EUROPEAN FX UPDATE: Dollar on a firmer footing following inflation data flip-flop

Analysis details (10:42)

DXY

The Greenback staged a pretty impressive recovery from post-US CPI lows amidst further bear-flattening along the Treasury curve exacerbated by even more hawkish Fed rate hike pricing as 2022 FOMC voter Bullard raised the stakes with a call for a 50 bp lift-off in March. Moreover, he favours a total of 100 bp by the end of H1 this year and is not averse to inter-meeting tightening moves to get there, while he advocates kicking off QT earlier than others, including Chair Powell, in Q2. In fact, the Buck managed to claw back all and a bit more of its losses broadly, as the index carved out a marginal new high and wtd peak at 96.058 in the process before losing some bullish momentum against the backdrop of softer belly to long end UST yields in the aftermath of the Quarterly Refunding.

AUD/EUR    

In stark contrast to all the above, RBA Governor Lowe and ECB President Lagarde both continued their mission to manage market expectations overnight, with the former repeating patient guidance and the latter saying that raising rates would not solve any of the current problems and she/the GC does not want to choke off the recovery. Hence, the Aussie and Euro reversed to the back of the G10 grid not just on risk-off vibes, but the prospect of an even wider divide between their respective Central Bank policy stances relative to the Fed. Aud/Usd almost reached 0.7250 at one stage yesterday before reversing more than a full big figure, while Eur/Usd got to within five pips of 1.1500 and then collapsed to around 1.1370.

NZD/CHF

NZ inflation expectations for Q1 jumped, 1 year ahead in particular and Swiss CPI was a smidge firmer than forecast in January, but the Kiwi and Franc did not manage to evade the clutches of their US counterpart, as Nzd/Usd treated through 0.6650 and Usd/Chf rebounded over 0.9250 again vs a peak just over 0.6730 and trough near 0.9225 on Thursday.

GBP/JPY/CAD

The major ‘outperformers’ or holding up better than others as their US rival bounces strongly, with Sterling gleaning some impetus via UK data to compound/justify hawkish BoE perceptions, the Yen regaining a degree of safe-haven premium due to risk aversion and the Loonie benefiting from prospects of near term BoC tightening, most likely just ahead of the Fed next month (assuming the FOMC does not deliver an emergency hike that is). Cable climbed off worst levels in the low 1.3500 area to probe 1.3550, Usd/Jpy pulled back to pivot 116.00 and Usd/Cad recoiled from 1.2750+.

SCANDI/EM     

Some signs of short covering in the Sek after extended depreciation on the back of still comparatively dovish Riksbank policy and repo rate path projections, but the Rub did not derive much traction from the CBR’s 100 bp rate increase as this was in line with consensus and geopolitical factors remain more compelling. Conversely, the Try received respite as Turkish ip and current account balances were encouraging to offset yet another upgrade to CBRT survey estimates for year end inflation.

11 Feb 2022 - 10:40- Fixed IncomeData- Source: newsquawk