CNH: USD/CNY Fixing Firmer, Error Term Slightly Wider

The USD/CNY fix printed at 7.1405, versus a Bloomberg market consensus of 7.1869.

• The USD/CNY fixing continues to rise from Thursday's 2025 low (7.1345), but this was in line with higher market expectations. The fixing error was little higher  at -464pips.
• USD/CNH is flat in the first part of the morning session, last near 7.1885. 

• CHINA SETS YUAN CENTRAL PARITY AT 7.1405 MON VS 7.1382

The BBDXY range overnight was 1202.95 - 12005.36, Asia is currently trading around 1204. The USD traded sideways for most of the Friday N/Y Session. The market is very quick to pounce onto anything that potentially justifies selling the USD but the US CPI out tomorrow night could potentially add some headwinds to this trade in the short-term. I suspect we see some paring back of USD shorts going into this print and then trade the reaction. A sustained break back below 1198 points to a retest of the lows, and a bounce back towards 1220/1230 should probably be faded initially.

• (Bloomberg) -- Weakening US jobs data has undermined the Federal Reserve’s view that the US labor market is solid, according to ING Groep NV strategists, who predict three back-to-back quarter-point interest-rate cuts starting from next month. The team sees EUR/USD rallying to 1.20 (spot: 1.165) and USD/JPY falling to 140 (spot: 147.85) over the next three months. “Sticky US inflation might lead to brief, corrective dollar rallies, but these should be the exception,” they say “Lower short-dated US rates are going to cut hedging costs and make it cheaper for the buy-side to raise hedge ratios on US assets”
• Robin Brooks on X: “Everyone talks about how Trump is the reason for the Dollar fall, but the truth is more mundane: markets price much bigger rate cuts for the Fed than other central banks. Those cuts are predicated on inflation staying low, which is about to get tested...”
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.

Fig 1: BBDXY 2H Chart

Source: MNI - Market News/Bloomberg Finance L.P