EUROPEAN FX UPDATE: Euro, Yen and Aussie lead fight against the Fed

Analysis details (10:36)

DXY/EUR/JPY/AUD

It remains to be seen whether the FOMC matches up to market expectations that have been highly inflated over the blackout period, or if the Fed sticks to pre-US CPI guidance for 50 bp hikes in June and July, but the Greenback hedged some hawkish bets amidst external pressure from several G10 counterparts, including most index components. The DXY eased back within a narrower 105.380-104.700 band vs Tuesday’s 105.650-104.610 range, as the Euro extends its recovery gains on further convergence in the Bund/T-note spread awaiting the outcome of an off-schedule meeting of the ECB’s GC to talk about divergence in EGBs, ironically. However, this may prove to be an even bigger disappointment given reports suggesting that the crisis tool aimed at preventing fragmentation is likely to come via a tilt in PEPP reinvestments towards those bloc members under extreme stress rather than a new and sharper instrument. Nevertheless, Eur/Usd probed 1.0500 from the low 1.0400 area and yesterday’s dip just below amidst hawkish remarks from ECB’s Wunsch (gradual tightening does not exclude 25 bp+ moves), while Usd/Jpy reversed from a fresh multi-year peak circa 135.59 to test bids into 134.50 after arguably more forceful verbal intervention and some positive fundamental impetus for the Yen in the form of significantly stronger than expected Japanese machinery orders. Elsewhere, the Aussie reclaimed 0.6900+ status irrespective of a decline in Westpac consumer confidence as broad risk sentiment picked up markedly and GS raised its calls for RBA tightening to 50 bp from 25 bp in both August and September.

GBP/NZD/CHF   

All bounced against the Buck, either on the aforementioned improvement in risk appetite, retreat in US Treasury yields and/or pure pre-FOMC short covering, while Sterling may also have benefited from a degree of technical correction and tactical positioning as Eur/Gbp reversed sharply from 0.8721 regardless of more legal action by the EU against the UK in relation to the NI Protocol. Indeed, Cable got close to 1.2100 before fading having slumped to a sub-1.1950 trough on Tuesday, Nzd/Usd firmed up on the 0.6200 handle before Q1 NZ GDP as a potential independent driver for the Kiwi and Usd/Chf returned from par-plus territory in wake mixed Swiss producer/import prices and SECO forecasts for inflation and growth.

CAD

The major laggard, and the abrupt and pronounced pull-back in WTI crude continued to undermine the Loonie in advance of Canadian housing starts as Usd/Cad straddled 1.2950.

SCANDI/EM

No shock that Swedish money market inflation expectations rose hot on the heels of actual CPI and CPIF overshoots vs consensus, but the Nok’s resilience in the face of a narrower Norwegian trade surplus and Brent’s drilling may have relied on the favourable market mood. Next up for Eur/Sek, comments from Riksbank’s Ohlsson right on point about monetary policy and inflation. Elsewhere, the Cnh and Cny derived encouragement from much better than anticipated Chinese ip and not as bad as feared retail sales on top of snippets from the Stats Bureau in response, such as the economy shows good recovery momentum and it expects economic performance to improve further in June due to policy support, the Hkd received more direct HKMA support and the Zar got a bullish Gold forecast from SocGen that sees prices averaging Usd 1943/oz in 2022.

15 Jun 2022 - 10:36- Fixed IncomeData- Source: Newsquawk