EUROPEAN FX UPDATE: Dollar remains dominant post-CPI and pre-Fed

Analysis details (10:14)

DXY

The Buck maintained bullish momentum after a few shallow dips in wake of last Friday’s hot US inflation data that confounded peak price perceptions and prompted markets to factor in a more aggressive FOMC tightening trajectory even though guidance indicates 50 bp hikes this week and in July. The index held firm around 104.500 before extending to the upside and eclipsing the high from May 16 (104.640), at 104.750 to expose the 2022 peak set in the prior session at 105.010, and precisely one calendar month to the date. Ahead, nothing scheduled for today in terms of macro releases or events, but PPI is due on Tuesday and may add more fuel to the Fed rate debate if stronger than expected as well.

GBP/EUR

Sterling suffered more than other majors amidst the ongoing Greenback advance, as UK GDP missed consensus alongside IP and heightened recession risks ahead of new legislation on the NI Protocol and broader aversion on a deterioration in China’s Covid situation. However, Cable just kept its head above 1.2200 and Eur/Gbp was capped below 0.8600 given Euro weakness against the Dollar, mostly under 1.0500 between 1.0520-1.0456 parameters.

AUD/NZD/CAD

Sharp declines in industrial metals, crude and other commodities on prospects of reduced Chinese demand compounded losses for the Aussie, Kiwi and Loonie vs their US rival, with Aud/Usd losing 0.7000+ status in holiday-thinned trade as Australia marked the Queen’s birthday, Nzd/Usd hovering just above 0.6300 in the run up to NZ’s food price index for May and Usd/Cad approaching 1.2850 on the eve of Canadian manufacturing sales.

CHF  

Still no sign of SNB activity via Swiss weekly sight deposit balances, and perhaps understandably as the Franc retreats through 0.9900 vs the Buck and holds within a 1.0364-93 range against the Euro following last week’s ECB policy meeting that set out hikes for July and September in 25 bp and 25-50 bp increments respectively.

JPY

Another bout of consolidation and corrective price action against the backdrop of souring sentiment provided the Yen with some respite rather than the latest volley of verbal intervention from Japanese officials, albeit with BoJ Governor Kuroda also sounding more concerned about recent weakness that are undesirable and not good for the domestic economy. Usd/Jpy hit 135.20 overnight before reversing course to sub-134.20 at one stage awaiting IP tomorrow.

SCANDI/EM

The gloomy mood got to the Sek T-1 to Swedish inflation data, but the Nok was hit harder as Brent recoiled and Norwegian GDP contracted, while the Cnh and Cny were undermined by the aforementioned worsening coronavirus developments in Beijing and Shanghai, with the former experiencing a ferocious and explosive outbreak linked to a bar cluster. Elsewhere, not much solace for the Try from much stronger than anticipated Turkish IP or for the Pln as NBP’s Sura suggested that the pace of tightening could be dialled down to 50 bp next month if upcoming data shows that economic growth is slowing.

13 Jun 2022 - 10:14- Fixed IncomeData- Source: Newsquawk