USD held on to strength in the G10 and EM space following the hawkish taper talk from Fed Bostic and Rosengren. KRW (-0.45%) underperformed in the EM complex as concerns mount over the shortage of Moderna vaccination supplies coupled with the continued spread of delta variant, both drivers weighing Kospi lower (-0.63%).Elsewhere, price action is largely a continuation of overnight moves with few new intraday catalysts, likely a synchronous theme ahead of July CPI print tomorrow where Citi Economics expect a moderately-stronger-than-usual core CPI increase of 0.39% as much of the predicable transitory strength has likely already played out in through June’s CPI.

Credit Agricole

Asia overnight: In Asian hours risk sentiment was unstable with US stock futures trading lower at the time of writing. This remains driven by rising expectations over the Fed being one step closer to policy normalization with the central bank’s Rosengreen (non-voting member this year) suggesting that they may announce the start of taper as soon as next month. In G10 FX, the AUD has been among the underperformers. However, this appears to be mostly driven by weaker domestic data with July business confidence collapsing to a multi-quarter low. At the same time, downside was relatively limited since weaker data did not come as major surprise as it was largely driven by Covid-19 related lockdown restrictions.

EUR: European blues Together with most other G10 European currencies (with the notable exception of the GBP), the EUR has emerged as the biggest underperformer since the beginning of August. The weakness seems to stem in part from the EUR’s growing rate disadvantage across the board – e.g. vs higher-yielding currencies like the USD, NOK, NZD, CAD, AUD and the GBP as well as low-yielders like the JPY, CHF and SEK. In turn, this seems to reflect the dovish shift by the ECB in the wake of the publication of the results from their strategy review in July. More recently, media reports have further fanned market speculations that the Governing Council could extend the duration of its PEPP program in September even as it is slowing down the pace of its monthly asset purchases. This coupled with the new more dovish forward guidance on rates could keep the EUR rate disadvantage in place.