EUROPEAN FX UPDATE: Buck regains poise post-Powell, Paese and poor auction

Analysis details (10:12)

DXY/EUR/JPY

Yields continued to play a major role in terms of direction and overall sentiment, but the Greenback was also under the influence of ongoing intervention and guidance from the Fed that turned a bit more hawkish or less dovish via Chair Powell and interim St Louis President Paese. In short, the former reiterated that the FOMC is not confident it has achieved a sufficiently restrictive stance, and if it becomes appropriate to tighten policy further there will be no hesitation, while the latter expressed uncertainty about whether public expectations are aligned with the likely Fed policy path given that it is too soon to rule out further rate hikes. All this after an abject end to a mixed Treasury Refunding schedule saw the long bond sale tail in excess of 5 bp. However, the Dollar index faced psychological resistance at 106.00 within a tight 105.99-82 range and what looked like resilience in the Euro and defiance in the Yen to hold above 1.0650 and 151.50 respectively. Note also, Eur/Usd and Usd/Jpy may have been drawn towards hefty option expiries between 1.0690-1.0700 and at 151.00 rather than repelled.

GBP/NOK

Sterling was underpinned by better than consensus UK GDP metrics, though not exactly overwhelmed as Cable kept afloat of 1.2200 and the 21DMA but remained capped below 1.2250 and the Eur/Gbp cross veered higher on the 0.8700 handle. Conversely, the Norwegian Crown pulled further away from lows circa 12.0000 vs the Euro in wake of hotter than forecast inflation data that will likely go a long way towards convincing the Norges Bank that it needs to raise rates by another 25 bp in December.

CHF/CAD/NZD/AUD

All softer against the Buck, with the Franc back under 0.9000, the Loonie retreating to pivot 1.3800, the Kiwi back under 0.5900 and the Aussie lagging amidst renewed risk aversion having lost 0.6400+ status. For the record, there was little new from SNB’s Schlegel on the policy front and BoC’s Rogers merely made a general observation that it's easy to forecast a world where rates are persistently higher than people have grown used to in recent years. In NZ, PM Hipkins said the Governor General will be advised to extend current caretaker government arrangements until a new one is formed and in Australia the RBA’s SOMP only reaffirmed that the Board considered the option to continue holding policy rates steady, but decided a hike would provide more assurance on inflation, and whether further tightening is needed will depend on data. 

SEK/EM

Not a lot to be gleaned via somewhat contrasting Swedish macro releases of the Riksbank upping its FX hedging marginally, but the Mxn drew traction from relative stability in oil following Banxico’s dovish hold and the Try via a pick up in Turkish IP and dip in Unemployment. Elsewhere, the Huf coped well with soft Hungarian CPI, the Czk was cushioned by firmer than expected Czech inflation after CNB minutes showed two dissenters voting for a 25 bp cut and the Pln took note of the opposite from NBP’s Tyrowicz.

10 Nov 2023 - 10:12- Fixed IncomeData- Source: Newsquawk