EUROPEAN FX UPDATE: Dollar flags post-FOMC minutes and Yen takes advantage

Analysis details (10:12)

JPY/DXY

Don’t fight the Fed they say, but in truth there was little need to combat Greenback strength on account of May’s policy meeting minutes as they offered little in the way of fresh impetus or incentive for the Buck to mount a meaningful recovery rally. In short, guidance for 50 bp hikes in June and July were underscored, to extend the sequence to three in a row, but there was no mention of 75 bp moves that might have boosted the index further beyond 102.000. Instead, the DXY faded further from its pre-release peak and subsequently slipped into a 102.260-101.930 range awaiting the 2nd read of US Q1 GDP, IJCs and pending home sales amidst a reversion to bull-flattening along the Treasury curve. Conversely, the Yen rebounded firmly across the board after comments from BoJ Governor Kuroda rather than pretty stock verbal intervention from Japanese PM Kishida about undesirably sharp moves, as the former broached the subject of withdrawing ultra accommodation via a combination of rate hikes and balance sheet reduction, albeit through specific means and the timing dependent on developments at that point. Note also, Kuroda pushed back on the notion that higher US rates will necessarily result in a weaker Yen and Usd/Jpy retreated further from decent option expiry interest (1.13 bn between 127.60-50) in response to test bids/support into 126.50, while Eur/Jpy reversed from 136.50+ to sub-135.50.

CHF/EUR/AUD/NZD/CAD/GBP

After some knee-jerks and volatile price action in wake of the aforementioned FOMC publication, the other majors traded in range vs their US counterpart, with the Franc fractionally below Wednesday’s peaks within a 0.9633-0.9591 band, the Euro meandering from 1.0706 to 1.0662, the Aussie mostly under 0.7100 between 0.7110-0.7057 extremes following another disappointing Q1 data point (Capex this time) and the Kiwi not faring much better irrespective of more hawkish RBNZ remarks (Governor Orr stressing the need to tighten at pace). Elsewhere, the Loonie remained inside a 1.2800-50 corridor in advance of Canadian retail sales and Sterling stuck to 1.2612-1.2551 confines ahead of UK Chancellor Sunak’s latest anti-energy cost crisis measures.

SCANDI/EM   

The Sek extended declines beneath 10.5000 towards 10.6000 vs the Eur as Sweden continues to face Turkish opposition against NATO entry and the country observed Ascension Day, while the Try fell to a new 2022 low against the Usd around 16.4540 pre-CBRT and the Rub weakened post-CBR rate cut at the top end of the 200-300 bp forecast range, in contrast to the Krw that gleaned some support from the BoK’s 25 bp hike. Meanwhile, a change of fortunes for the Cnh and Cny to an extent and largely from a chart perspective as depreciation from a weaker PBoC onshore midpoint fix on the grounds impending offshore dividend payments stalled a key tech level (6.7800 in terms of the Cnh).

26 May 2022 - 10:12- Fixed IncomeEconomic Commentary- Source: Newsquawk