FX Update: The dollar has been trading with an overall downward tilt
FX Update: The dollar has been trading with an overall downward tilt, while the yen has posted gains amid a reversal in risk-on positioning on news that U.S. tariffs on Chinese goods would remain in place until the completion of the second phase of the trade agreement with China. The U.S. government was also reported to increase blocks on shipments of foreign-made goods to China’s Huawei. These developments, which have overshadowed the PBoC's extension of short- and medium-term loans today, saw stock markets retreat and safe-haven premiums richen. The MSCI Asia-Pacific index retreated from the 19-month high seen yesterday, while European stock markets went into sputtering mode. USD-JPY posted a two-day low at 109.81. AUD-JPY, widely viewed as a forex proxy on China, also ebbed to two-day lows. In Europe, Eurozone production and UK inflation data both misses expectations. EUR-USD lifted to a one-week high at 1.1154, despite the weak Eurozone numbers, extending the modest gains from yesterday's low at 1.1104. The dollar has lost some buoyancy in the wake of last Friday's below-expectations U.S. jobs report for December, which was followed by sub-forecast U.S. CPI data yesterday. The pound rotated lower on the UK CPI data, which saw the headline fall to 1.3% y/y from 1.5% y/y. Cable dropped nearly 40 pips in making a low at 1.2984. The upcoming BoE Monetary Policy Meeting, on January 30, is now live. The OIS market is discounting nearly an 60% chance for a 25 bp rate cut at the end of the month. EUR-CHF extended recent losses to a fresh 33-month low at 1.0745, driven by safe haven demand for the Swiss currency. USD-CAD remained buoyant, but below the six-day high seen yesterday at 1.3079. Oil prices found a footing after dropping sharply yesterday.