EUROPEAN FX UPDATE: Dollar flogged as rate expectations continue to slide

Analysis details (09:23)

DXY

The Greenback retreated further amidst the US financial sector malaise caused by the collapse of SVB Bank, but also the failure of Signature Bank in contagion and forcing the Fed allied with the FDIC to try and rescue the situation by rolling out a new Bank Term Funding Program. Nevertheless, markets continued to markedly pare back tightening expectations and risk sentiment remained decidedly bearish on fears about more stress and instability, such as the fragile state of First Republic Bank, to the extent that GS removed its call for a 25 bp rate hike at the March FOMC, even though the consensus still looks for ¼ point next week. Using the index as a proxy for the Buck broadly, 104.000 assumed a new lower axis as it languished between 103.670-104.390 parameters. 

AUD/NZD

High beta outperformance was forged on the aforementioned downgrading of Fed policy pricing rather than renewed and pronounced risk aversion, as the Aussie rebounded to 0.6678 from 0.6590 and the Kiwi peered over 0.6200 vs its US peer from sub-0.6150 at one stage.

JPY/EUR/CHF/CAD/GBP

Also extending rallies against their US rival irrespective of other factors that might not be deemed positive in a different light, like deterioration in Japan’s Q1 manufacturing and large all industry BSIs and a ratchet down in global bond yields and rates in sympathy or tandem with the US. The Yen spiked towards 133.50 from just under 135.00 and through export/import hedging along the way, the Euro reached 1.0737 at best before fading, the Franc probed 0.9150 regardless of a drop in weekly sight deposits at Swiss banks, the Loonie got close to 1.3700 and the Pound not far from 1.2150 compared to respective lows of 1.0648, 0.9203, 1.3825 and 1.2044.

EM  

Most EM currencies extracted gains at the expense of the Usd, but the Cny and Cnh also in recognition of upbeat Chinese lending and finance data plus continuity at the helm of the PBoC perhaps, while the Zar piggy-back Gold as the yellow metal set sights on Usd 1900/0z as a safe haven beacon in contrast to the Mxn that slipped in tandem with WTI.

13 Mar 2023 - 09:23- Fixed IncomeResearch Sheet- Source: Newsquawk