EUROPEAN FX UPDATE: Euro elevated and Loonie rejuvenated

Analysis details (10:26)

DXY/EUR/CAD

Risk sentiment continues to improve and the recovery extends to crude and other commodities that are also benefiting from a weaker Greenback, or vice-versa. In fact, the Buck is broadly softer again awaiting the return of US participants that were out of action yesterday due to the Juneteenth market holiday, with only the Yen amongst major rivals underperforming on a more pronounced loss of safe haven premium and Fed/BoJ policy divergence. Conversely, the ECB is gearing up to close the gap, or at least claw back some lost ground as GC member Rehn suggests that September’s hike is ‘very likely’ to be larger than 25 bp, and half point is ‘highly probable’. Hence, the Euro is attempting to gather momentum beyond the 1.0550 mark that proved elusive on Monday, while the Loonie is paring more of its recent heavy and partly oil-related declines towards 1.2900 from almost twin y-t-d peaks around 1.3078 on May 12 and last Friday, ahead of Canadian retail sales data. On the flip-side, the Dollar index has retreated further to probe 104.000 within a 103.930-104.460 range in avance of US existing home sales, Fed’s Mester and Barkin.

GBP/NZD/AUD/CHF            

All up at the expense of their US counterpart and in recognition of the brighter overall mood, with Cable probing 1.2300 pre-UK CBI industrial trends, the Kiwi back above 0.6350 pre-NZ trade and irrespective of a marked deterioration in Westpac consumer confidence to the worst level since 1998, if not longer, the Aussie holding the high 0.6900 zone, albeit not gleaning as much from RBA Governor Lowe overnight as he played down market pricing for the extent of tightening by the end of 2022. Elsewhere, the Franc remains braced in wake of the SNB’s 50 bp hike and ripe for more attempts to extend through 0.9650 even though Switzerland’s trade surplus narrowed in May regardless of a pick up in the pace of watch exports.

JPY  

As noted earlier, the G10 laggard and back below 135.00 near multi-decade lows without any real note taken of latest verbal intervention from Japanese officials, like PM Kishida saying that rapid Jpy weakening is a source of concern, must closely watch FX moves and consider monetary policy and FX measures separately.

SCANDI/EM

Brent’s bounce gave the Nok another boost, while Sweden’s NIER helped to underpin the Sek as the think tank predicted 50 bp hikes by the Riksbank in both June and September. However, the Hkd required more direct support from the HKMA to keep it pegged.

21 Jun 2022 - 10:26- Fixed IncomeEconomic Commentary- Source: Newsquawk