EUROPEAN FX UPDATE: Dollar softer post-FOMC, Pound a tad firmer pre-BoE

Analysis details (09:47)

DXY

The Greenback retreated further in wake of the Fed, and particularly due to perceptions that Chair Powell blotted the final 2023 rate hike from September’s dot plots, albeit stressing that the FOMC is still not confident that policy is restrictive enough. Nevertheless, he also gave another nod to the impact of higher long term rates in terms of tightening financial conditions and described the dot plot as a ‘picture in time’ of appropriate policy in light of policymakers personal views, adding that its efficacy decays during the inter-meeting period and the Fed attempts to be transparent in its thinking. The Buck backed off after some knee-jerk moves to the benefit of peers and the Dollar index gapped down below Wednesday’s close to sit within a 106.490-170 range ahead of US jobless claims and factory orders.

NZD/AUD

Aside from the aforementioned Greenback decline, the Kiwi and Aussie relished the ongoing recovery in broad risk sentiment that stretched to commodities, with Nzd/Usd eyeing 0.5900 from a sub-0.5850 low and Aud/Usd back on the 0.6400 handle even though trade data revealed a considerably narrower than forecast surplus amidst a drop in exports and jump in imports. 

JPY/EUR/CHF        

The Yen was already clawing back more losses vs the Buck between 150.96-16 parameters as UST/JGB differentials converged post-Fed when a BoJ sources piece gave it more incentive or traction via a timeline for exiting NIRP and removing YCC. In short, pushing short-term rates to 0 from the current -0.1% is likely around Spring 2024 when there will be clarity on annual wage negotiations. Elsewhere, the Euro reclaimed 1.0600+ status, albeit narrowly against the backdrop of mixed Eurozone manufacturing PMIs and weak German jobs data and the Franc was not too deflated by in line Swiss CPI or a deterioration in consumer confidence as it straddled 0.9050. However, Eur/Usd faced a string of upside option expiry interest and Usd/Jpy was propped up by expiries down below - see 7.27GMT post on the Headline Feed for details of sizes and specific strikes.

CAD/GBP  

Both up and at least partly thanks to their US counterpart’s demise, as the Loonie bounced from just under 1.3850 towards 1.3800, with some impetus from oil and Sterling climbed from beneath 1.2150 to within a whisker of 1.2200 awaiting the BoE for independent direction. On that note, markets and pundits are almost certain that the MPC will opt to hold rates again, but unclear how the vote will go and whether guidance will be revised to more clearly signal that the peak is in place - full preview of the event posted at 9.30GMT.

SCANDI/EM

Staying with the Central Bank theme, the Nok was underpinned by a neutral hold from the Norges Bank that retained guidance for a probably 25 bp hike in December, but caveated that if the Committee becomes more assured that underlying inflation is on the decline, the policy rate may be kept on hold. Meanwhile, the Czk held a tight line pre-CNB, the Myr took an expected unchanged BNM in stride and the Brl got the latest 50 bp ease from the BCB it was anticipating, but the Cny and Cnh may have been somewhat surprised to see the PBoC set a softer than previous midpoint fix.

02 Nov 2023 - 09:47- Research Sheet- Source: Newsquawk