EUROPEAN FX UPDATE: Buck stabilises following hefty Fed setback

Analysis details (10:19)

DXY

The Dollar remains some distance from its pre-FOMC peaks and still in the process of recalibrating rate expectations based on latest guidance from Fed chair Powell who was pretty explicit in terms of playing down the prospect of 75 bp tightening moves as it attempts to rein in inflation expeditiously. Moreover, he sees some signs of price pressures topping out and effectively flagged two further ½ point hikes for June and July after this month’s 50 bp increase that was carried by a unanimous vote. Hence, no dissent from uber-hawk Bullard and the upshot was another bout of long Greenback liquidation before finding underlying buying interest and some technical support against several counterparts. Using the index as a proxy, 103.000 is back within sight compared to a 102.340 low and 102.710 could be pivotal on a closing basis as the 10 DMA today. From a fundamental perspective, Challenger lay-offs, jobless claims and labour costs are due, but Friday’s NFP release is likely to be the next major market-moving event.

GBP/AUD/CHF/NZD/JPY

It’s tight at the bottom of the major ranks as the Buck stages a broad recovery, but the Pound is just lagging behind its peers even though the BoE is widely tipped to extend its run of 25 bp hikes at 12.00BST. However, Sterling seems wary that the MPC minutes and/or commentary from Governor Bailey at the press conference might infer that it’s one more and done, for now at least, as the new MPR forecasts are expected to reveal higher inflation and lower growth. Cable is holding above 1.2500 with some traction from upgraded final UK services and composite PMIs, but well below circa 1.2635 at best post-Fed and the Eur/Gbp cross is over 0.8450. Similarly, the Aussie retreated from overnight highs around 0.7266 and close to 1.1100 vs the Kiwi, though in consideration of mixed macro releases as building approvals were weaker than forecast and the trade surplus was wider than anticipated with exports flat again and imports declining. Conversely, the Franc reversed from 0.9710 or so to retreat the round number above, irrespective of slightly firmer than consensus m/m Swiss CPI, the Kiwi faded from 0.6568 to the brink of 0.6500 in the absence of anything NZ specific and the Yen recoiled a bit more than a big figure between 128.75-129.83 parameters as Japanese participants enjoyed another holiday (Children’s Day on this occasion).

CAD/EUR

The Loonie and Euro held up better than others in the face of their US rival’s revival, with the former gleaning some protection from strength in WTI crude (solid either side of Usd 108/brl) and the latter from a pronounced rebound in EGB yields rather than Eurozone data that was poor, including German industrial orders and French ip. Usd/Cad contained its pull-back to 1.2766 from 1.2713 and Eur/Usd to 1.0582 from 1.0642 with some additional incentive from 1.8 bn option expiry interest at the 1.0600 strike.

SCANDI/EM

Brent offered the Nok a buffer after the Norges Bank stuck to its policy normalisation path by standing pat until June, regardless of the fact that the Krona has depreciated more than it envisaged in the March MPR and it expressed concern about accelerating inflation and wages that might require a faster pace of hiking, if persistent. Elsewhere, volatile trade in the Cnh and Cny as Chinese markets re-opened and the PBoC set a strong midpoint fix, but the Caixin services PMI collapsed more than expected, and the Try was undermined by another set of eye-popping and forecast-topping Turkish CPI and PPI prints, in contrast to the that Brl got the 100 bp BCB hike it was banking on and a bit extra via the accompanying statement flagging more tightening beyond June, albeit in smaller increments. Looking ahead, the Pln is looking for a full point from the NBP and Czk expects 50 bp from the CNB.

05 May 2022 - 10:19- Fixed IncomeData- Source: Newsquawk