are finally making their mark on the franc as well. Note that USDCHF has broken to its highest levels since early 2020 today, and even EURCHF pulled a bit higher. The next test may be the reaction to the French Presidential run-off on Sunday and whether this is the source of the apparent safe-haven demand into CHF. The weekly SNB sight deposit data showed almost no growth in deposits yesterday after a few weeks of strong builds (as SNB intervened to mute pressure on CHF to strengthen).