EUROPEAN FX UPDATE: Dollar remains in recovery mode pending Fed Chair Powell

Analysis details (10:19)

DXY  

The Greenback picked up largely where it left off again in Groundhog Day fashion as the index extended from another higher base between 105.510-870 parameters with impetus via wider US Treasury spreads to global peers. Yield divergence may have been partly supply-related ahead of heavier Usd 40 bn 10 year T-note issuance compared to just Eur 4 bn 2033 Bunds, but also in recognition of remarks from a couple of current FOMC voters. To recap, Logan said inflation remains too high and the core question is if financial conditions are sufficiently restrictive, adding that all Fed officials have been surprised with the resiliency of the economy, while Bowman continues to expect that the Fed will need to increase the Funds rate further. However, further upside for the DXY and Buck overall lay in the hands of Chair Powell given the dovish take from last week’s post-FOMC press conference when he described the dot plots as a ‘picture in time’ of appropriate policy in light of policymakers personal views, and said their efficacy decays during the inter-meeting period.

GBP/EUR/JPY/CHF

UK debt and STIR contracts continued to outpace their counterparts in this undermined Sterling to the extent that Cable probed 1.2250 to the downside from 1.2301 at one stage, while the Eur/Gbp cross popped back over 0.8700 even though the Euro also lost more ground against the Dollar from bang on 1.0700 to 1.0661 amidst another raft of option expiries ranging from 1.0600 all the way up to 1.0800. Note, Eurozone data was light again, but the void filled by ECB speakers who veered from dovish to fairly hawkish in tone. Elsewhere, the Yen could have derived some traction from BoJ Governor Ueda in theory and on paper as he said the Bank doesn't necessarily need to wait until real wages actually turn positive to exit YCC and negative rates, and if it thinks there is a strong chance they will in the future, that may be sufficient to make that decision. Instead, Usd/Jpy never really looked like retreating to 150.00 where decent option expiry interest sat and looked more inclined to trip the ones rolling off at 151.00. Meanwhile, the Franc gradually loosened its grip around the 0.9000 handle in the absence of anything Swiss-centric.

CAD/AUD/NZD

All gave way as the Greenback maintained or resumed its revival, with the Loonie still getting roiled by the ongoing weakness in crude, the Aussie suffering from an RBA hangover and Kiwi deflated by cooler NZ 1 and 2 year inflation forecasts. Usd/Cad was elevated within a 1.3756-92 range ahead of Canadian building permits and BoC minutes, Aud/Usd depressed inside 0.6449-22 confines and Nzd/Usd top heavy between 0.5942-18 bounds.

SCANDI/EM

More spillage for the Nok in tandem with Brent, while the Pln and Huf were cautious in the run up to the NBP rate call and NBH minutes respectively. Conversely, the Cny and Cnh gleaned enough incentive to probe key levels vs the Usd following rousing rhetoric from China’s Vice Premier (reiterated that the domestic economy is rebounding and improving as a whole) and support from the PBoC Governor (repeated pledge to resolutely guard against overshooting risks for the Yuan exchange rate, and deal with behaviours that disrupt market order, whilst preventing the formation of one-sided and self-reinforced marks).

08 Nov 2023 - 10:19- Research Sheet- Source: Newsquawk