EUROPEAN FX UPDATE: far from calm after the Central Bank rate hike squall

Analysis details (10:30)

DXY/JPY

Implied volatility eroded with the passing of major risk events, but this hardly impacted price action and choppy trading conditions or soothed risk sentiment as markets continued to fret about the growth side of the economic equation following the latest swathe of monetary policy tightening moves and guidance signalling a lot more in the pipeline. Indeed, the Dollar index whipsawed within a 104.200-730 range and inside yesterday’s 103.530-104.880 extremes, with an underlying safe haven bid capped by a recovery in the Yen amidst Japanese export demand that manifested in LHS Usd/Jpy orders overnight and forced the pair down to sub-137.00 levels from circa 100 pips higher at one stage.

GBP/AUD/NZD

Sterling was already struggling to get over the surprise and extent of dovish BoE dissent when UK retail sales came in considerably weaker than forecast (m/m basis) and received scant reprieve via mixed preliminary PMIs, as Cable retreated around one big figure towards 1.2100 and the technically pivotal 200 DMA, while the Eur/Gbp cross extended its post-hawkish ECB hike rebound to tough peaks not seen since mid-November, at 0.8772. Elsewhere, the Aussie suffered more losses on global recession concerns that were hardly helped by declines in manufacturing and services PMIs or another downturn in Aud/Nzd that kept the Kiwi afloat irrespective of a similar fall in NZ manufacturing PMI. Aud/Usd retreated through 0.6700, Nzd/Usd hovered either side of 0.6350 and Aud/Nzd reversed from 1.0574 to 1.0530. 

CAD/EUR/CHF

All holding tighter lines vs their US counterpart, with the Loonie largely shrugging off softer crude prices, the Euro underpinned by ECB rhetoric underscoring that rates are heading significantly higher and well into restrictive territory according to some GC members, and the Franc regaining poise after its post-SNB setback. Usd/Cad meandered between 1.3617-75 parameters, Eur/Usd consolidated on the 1.0600 handle and Usd/Chf retracted into a 0.9304-0.9254 band.

SCANDI/EM

The Sek and Nok were undermined by the overall bleak mood to the degree that the former failed to get any encouragement from relatively steep falls in Swedish unemployment and the Try only took mild pleasure from a dip in the CBRT’s year end Turkish CPI survey estimate. Conversely, the Cny and Cnh showed some resilience as China's ambassador to the US met with US Treasury Secretary Yellen to discuss views on global macroeconomic and financial developments, and reportedly agreed to step up coordination on trade and other policies.

16 Dec 2022 - 10:30- Fixed IncomeEconomic Commentary- Source: Newsquawk