EUROPEAN FX UPDATE: Buck bid before FOMC as Russia wages more war

Analysis details (10:27)

DXY

An unusually lively run-in to the Fed amidst pronounced bouts of risk aversion prompted by Russian rhetoric and renewed efforts to continue its invasion of Ukraine via the mobilisation of more troops. Moreover, sentiment was hit particularly hard when President Putin warned that all resources will be used in defence against the West, including nuclear weapons, and the Dollar became prime beneficiary of a safety flight ahead of the looming FOMC, with Gold, the Yen and Franc taking up the slack. Indeed, the index climbed from a 110.120 through 110.500 and then eclipsed the prior 2022 and multi-year high before peaking at 110.870.

EUR

The Euro remained highly attentive to prospects of an escalation in Russia-Ukraine hostilities, and the latest developments resulted in Eur/Usd probing 0.9900 to the downside, albeit holding above recent lows protecting the y-t-d trough. However, the headline pair retreated from best levels around 0.9976 and away from decent option expiry interest that might have been supportive (1.1 bn between 0.9955-50), not to mention even heftier expiries above (2.64 bn from parity to 0.9995).

GBP/AUD/CAD//NZD/CHF/JPY       

All weaker against the Greenback, though to varying degrees, as Sterling suffered contagion alongside the Euro irrespective of Eur/Gbp reversing from 0.8769 to 0.8720 at one stage, and Cable only just staying afloat of 1.1300, while the lost sight of 0.6700 and tested support/underlying bids into 0.6650. Elsewhere, the Loonie derived some traction from a firm bounce in crude prices on heightened war (supply) premium to defend the psychological 1.3400 level, with added impetus via comments from BoC’s Beaudry acknowledging the latest slowdown in Canadian inflation, but underlining that it is still too elevated. The Kiwi contained declines under 0.5900 pre-NZ trade data as Aud/Nzd ran out of momentum above 1.1350, the Franc pivoted 0.9650 and retested 0.9550+ multi-year peaks vs the Euro, while the Yen regrouped between 144.08-143.34 parameters.     

SCANDI/EM/PM

The Nok rebounded in tandem with the Brent, but the Cnh/Cny swooned further beneath 7.0000 amidst broad weakness in Asian currencies against the Usd. On that note, the Thb fell further regardless of another meeting between the Thai Finance Ministry and Central Bank, while Taiwan’s Central Bank resorted to allowing insurers to remit income in order to help slow FX depreciation. Conversely, Gold spiked circa Usd 13/oz to the brink of its prior yearly base around Usd 1681.

21 Sep 2022 - 10:27- Fixed IncomeData- Source: Newsquawk