EUROPEAN FX UPDATE: dovish Fed hike leaves Greenback at the mercy of others

Analysis details (10:17)

DXY/EUR/JPY

After matching market expectations with a 25 bp rate rise and rolling out an almost carbon copy accompanying statement, the devil for the Dollar and index came via the post-FOMC meeting press conference. In short, chair Powell said policy is now restrictive, credit conditions are tight and getting tighter, while the Fed has not made a decision to go (tighten at) every other meeting or any decisions about future meetings. He added that it is possible the Fed could hike again in September if data warrants, while stronger growth over time could add to inflation and may require a policy response, but crucially refrained from repeating that most voters see the prospect of at least one more ¼ point increase this year. Hence, the already flagging Buck fell further across the board and the DXY lost grip of the 101.000 handle before extending losses within a 101.100-100.540 range when the Euro and Yen capitalised on its frailty to rack up more gains (or rebound further from recent lows to be precise) awaiting independent impetus from the ECB and BoJ. Eur/Usd reclaimed 1.1100+ status and Usd/Jpy reversed through 140.00 before running into resistance around 1.1143 and support circa 139.39 respectively. Note also, decent option expiry may have kept the headline pairs in check to an extent pending the aforementioned Central Bank policy events, including 1 bn a piece at strikes 1.1150 and 140.00 - see 7.07 BST post on the Headline Feed for all the major expires rolling off at Thursday’s NY cut.

AUD/NZD/CNY-CNH

The Aussie and Kiwi were likely to benefit from their US rival’s demise and heightened speculation that the FOMC might be done with hiking, but the resultant boost to overall risk sentiment also gave Aud/Usd and Nzd/Usd sufficient momentum to prove 0.6800 and approach 0.6275. However, the Aud/Nzd cross remained elevated near 1.0900 as the Aussie gleaned extra leverage from the Yuan in wake of the PBoC reverting to type with a 200 pip below forecast Usd/Cny midpoint fix that reminisced a case of striking while the iron is hot given the Greenback’s post-Fed depreciation. Indeed, Usd/Cny tested 7.1200 and Usd/Cnh probed a Fib at 7.1162 before both ran out of puff.

CHF/GBP/CAD

All firmer against their US peer for the aforementioned reasons, but the Loonie also took on board hawkish-leaning BoC minutes. Usd/Chf got close to 0.8550 compared to 0.8618, Cable bounced from 1.2925 to within five pips of the round number above and Usd/Cad recoiled from 1.3211 to 1.3160.

SCANDI/EM         

The buoyant market mood helped the Sek and Nok shrug off otherwise negative specifics, such a slowdown in Swedish household lending, mostly weaker sentiment indicators and a rise in Norway’s LFS measure of unemployment, but the Try needed Turkish state bank intervention to contain declines following huge rises in inflation and food price projections emanating from the latest quarterly CBRT survey. Elsewhere, EM currencies largely derived upside momentum at the expense of the Usd.  

27 Jul 2023 - 10:17- Fixed IncomeResearch Sheet- Source: Newsquawk