EUROPEAN FX UPDATE: Dollar on firm footing, but Yuan stumbles and Pound pulls back

Analysis details (09:58)

DXY/JPY/GBP/CNY-CNH

The Buck maintained bullish momentum in wake of Friday’s strong US payrolls gain that was compounded by a 90k+ upward revision to the prior two months and resulted in a hawkish tilt in Fed pricing, with the Dollar index forming a base on the 104.000 handle within a 104.090-320 range and the Greenback also underpinned by renewed weakness in the Yen, Sterling and Yuan outside the index. Indeed, Usd/Jpy rebounded sharply towards 140.50 from just shy of 140.00 amidst higher Treasury yields and wider spreads to JGBs after slowdowns in Japan’s services and composite PMIs, while Cable retreated from 1.2450+ peaks to probe 1.2400 and a Fib retracement level only a couple of pips below the round number in what appeared to be a corrective move rather than fundamental given marginal beats in the UK services and composite PMIs. Elsewhere, Usd/Cny and Usd/Cnh bounced from around 7.0945 and 7.1030 to top 7.1200 and 7.1320 respectively irrespective of a firmer than forecast Chinese Caixin services PMI that boosted the composite number along with the manufacturing PMI, as China-US/Canadian/NATO tensions overshadowed the encouraging surveys. Back to the Buck, final services and composite PMIs will likely play second fiddle to the non-manufacturing ISM and a speech from Fed’s Mester scheduled in the official pre-FOMC blackout period.

CHF/EUR/AUD/CAD/NZD

All extended declines against their US counterpart, as the Franc slipped beneath 0.9100 following Swiss CPI metrics that were in line with consensus on a headline basis, but a tad softer in core terms, the Euro pivoted 1.0700 against the backdrop of mostly sub-prelim or expected Eurozone services and composite PMIs and a worse than anticipated Sentix index, the Aussie straddled 0.6600 on the eve of the RBA that could be a very close call, the Loonie meandered from circa 1.3443 to 1.3419 with some traction from higher oil prices after Saudi Arabia announced a 1 mn bpd production cut from July, and the Kiwi flitted either side of 0.6050 in NZ holiday-thinned trade. Note also, decent option expiry interest between 1.0685-75 (1.28 bn) kept Eur/Usd propped up.

SCANDI/EM

The Sek failed to catch a break as Sweden’s services PMI eased closer to the 50.0 threshold and the Nok barely got a boost from Brent’s revival within Usd 76.62-78.73/brl bounds, but the Zar outperformed on a breach of 19.5000 vs the Usd in stark contrast to the Try that plumbed fresh record lows regardless of firmer than forecast Turkish CPI data or President Erdogan unveiling his new Cabinet and VP Vilmaz pledging to prioritise the fight against inflation and pay special attention to improving the investment environment.

05 Jun 2023 - 09:58- Fixed IncomeData- Source: Newsquawk