EUROPEAN FX UPDATE: Buck backs off post-Powell and peers benefit

Analysis details (10:20)

DXY

Very volatile trade during and after Tuesday’s speech from the Fed Chair that was deemed neutral overall given further acknowledgment of the disinflationary process being underway, but also guidance that rates may have to be raised higher if jobs data and unfolding inflation metrics reveal more upside surprises. However, Dollar bulls were clearly geared up for an outright hawkish response to the latest NFP release and the Greenback settled on the softer side, with the index probing 103.000 within a 102.990-103.410 range ahead of more official commentary and potential reaction to the blockbuster BLS report.

AUD/GBP/CHF/EUR

No real surprise to see the Aussie get a second wind following the RBA and with extra momentum from a rebound in broad risk sentiment that included renewed strength in underlying commodities. Aud/Usd extended towards 0.7000 and the Aud/Nzd cross breached 1.1000, awaiting Friday’s SOMP that could provide more insight about the likely length of the tightening cycle. Conversely, the Pound’s revival came courtesy of others, as Cable popped above 1.2100 and Eur/Gbp eased back below 0.8900 due to the Buck’s fade and a slight Euro lag irrespective of another big leg-up in EGB yields on changes to Eurosystem deposit remuneration by the ECB. Eur/Usd meandered between 1.0724-60 parameters, while Usd/Chf retreated through 0.9200 and Eur/Chf hovered under 0.9900 with the Franc gleaning impetus via firmer US Treasuries.

NZD/CAD/JPY

Also taking advantage of their US rival’s downturn, the Kiwi secured a firmer footing above 0.6300, but remained capped into 0.6350, while the Loonie pared losses from just under 1.3400 awaiting inaugural BoC minutes from the latest policy meeting and digesting remarks from Governor Macklem in justification of the decision to hike 25 bp before a pause (namely the high debt burden for households and businesses). Elsewhere, the Yen recoiled into a relatively narrow 131.38-130.60 band after more hedge selling from Japanese exporters overnight and positioning for the short-list to replace BoJ Governor Kuroda.

SCANDI/EM

A rather mixed bag of Swedish data on the eve of the Riksbank as industrial output and household consumption weakened further on a y/y basis, but new manufacturing orders spiked sharply to leave the Sek pretty flat in contrast to the Nok that tested psychological resistance at 11.0000 vs the Eur. Meanwhile, the Inr was boosted by the RBI retaining its stance for more withdrawal of accommodation against expectations of a shift to neutral gear after a ‘final’ 25 bp hike and the Huf by a much smaller than forecast Hungarian trade deficit, but the Try suffered amidst further Turkish quakes and the Cnh was hampered by reports that Beijing has requested students to don masks again.

08 Feb 2023 - 10:19- Fixed IncomeData- Source: Newsquawk