EUROPEAN FX UPDATE: Buck bulls take a breather before FOMC minutes

Analysis details (10:42)

DXY

The Dollar index retreated from best levels after extending gains made on the back of hawkish Fed rhetoric, from Brainard in particular given her traditionally more dovish traits, to register a fresh 2022 and multi-year apex, at 99.759 (96.938 was the best level reached in 2021 for comparison). Some consolidation and profit taking sapped the Greenback’s bullish momentum, as rival currencies clawed back losses largely on technical grounds, while others relied on a mixture of fundamental and external factors to recoup recent declines. Looking ahead, the account of March’s FOMC policy meeting is the headline midweek event, though latest commentary from Fed’s Harker will provide interest in the interim along with any pertinent breaking news or headlines, as the DXY hovers just under 99.500.

CHF/JPY

Confirmation or refutation will only become evident in time, and starting with next Monday’s weekly Swiss bank sight deposit update, but price action suggests that official intervention has contributed to a sharp Franc retreat along with its underperformance as a low yielder. Indeed, Usd/Chf is over 0.9300 and has been as lofty as 0.9350, while Eur/Chf is nearer 1.0200 following its fall to sub-1.0150 lows. Meanwhile, the Yen recovered composure from an overnight slide through 124.00, though remains vulnerable to further depreciation unless the BoJ and MoF back up supportive words with action, especially as the former continues to maintain YCC.

SEK/GBP/EUR/NZD/AUD

The Swedish Crown, Pound, Euro, Kiwi and Aussie are extracting most from their US peer’s pullback, with the Sek receiving another fillip from Riksbank’s Floden in even more forthright terms than Tuesday via the line that policy must be tightened much earlier than previously planned. Eur/Sek remains sub-10.3000 as a result. Elsewhere, Sterling seems to have benefited from limiting the downside below 1.3050 and is now probing 1.3100 in wake of a considerably stronger than forecast UK construction PMI. Conversely, Eurozone surveys were weak and French sub-50, so Eur/Usd is back on the 1.0900 handle thanks to EGBs closing the gap on USTs and perhaps the fact that the headline pair did not collapse on a breach of Fib support at 1.0895. For the Antipodes, it appears to be a case of part role reversal as the Kiwi unwinds underperformance vs the Aussie or vice-versa after yesterday’s hawkish RBA hold, with Nzd/Usd back above 0.6950 and Aud/Usd capped under 0.7600 as the Aud/Nzd cross slips beneath 1.0900. However, remarks from RBA’s Kent and Bullock reaffirm revised guidance that signals less inclination to wait before hiking rates - see posts on the Headline Feed at 7.55BST and 8.00BST for more.

CAD/NOK  

Both lagging even though crude prices look pretty stable and less volatile than of late, as the Loonie reversed from new y-t-d peaks against its US counterpart just pips away from 1.2400 to sub-1.2500 at one stage and Eur/Nok pivots 9.5500.

EM

A harsh return from their holiday break for the Cny and Cnh as Caixin’s Chinese services PMI plunged deep into contraction territory, but the subsequent Usd demise has helped cushion the blow, and the Zar is also deriving impetus to resume its winning run. In CEE, the Pln is poised to see how high the NBP goes and Huf is still weighing up the damage that might be inflicted by EU disciplinary action.

06 Apr 2022 - 10:42- Fixed IncomeEconomic Commentary- Source: Newsquawk