EUROPEAN FX UPDATE: Dollar on a firmer footing as month end approaches

Analysis details (09:53)

DXY

Several props for the Greenback, including a more hawkish leaning WSJ article suggesting that the Fed may keep rates higher for longer, GS raising its peak projection to 5% from 4.75% previously, further depreciation in the Yuan following sub-forecast and contractionary Chinese PMIs, plus general short covering given a sharp paring back of Buck longs held by spec accounts, according to the latest IMM update. Using the index as a gauge, 111.00 was reclaimed within a 110.720-111.230 range ahead of the Chicago PMI and Dallas Fed Manufacturing Business Index.

JPY/EUR/CNY-CNH

The Yen did not get much clear direction from Japanese data as IP came in below consensus in contrast to Retail Sales, but a firmer rebound in US Treasury yields and the aforementioned Yuan decline exacerbated by more Covid restrictions in China and HK, pushed Usd/Jpy up beyond 148.00 with Usd/Cny through 7.3000 and Usd/Cnh to 7.3250 at one stage. Elsewhere, the Euro also felt contagion from the Renminbi between 0.9966-14 parameters irrespective of heavy EGBs, much better than anticipated German retail sales and some hawkish ECB commentary from Knot, not to mention the overhang of hefty option expiry interest  (2.83 bn from parity to 0.9995).

GBP/CHF

Sterling remained top heavy above or around 1.1600 against the Dollar and wasn’t helped by BoE consumer credit, mortgage lending and approvals data as the former and latter both fell short of expectations and borrowing to buy property slowed from the previous month, while UK politics remained in focus amidst ongoing pressure on the Home Secretary. Similarly, the Franc failed to derive traction from a pick-up in Swiss retail sales or a smaller drawdown of sight deposits at domestic banks as Usd/Chf probed 1.0000 again.

CAD/AUD/NZD  

Softer oil prices, metals and other commodities weighed on the Loonie and Aussie, but the Kiwi held up a bit better after the latest RBNZ solvency stress test revealed resilience in banks to the threat of stagflation. Usd/Cad meandered from 1.3600 to 1.3659, Aud/Usd either side of 0.6400 on the eve of the RBA and Nzd/Usd held mostly just above 0.5800 in the run up to NZ building consents.

SCANDI/EM

No obvious reaction to a softer Norwegian credit indicator, but the Nok outpaced the Sek as the Norges Bank announced a lower daily currency purchase remit for this month and the latter looked forward to a speech from Riksbank Governor Ingveson the subject of price stability. On the EM front, broad losses vs the Usd and the Brl will resume to the news that Lula appears to have sealed a narrow victory over Bolsonaro to become President again.

31 Oct 2022 - 09:53- Fixed IncomeData- Source: Newsquawk