EUROPEAN FX UPDATE: Dollar remains dominant as yields continue to soar

Analysis details (10:29)

DXY

The Buck extended gains before a brief bout of consolidation to take on board further Fed commentary flagging the need for more rate hikes and the general view that recent softer price data is encouraging, but the battle against inflation is far from over. Using the index as a proxy, a shallow pullback from yesterday’s 107.570 high to 107.480 preceded more upside to 107.740 and levels not seen since mid-July nearer 108.000 ahead of another Fib retracement of the decline from that month’s peak to August trough. In terms of drivers, nothing really new aside from even higher rates and increased safe haven demand.

EUR

Although the Euro failed to retain 1.0100+ status, its losses against the Dollar were relatively contained due to the fact that EGBs kept pace or even outpaced the magnitude of retracement in USTs, though Eur/Usd veered closer towards parity nonetheless. 

NZD/JPY

No respite for the Kiwi as NZ trade data overnight only revealed a slightly narrower deficit after hefty revision to the prior month overnight and more than offset remarks from RBNZ Governor Orr that he would like to raise the OCR clearly above neutral, while the Yen largely shrugged off in line or even fractionally firmer than forecast Japanese CPI metrics on widening spreads. Nzd/Usd retreated from 0.6260+ to circa 0.6215 at one stage and Usd/Jpy rebounded through 136.00 to circa 136.76.

GBP/CAD/AUD/CHF

Deja-vu for the Pound that only got a temporary boost from UK retail sales beating consensus on a m/m headline and ex-fuel basis before coming under renewed pressure, with Cable down to 1.1880 or so and Eur/Gbp eyeing 0.8500. Elsewhere, the Loonie lost traction from oil and will be looking for a more constructive reaction and sustained momentum if Canadian consumption exceeds expectations, as Usd/Cad hovers not far below 1.3000. Sticking with data, Swiss ip slowed to offer the Franc little fundamental support between 0.9554-93 parameters, and back down under the Aussie felt some risk-off heat and contagion from renewed Yuan weakness, but Aud/Usd kept in touch with 0.6900 on the back of Aud/Nzd tailwinds as the cross hovered closer to 1.1100 than 1.1050.

SCANDI/EM

Broad risk aversion and softer crude prices undermined the Sek and Nok, while EM currencies were also prone to the former and Usd strength. Note, SK’s Finance Minister showed little concern about the Krw in view of the general trend and Moody’s joined the list of those downgrading its outlook for Chinese 2022 GDP.

19 Aug 2022 - 10:29- Fixed IncomeData- Source: Newsquawk