EUROPEAN FX UPDATE: Euro shaken by Schnabel, Pound propped up by Pill

Analysis details (09:56)

DXY/EUR/GBP

The Euro was resilient in the face of weaker than forecast German retail sales data awaiting French CPI metrics that were hotter than expected, but ultimately undermined by comments from ECB’s Schnabel that were notably less hawkish than usual. In particular, the influential Executive Board member stated that activity has moderated visibly, and forward-looking indicators signal weakness ahead, adding that the Bank cannot commit to future actions, meaning we cannot trade off a need for a further tightening of monetary policy today against a promise to hold rates at a certain level for longer. Eur/Usd retreated through 1.0900 in response and technical support in the form of the 21 DMA along the way, while the Dollar index rebounded further from its post-ADP/GDP/PCE low just under 103.000 to 103.430, irrespective of Fed’s Bostic repeating his personal view that US monetary policy is appropriately restrictive and enough to bring inflation back down to 2% over a reasonable time frame, and the Fed should be cautious, patient and resolute. Conversely, BoE’s Pill maintained that the UK faces second-round inflation effects and inflation is too high, so there is no room for complacency. Moreover, there are cases for caution on inflation despite declines in the headline CPI and some indicators of inflation have developed less benignly of late. Hence, Cable managed to stay within sight of 1.2700 and the Eur/Gbp cross reversed from 0.8598 to 0.8565 even though the Chief Economist went on to reveal that he tends to prefer the option of holding rates steady for longer.

JPY/NZD/AUD

Mixed Japanese data was largely dismissed as the Yen continued to consolidate in the benign yield environment prompted by a run of US macro releases missing consensus, including job openings, consumer confidence, ADP, GDP and PCE over the last two sessions. Meanwhile, the Kiwi was underpinned by encouraging improvements in ANZ business outlook and own activity indices and the Aussie by a combination of significantly stronger than anticipated Capex and the ongoing spike in the price of iron ore. Usd/Jpy recoiled from 146.24 to 145.73 regardless of dovish rhetoric from BoJ’s Nakamura, Nzd/Usd was contained within a 0.5977-46 range and Aud/Usd hovered between 0.6507-0.6471 parameters ahead of final PMIs.

CAD/CHF

The Loonie sat tight well inside recent extremes before Canadian current account and average earnings data, as Usd/Cad was capped at 1.3550 and cushioned only pips beneath 1.3525, but the Franc limped into month end following a sharp relapse in Swiss retail sales, with Usd/Chf climbing back over 0.8800 from 0.8772.

SCANDI/EM

Yet another Riksbank member bemoaned the injustice of the Sek’s depreciation, and this time Governor Thedeen, but to no avail, while the Nok was hampered by the Norges Bank upping its quota of foreign currency purchases for September. Elsewhere, some good news for the Try via stronger than forecast Turkish Q2 GDP and another round of Chinese state bank intervention for the Cny (and Cnh by association) in spot and forwards after contrasting official PMIs.

31 Aug 2023 - 09:56- Fixed IncomeData- Source: Newsquawk