FX January 28, 2022 / 09:59 am UTC

EUR/USD, USD/JPY, GBP/JPY, EUR/SEK flows: USD still firm but expect stabilisation

By Adrian Schmidt

USD has started strong this morning, but we are approaching support levels for the JPY. SEK unresponsive to strong GDP.

French and Swedish GDP both on the strong side of expectations this morning, but the USD has started the session strong, moving to new highs against the JPY and EUR/USD pressing the lows. While the USD gains so far this morning are across the board, the riskier currencies have held up better in the last couple of days, with USD/CAD holding below 1.2750 and EUR/GBP testing the 0.8300 area. The CAD is gaining support from high oil prices, which also are of slight benefit to GBP, but EUR/GBP declines have broadly followed the rise in yield spreads in favour of the pound. 

With US yields now steadying after the initial post-FOMC surge, and still below the highs of 2021, we don’t see USD gains extending far from here today. USD/JPY should find sellers above 115.50, but EUR/USD may not gain much support until a 1.10 handle. The JPY continues to look the most undervalued of the majors, but until the market starts to take real rather than nominal values into account it will be hard for it to rally against the USD. Even so, GBP/JPY looks overdone even relative to the usual correlation with the nominal equity risk premium, and we would favour the JPY on the crosses against European currencies. 

There has been no reaction in the SEK to stronger than expected GDP data, even though it shows that Swedish FGDP has essentially matched the strength of US GDP since the start of the pandemic. But until or unless the Riksbank shows some concern about inflation, it will continue to be hard for the SEK to benefit from strong activity numbers. 

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