EUROPEAN FX UPDATE: Euro derails Dollar recovery from post-FOMC lows

Analysis details (10:43)

DXY/GBP/EUR

The rot seemed to stop for the Buck yesterday as initial moves in wake of the Fed on Wednesday were unwound and then reversed emphatically in currencies, rates and equities, but the index topped 104.000 when Sterling succumbed to more selling pressure following the BoE hike and early UK election results confirming defeats for PM Johnson’s Government in several key local councils. However, the DXY duly retreated from 104.070 to a new sub-103.500 intraday low at 103.340 when the Euro rebounded firmly on the back of hawkish ECB commentary, from Villeroy especially - see Headline Feed at 8.55BST, 9.01BST and 9.10BST for details beyond the key lines that a weak currency adversely impacts the GC’s inflation remit and rates could be above 0% by year end and. Eur/Usd turned almost full circle from around 1.0483 to 1.0581, while Eur/Gbp consolidated gains above 0.08550 even though the Euro’s exertions indirectly helped the Pound recover lost ground against the Greenback. Indeed, Cable regained 1.2300+ status compared to a circa 1.2276 low, just above the base from June 2020 at 1.2252 awaiting further BoE speakers following chief economist Pill - remarks posted at 9.11BST, 9.14BST and 9.22BST - and then arguably Friday’s main event in the form of NFP.

AUD/NZD   

It remains somewhat unfair or at least counterintuitive that the Aussie continued to recoil and underperform irrespective of the fact that the RBA raised rates more than expected on Tuesday and delivered guidance for more near term tightening. Moreover, the latest SOMP published overnight revealed significantly higher forecasts for headline and core inflation, with cash rate assumptions of 1.75% in December this year and 2.5% by the end of 2023 vs the current 35 bp. Nevertheless, Aud/Usd is under 0.7100 and the Aud/Nzd cross is losing momentum following a fade only a few pips below 1.1100, regardless of the Kiwi’s downturn vs its US peer to probe 0.6400 at one stage.

JPY/CAD/CHF

Firmer than expected Tokyo CPI metrics and the return of Japanese markets after Golden Week did little to distract the Yen from its yield vigil, but Usd/Jpy pared back between 130.81-10 parameters amidst ongoing risk aversion in stocks. Elsewhere, the Loonie is latching on to the latest upturn in crude prices on various bullish factors for some traction ahead of Canada’s LFS vs US’ BLS showdown, with Usd/Cad meandering from 1.2867 (virtual double top) to 1.2814 and also cognisant of decent option expiry interest at 1.2835-40 in 1.29 bn. Meanwhile, the Franc is straddling 0.9850 vs its US counterpart, but has weakened considerably against the Euro with Eur/Chf breaching 1.0400 as an increasingly hawkish ECB contrasts with the still NIRP stance of the SNB.

SCANDI/EM

Riskbank minutes have not really prevented the Sek from succumbing to declines vs the Eur as they highlight division between hawks and doves following last week’s repo hike and elevated rate path (see Headline Feed at 8.32BST for more), but the Nok is receiving a degree of protection via Brent just day after the Norges Bank reaffirmed plans to tighten the monetary screws by another 25 bp in June. Conversely, it’s a sea of red across the EM front with few exceptions as the Cnh loses its battle to stay afloat of 6.7000 amidst ongoing Covid-related economic contagion in China, while the Zar suffers from a combination of bearish technical factors, Eskom power issues and SA’s fifth pandemic wave, but the Czk derives some support from Thursday’s bigger than anticipated CNB rate increase (75 bp vs 50 bp consensus).

06 May 2022 - 10:43- Fixed IncomeData- Source: Newsquawk