[MARKET ANALYSIS] JPY gains once again, to the detriment of the USD; EUR unreactive to the German politics

Snapshot: G10s are firmer against the broadly weaker USD this morning. JPY is the clear outperformer, with USD/JPY slipping to a 154 handle. EUR is steady, and ultimately unmoved by a strong far-right (AfD) victory in Germany. GBP was little moved to Chancellor Healey, who has not yet said anything notable. DXY was relatively steady for most of the APAC session, but came under some selling pressure in the European morning. No real driver for the move, but came amidst some hefty JPY strength (see details below). DXY now holds well below the peaks made post-NFP, which saw the index top its 200-DMA (99.14) and touch its 21-DMA (99.35). Some of the pullback in the USD could be, in part, due to traders turning their attention to CPI this Friday. It appears that the Fed remains laser-focused on the inflation mandate; Waller the most notable. As a reminder, he said that he is open to a hold in September, but if inflation accelerated, he would support a hike next week. Friday’s CPI report will likely be the decider between a hike and hold at next week’s meeting. Note: US participants are on holiday on account of Labour Day, so expect thin liquidity conditions. JPY is the clear outperformer this morning. Overnight trade was lacklustre, but the currency received some hefty flows this morning as US-JN yield differentials narrowed. USD/JPY currently resides towards session lows, within a 154.05 to 156.29 range. The strength over the past week can be explained by a hawkish repricing at the BoJ, potential intervention/coordinated rate checks with the US, and the extraordinary GPIF meeting in August. The GPIF meeting is perhaps the most interesting of them all. If the world’s largest pension fund opts to raise its domestic bond purchases to the upper end of its target range (from 26.9% to 31%), it would boost spending by c. JPY 12.3tn, Societe Generale writes. EUR is slightly firmer vs USD this morning, and little moved following the far-right (AfD) victory in Saxony-Anhalt. In brief, the party garnered 44% of the vote, but fell short of a majority. Markets will be attentive to whether AfD can form a coalition with another party, but this will likely prove to be tricky given that rival parties have refused to work with the AfD. However, a surprise entry of BSW to parliament may open the door for the AfD to feasibly form a majority coalition.