EUROPEAN FX UPDATE: Buck backs off a bit further, Euro flanked by expiries

Analysis details (10:05)

DXY/CHF/EUR

It may be way too premature to suggest that market participants were already keeping their powder dry for the midweek preliminary PMIs and Jackson Hole between August 24-26th, but major pairings were relatively rangy and the Greenback gyrated or gravitated in quiet trade partly due to the lack of scheduled events or data on Monday. However, the Franc regained enough poise to probe 0.8800 as the Dollar index drifted down from 103.470 to 103.300 and weekly Swiss sight deposits revealed hefty declines in domestic bank accounts, while the Euro held just under 1.0900 within 1.0889-70 confines inside more decent option expiry interest (1.9 bn at 1.0900 and 1.4 bn between 1.0845-40). 

CAD/AUD/GBP/JPY/NZD

The Loonie gleaned some underlying traction from firmer oil prices and the Aussie clawed back some declines against the Kiwi following last week’s underperformance, but the Pound came under renewed pressure amidst reports of Eur/Gbp buying and the Yen lost recovery momentum as US Treasury yields rebounded and the curve flipped back into bear-steepening mode. Usd/Cad eased back from 1.3555 to 1.3530, Aud/Usd straddled 0.6400 as Aud/Nzd climbed from the low 1.0800 area to 1.0833 and Nzd/Usd drifted down towards 0.5900 from 0.5940 in wake of NZ trade data revealing a swing from marginal surplus to deficit. Elsewhere, Cable slipped from 1.2750 to 1.2711 and Usd/Jpy bounced from 145.15 to 145.69 irrespective of Japan's MoF lifting the assumed long-term interest rate to 1.5% in FY 2024/25 from a record low 1.1% for FY 2023/24) due to rising yields after the BoJ’s policy tweak.

EM

Several eyebrows raised after the PBoC underwhelmed in terms of LPR easing with only 10 bp shaved off the one year rate and the 5 year held, but the Cny and Cnh both pared losses from 7.3150 and 7.3360 at worst respectively against the Usd after the Bank set yet another artificially strong midpoint reference rate and met with regulators and bank executives to urge the latter to increase lending activity in support of the economy. On that note, UBS joined a long list of those downgrading Chinese 2023 GDP forecasts, at 4.8% from 5.2% previously. Meanwhile, the CBRT ended implementation that stipulates a target for conversion from foreign currency deposits to FX-protected deposits and securities maintenance and reserve requirement practice based on the Turkish lira share of FX-protected deposits, while it stated that regulations were aimed to increase Turkish lira deposits, while decreasing FX-protected deposits. Nonetheless, the Try remained sub-27.0000 vs the Usd, while Eur/Pln was propped near 4.4750 post-weaker than consensus Polish IP, PPI and Corporate Sector Wages.

21 Aug 2023 - 10:05- Research Sheet- Source: Newsquawk