The yen lags as turnaround Tuesday commences

WCRS 06-08

At the start of the day, the yen was the lead gainer as risk-off sentiment continued as Mnuchin labelled China a currency manipulator.

However, the PBOC responded with a lower-than-expected USD/CNY fixing alongside conducting a massive CNH bill issuance and markets took that as a signal that we're not going to see significant devaluation in the yuan for now.

I would take it as China was merely sending a message to the US with yesterday's move but perhaps in the context of the bigger picture, a weaker yuan is still where we'll be headed towards. However, the move should be more measured and steady.

As such, USD/JPY recovered from a low of 105.52 to hit a high of 107.09 before settling around 106.60-70 levels currently. The jump came on the back of a recovery in risk assets and Treasury yields rising sharply as well with the yuan holding more stable.

The dollar also recovered losses with EUR/USD slipping from a high of 1.1250 to sit around 1.1190-10 currently.

Commodity currencies are also off their lows though the kiwi has seen its Q2 labour market gains evaporate in the past hour as sellers regain near-term control in NZD/USD.