EUROPEAN FX UPDATE: Cable slides along divergent UK-US CPI lines

Analysis details (10:25)

DXY/GBP

Having outperformed or held up better when the Greenback gradually warmed to US inflation data yesterday, albeit with help from mostly hawkish Fed rhetoric in response (and in recognition of January’s surprisingly strong jobs report), Sterling could not put up a fight given the fact that UK CPI came in quite a bit softer that expected at headline and core level. To recap, the former fell 0.6% m/m vs -0.4% forecast with the y/y rate down to 10.1% y/y vs 10.3% consensus and the latter dropped 0.9% vs -0.5% to push the y/y rate down to 5.8% rather than 6.2%. Cable recoiled further from Tuesday’s peaks to circa 1.2072 before finding a base when the Dollar and index lost momentum amidst a modest pick-up in broad risk appetite, plus some consolidation awaiting more top-tier US macro releases in the form of retail sales, primarily, and ip. However, the DXY retained grasp of the 103.000 handle comfortably between 103.150-630 bounds.

AUD/NZD

The Aussie reversed from the high 0.6900 area vs its US rival and failed to sustain 1.1000+ status against the Kiwi irrespective of hawkish commentary from RBA Governor Lowe overnight, as weakness in underlying commodities and the Yuan took a toll, but Nzd/Usd also toiled vs its US counterpart as NZ started to repair the damage done by Cyclone Gabrielle.

EUR/JPY/CHF/CAD

Latest comments from ECB’s de Cos were pretty balanced overall, with a nod to recent data on EZ inflation and some key determinants that are somewhat encouraging, while gas price developments point to inflation falling more strongly in the near-term than envisaged in December, but also warning that the upward effects of energy, food and commodity prices could still be significant in 2023. Moreover, he noted that the withdrawal of fiscal support measures could make inflation more persistent and pressure from workers to reclaim lost purchasing power might be significant, particularly with a tight labour market. Hence, the Euro was more impacted by external factors, like the Yen and Franc, such as outright yields and spreads to US Treasuries. Eur/Usd meandered from 1.0744 to 1.0701, Usd/Jpy rebounded emphatically to 133.50 from 132.55 and through the base of a chart resistance zone starting just under 133.00, while Usd/Chf sat tight within a 0.9248-10 range. Elsewhere, the Loonie lagged in the face of another downturn in oil, regardless of the IEA ramping up its 2023 global demand forecast. Instead, WTI and Brent were undermined by a much bigger build in private crude inventories than anticipated. Usd/Cad topped 1.3400 compared to a low around 1.3335 in the run up to Canadian housing starts, manufacturing sales and wholesale trade.

SCANDI/EM  

The aforementioned decline in Brent knocked the Nok and the Mxn was rattled by WTI, understandably, while the Zar shrugged off broadly in line SA CPI prints and tracked another retreat in Gold from Usd 1850+/oz peaks towards Fib support with additional pressure via a warning from Fitch that should infrastructure problems cause further declines in potential growth, this could potentially weigh on the sovereign rating. Meanwhile, the Cnh and Cny depreciated as China-US relations remained strained and hardly benefited from the PBoC’s injection of 1 year MLF funds, and the HKMA had to buy more Hkds to defend the peg.

15 Feb 2023 - 10:25- Fixed IncomeData- Source: Newsquawk