EUROPEAN FX UPDATE: Buck retains bid tone ahead of Fed’s favoured price metric

Analysis details (10:20)

DXY

The Dollar and index retreated after nudging up to marginal new peaks on Thursday, but the pullbacks were shallow amidst supportive rebalancing signals on spot month end via Citi’s model signalling a buy against all G10 peers. Moreover, the Greenback remained firm in wake of stronger than forecast Q4 PCE and GDP deflators that underscored hawkish Fed policy expectations and the notion that monthly readings for core PCE may also surprise to the upside. Looking at the DXY as a proxy, 104.500 was pivotal as it traded within a 104.410-740 range inside yesterday’s 104.310-780 parameters ahead of the aforementioned inflation data and a raft of Fed speakers, including Bullard, Collins, Jefferson, Mester and Waller.

AUD/JPY

Another change in the tide for the Aussie and Yen as the former relinquished 0.6800+ status again and the latter reversed sharply from near 134.00 to sub-135.00 vs the Buck, irrespective of Japanese CPI rising further, albeit in line with consensus, and the headline reaching a 41 year high. Aud/Usd was undermined by further depreciation in the Yuan and Usd/Jpy took heed of largely dovish or status quo policy guidance from the incoming BoJ Governor and his Deputies in testimony to the lower house of parliament overnight.

NZD/CAD/CHF   

All weaker against their US counterpart, but the Kiwi clung to 0.6200 with help from RBNZ Assistant Governor Silk stating that the Bank is not contemplating a pause in tightening and its 5.5% forecast for the OCR peak is not set in stone. Moreover, all rate hike options are on the table for the April meeting and the RBNZ will do all it takes to control inflation. Elsewhere, the Loonie straddled 1.3550 in the run up to Canadian budget balances and the Franc rotated around 0.9350 post-Swiss jobs data showing a marginal increase in Q4 non-farm payrolls.

GBP/EUR

The Pound managed to hold just above 1.2000 vs the Dollar and probed 0.8800 against the Euro after some LHS flow in the Eur/Gbp cross that might have been fix or month end related, but Sterling’s fate lay in the hands of the aforementioned key US PCE release and then remarks from BoE’s Tenreyro from an independent standpoint. Back to the Euro, and it continued to revolve around 1.0600 vs the Buck regardless of hawkish ECB rhetoric, this time from Nagel (see 8.05GMT post on the Headline Feed for details), with option expiry interest at the strike perhaps keeping the headline pair in check.

SCANDI/EM    

Better news for the Sek in the form Swedish sentiment indicators, but still not enough bullish impetus to breach 11.0000 vs the Eur, while the Cny and Cnh were undermined by a big PBoC liquidity drain, the ongoing China-US rift on multiple fronts and the loss of significant tech props, to the extent that a call from the Bank for 2023 GDP to come in at 5% or more was largely ignored.

24 Feb 2023 - 10:20- Fixed IncomeData- Source: Newsquawk