EUROPEAN FX UPDATE: BoJ upends Yen, but Pound propelled by BoE pricing

Analysis details (10:15)

JPY/DXY/GBP

Yen bulls were caught out or completely cold by no further YCT tweaking from the BoJ overnight, not to mention guidance that remained clearly dovish and was reaffirmed by outgoing Governor Kuroda in the post-meeting press conference as he pledged to continue with monetary accommodation and ease more if necessary. Usd/Jpy spiked from a low near 128.00 to 131.57 at one stage and the Dollar index rebounded in tandem to 102.900 even though Yen crosses tracked the resurgent headline pair to the benefit of other basket components. However, the DXY and Greenback in general were subsequently derailed by extended gains in Sterling through 1.2300, Tuesday’s high just one pip above the round number and a Fib retracement level, at 1.2303 in wake of the latest UK inflation report showing marginally firmer than forecast core CPI metrics. Note, the headline measures eased again, but in line with expectations, so the probability of another 50 bp hike from the BoE next month edged higher having already ticked up post-above consensus average earnings. Cable climbed over 1.2350 and Usd/Jpy reversed below 130.00 and 129.50 as the Buck reversed broadly with the DXY back down to 101.890.

NZD/CHF/EUR/AUD

All settled firmer against their US rival after bouts of Yen-related contagion/volatility, with the Kiwi reaching multi-month highs near 0.6500, the Franc probing 0.9150, the Euro topping 1.0870 and Aussie securing a firmer grasp of the 0.7000 handle. Eur/Usd was also underpinned by EGB/UST yield convergence after comments from ECB’s Villeroy countered dovish source reports (President Lagarde’s 50 bp hike guidance still valid and too early to speculate about any pivot to 25 bp in March), while Aud/Usd continued to its inverse correlation with Usd/Cny and Usd/Cnh.

CAD

The major laggard and perhaps in knock-on trade post-yesterday's softer, on balance Canadian CPI data as attention turned to PPI, with Usd/Cad hovering above 1.3350 within a range up to 1.3409.

SCANDI/EM

The Sek outpaced the Nok and in relation to the Eur for little fundamental reason on the eve of the Norges Bank, but the Zar was bolstered by Gold rather than mixed SA headline and CPI readings, the Cny and Cnh returned to winning ways after holding above support at 6.8000 in similar vein to the Huf that following its recent retreat to test technical support in the 400.00 area vs the Eur. Conversely, a firmer bounce in crude prices resulted in renewed Try weakness against the Usd to just under 18.8000.

18 Jan 2023 - 10:15- Fixed IncomeData- Source: Newsquawk