EUROPEAN FX UPDATE: DXY holds onto 104.00, GBP boosted by Retail Sales, SEK among the outperformers

Analysis details (10:20)

DXY

The broader Dollar and index have pulled back from overnight highs – mostly amid the strength in G10 counterparts. The index printed an intraday peak of 104.28 overnight, just shy of yesterday’s 104.32 high – although the 104.00 level has proved to be relatively sticky in recent trade. Stateside, US President Biden and House Speaker McCarthy are said to be near a deal that would raise the debt ceiling for two years and cap spending on most items other than military and veterans. However, US House Speaker McCarthy said there was no agreement on Thursday and he will stay at the Capitol to continue to work this weekend, while he added it is not easy and they will continue working until they get it done, according to Reuters. It’s also worth noting US Treasury is preparing to change how the US processes federal agencies’ payments if the debt ceiling is breached. Ahead, participants will look towards the Fed’s preferred gauge of inflation – the PCE data – for direction. Elsewhere, analysts argue that a significant downturn in the dollar's cycle is unlikely until the US yield curve decisively shifts to bullish steepening, expected in the third quarter. “Unless the April US core PCE deflator, expected to show another firm increase, surprises with a downturn, the dollar's high demand is likely to persist​” say the analysts at ING.

AUD, NZD, CAD

The non-US Dollars are firmer against the Dollar to varying degrees, AUD/USD outperforms as base metals rebound and trim some of this week’s losses, with Dalian iron ore rising some 4% whilst 3M LME copper is back on a USD 8,000/t handle. AUD/USD trades back north of 0.6500 after printing a low of 0.6491 – with yesterday’s high at 0.6548. NZD/USD remains in a tight range under 0.6100 and between a current 0.6049-83 parameter whilst AUD/NZD remains above its 50 DNA (1.0724). USD/CAD fell back under 1.3650 and approaches 1.3600 to the downside.

EUR, GBP

Sterling resides as one of today’s outperformers on the back of the stronger-than-expected Retail Sales data (+0.5% M/M vs exp. 0.3%), coupled with hawkish commentary from BoE’s Haskel yesterday who noted that further UK rate rises cannot be ruled out. Although the reaction itself was delayed (potentially given the trade-off between higher rates being FX supportive and also the concern over funding/yield levels re-approaching those from autumn 2022), Cable piggy-backed off the initial higher yield environment following the data and rose back above 1.2350 to print a current 1.2312-69 intraday band. EUR/USD is flat in comparison as the Dollar weakness is also countered by the GBP strength for the single currency. EUR/USD resides around 1.0732 in a tight 1.0720-44 intraday

JPY CHF

Modest strength is seen across the traditional havens, but more so a function of the softer Dollar at the moment. The havens experienced some isolated strength in tandem with a slight deterioration in sentiment earlier, although this has pared back at the time of writing. USD/JPY briefly topped 140.00 overnight before pulling back to – maybe on some potential intervention fears around these levels, and finding support at 139.50, whilst Tokyo CPI overnight showed headline and core cooling but super-core ticking higher – in line with forecasts. EUR/CHF briefly dipped under 0.9700 and trades in a current 0.9691-9717 range, whilst the SNB gears up for its quarterly meeting next month.

SEK

The SEK stands as the current G10 outperformer with strength seen amid hawkish commentary from Riksbank Deputy Governor Bremen who suggested increasing asset sales is something the Bank could think about if we see the crown continuing to weaken, albeit it does not have to be at the next meeting. EUR/SEK fell from an 11.6175 high to an 11.5122 low, before trimming back to levels around 11.5630 on the qualifying remark.

EM

CNH is firmer on the day with reports overnight suggesting China's major state-owned banks were seen selling dollars in the onshore spot FX market. Desks suggest a firmer Dollar and weak weak Chinese growth, are affecting emerging market currencies like the South African rand, which hit a dollar low despite a rate hike by the South African Reserve Bank. The Israeli shekel has also been weaker than anticipated.

26 May 2023 - 10:20- Research Sheet- Source: Newsquawk