EUROPEAN FX UPDATE: Buck underpinned, but Yen regroups amidst Japanese jawboning

Analysis details (10:31)

DXY/CNY/CNH/TRY/JPY

The Dollar regained poise almost across the board after easing back in light volume trade on Memorial Day, with the index topping 104.500 from a fractionally firmer 104.090 low, at 104.530 amidst weakness in most basket components and beyond. Notably, the Yuan extended its losing streak (Cny to 7.0986 and Cnh 7.1093) to the detriment of others on top of the Aussie, as the PBoC set a higher Usd/Cny midpoint fix and China rejected a request from the US for a meeting of their respective Defence Ministers that the Pentagon said was concerning. Meanwhile, the Lira lurched again to fresh all time lows (20.3550) following confirmation of victory for Erdogan at Turkey’s Presidential run-off as investors braced for another term of unorthodox policy, and the Greenback got a lift in its own right on the back of US President Biden reaching a budget agreement in principle with House Speaker McCarthy to raise the debt limit by 19 months until the 1st of January 2025. However, the DXY was knocked off its loftier perch when the Yen defended 141.00 for the 2nd time of asking and rebounded towards 140.00 in response to an emergency meeting of the BoJ, MOF and FSA Officials scheduled to take place from 9:30 BST and culminating in a press conference by Japan’s top currency diplomat Kanda. In the event, his comments were rather routine and along familiar lines, like it is important for currencies to move stably reflecting economic fundamentals, the authorities are closely watching FX moves and will respond appropriately if necessary and the focus is not on (specific) levels. But Kanda went on to state that there was no intention of verbal intervention behind today’s gathering and Usd/Jpy duly popped back up to around 140.50. 

CHF/NZD/EUR/AUD

Firmer than forecast Swiss Q1 GDP hardly helped the Franc that may have been more focused on a much bigger than expected fall in the KOF indicator, while the Euro was undermined by softer than consensus Spanish inflation data and Eurozone M3 metrics. Elsewhere, the Kiwi and Aussie were hampered by declines in NZ building consents and approvals respectively, but bounced from worst levels when risk sentiment picked up and their US rival pared some gains as noted above. Usd/Chf climbed to 0.9083 from 0.9032 at one stage, Eur/Usd tripped stops on a break of 1.0700 down to 1.0673 from 1.0726, Nzd/Usd fell from 0.6161 to 0.6026 and Aud/Usd to 0.6504 from 0.6559 before either drifting back or grinding higher.

GBP/CAD

Sterling straddled 1.2350 on return from the UK Spring Bank holiday and gathered momentum vs the Euro to probe 0.8650, but the Loonie lagged against the backdrop of renewed pressure in crude oil as Usd/Cad remained elevated within a 1.3568-1.3608 range.

SCANDI/EM

In similar vein to the Franc, Sweden’s Crown got no traction from GDP even though the final reading for Q1 was upgraded markedly, with Eur/Sek spiking above 11.6250 after Riksbank’s Jansson said the Krona could become a serious problem and Governor Thedeen noted some theoretical support for a higher inflation target, but the nation should not move in that direction ahead of other countries. Meanwhile, the Shekel took heed of remarks from Bank of Israel Governor Yaron that interest rates are now ‘restrictive’ but if Ils depreciation continues, there could be more hikes and its weakness has been excessive.

30 May 2023 - 10:31- Fixed IncomeData- Source: Newsquawk