EUROPEAN FX UPDATE: Dollar drifts into next US data point post-FOMC

Analysis details (10:21)

DXY/JPY

The USD index held fractionally above 106.000 in the aftermath of the latest Fed policy meeting and back-to-back 75 bp hike as a lack of explicit guidance for September and an acknowledgment that recent indicators of spending and production have softened resulted in some scaling back of tightening expectations and Buck weakness. However, Chair Powell stated in the press conference that another large rate rise could be appropriate at the next meeting and the FOMC has not yet made a decision about when to slow the pace of hiking, while reiterating that the Committee wants to get rates to moderately restrictive territory, which he suggested was between 3.0-3.5% vs the current 2.25-2.5% neutral level. Nevertheless, the key takeaways were data dependent action on a meeting-by-meeting basis rather than flagging moves in advance, and this gave the Yen a fillip via potentially less BoJ-Fed divergence. Usd/Jpy reversed through a key technical level at 135.44 (50% Fib retracement of the rally to 139.38 from 131.49) before finding underlying bids into 135.00 (including Japanese importers most likely) and this kept the DXY capped within a 106.580-050 range alongside relative degrees of outperformance in other basket components ahead of US Q2 GDP and jobless claims.

NZD/AUD

Mixed macro releases down under in the form of ANZ’s business survey for July showing improvements in the outlook and own activity levels for NZ firms, while Aussie retail sales were revised down in the final June release to the slowest level of spending y-t-d. Accordingly, the Aud/Nzd cross retreated from 1.1179 towards 1.1125, even though Aud/Usd topped 0.7000 and Nzd/Usd fell just short of reaching 0.6300.

GBP/EUR

Both benefiting at the Greenback’s expense, but Sterling slightly more in percentage terms if not psychologically or optically as Cable could not touch 1.2200 and the Euro managed to scale 1.0200 irrespective of further downside in Eur/Gbp through 0.8400 and briefly breaching trendline support at 0.8375. The rationale for marginal Pound strength was probably the proximity of next week’s BoE rate verdict and the chance for the MPC to restore its interest premium against the ECB.

CAD/CHF

Somewhat sidelined, albeit also gaining ground against their US peer, with the Loonie probing 1.2800 and Franc staging a cleaner break of 0.9600 as Usd/Cad also factored in a firmer rebound in the price of oil.

SCANDI/EM

The Nok also derived impetus from crude and Brent almost touching Usd 108.50/brl to extend its winning streak vs the Eur to 9.9000+, but the Sek was hampered by weak Swedish retail sales and sentiment indicators to the extent that much stronger than forecast Q2 GDP was shrugged aside. Elsewhere, the Huf remained under pressure after more NBH tightening and Try through a raft of comments from the CBRT Governor intended to be supportive as the year end Turkish CPI estimate was raised sharply to 60.4% from 42.8% previously, but the Cnh and Cny pared more of their recent losses awaiting Xi-Biden, with assistance from China’s Politburo pledging to keep economic operations in a reasonable range, stablise employment and prices in H2, along with the troubled property sector.

28 Jul 2022 - 10:20- Fixed IncomeData- Source: Newsquawk