EUROPEAN FX UPDATE: Dollar regains poise, but Sterling still very unsettled

Analysis details (10:29)

DXY/GBP

Plenty of reasons were put forward as likely contributors to the Greenback’s abrupt fall from grace or post-US CPI collapse that saw the index peak at 113.920 before reversing course sharply to a lower sub-113.000 low, at 112.140, including a deeper delve into the data to find less inflationary elements, a dovish-looking ECB rate model and an about turn on Wall Street that was based on a combination of technical factors, bargain hunting and a general corrective bounce from oversold levels. However, the catalyst behind a firmer bounce in the Buck and DXY (to 112.990 from 112.150) seemed more clear cut as the Pound unwound more of its gains amidst another pushback from a UK Government official on the notion of further mini budget tax cut proposals getting axed or shelved. Cable retreated from around 1.1366 to circa 1.1245, though found underlying bids on the premise that Chancellor Kwarteng is unlikely to have cut his US itinerary short if not to discuss the fiscal situation ahead of the Halloween medium term plan.

JPY/CAD/EUR

The Yen failed to breach 147.00 when its US rival was relapsing and returned to test the resolve of Japan’s monetary authorities beyond 24 year troughs following the latest comments from BoJ Kuroda reiterating the need to maintain stimulus, while the Loonie ran into resistance just shy of 1.3700 and hovered nearer 1.3800 awaiting Canadian manufacturing sales and wholesale trade for some independent impetus alongside US retail sales, import and export prices. Elsewhere, the Euro lost momentum on the 0.9800 handle again in wake of the aforementioned Staff analysis predicting a flatter hiking cycle peak, markedly softer EGB yields and wide Eurozone trade deficit, not to mention decent option expiry interest between the round number and 0.9790 (1.7 bn).

CHF/NZD/AUD

All paring pack from US inflation rebound pinnacles vs their US peer, with the Franc back under parity, the Kiwi sub-0.5650 after a slowdown in the NZ manufacturing PMI and the Aussie losing 0.6300+ status having almost reached 0.6350 in tandem with a rebound in the Yuan following another solid PBoC midpoint fix overnight.

SCANDI/EM

The Sek and Nok both regrouped against the backdrop of improved risk sentiment, but by far the biggest bounce against the Eur came from the Huf that got a shock boost from the NBH in the form of a huge increase in the overnight collateral loan rate to 25% from 15.5%, hot on the heels of a new 1-day deposit tender at 18% aimed at providing FX liquidity to cover energy bills until year end.

14 Oct 2022 - 10:29- Fixed IncomeData- Source: Newsquawk