EUROPEAN FX UPDATE: G10s pressured across the board as hawkish Fed rhetoric resonates

Analysis details (09:24)

DXY

A firmer start to Friday’s session for the broader Dollar and Index as the risk aversion from Wall Street yesterday reverberated into APAC before making its way to Europe, with DXY climbing from a 104.15 low to an intraday high above 104.50 in early European hours – with the next recent high from a resistance perspective the at 105.63 printed on Jan 6th. To recap, yesterday saw a combination of Fed's Mester opening the door to a 50bps hike, and Fed's Bullard stating he advocated a 50bps hike at the last meeting and is not ruling anything out for the next meeting, while data saw hotter-than-expected US PPI in January. Amid the above, Goldman Sachs has upped its US rate hike view, and now sees three further 25bps hikes from the Fed in March, May and June, taking its view of the terminal rate to 5.25-5.50%; the bank raised its forecasts owing to stronger growth and firmer inflation news. Ahead, data is sparse from a state-side standpoint, but Fed’s Barkin (2024 voter) and Bowman (Voter) are expected to deliver remarks ahead of the US cash open at 13:30GMT and 13:45GMT respectively.

JPY

A re-widening of the FOMC-BoJ policy expectation differential has exerted pressure on the Japanese currency following yesterday’s US PPI and Fed speakers, whilst markets await the BoJ nominee Ueda’s lower house appearance next week on the 24th. USD/JPY briefly topped 135.00 from a 133.94 APAC base. In terms of next week’s BoJ event, traders and investors will be on the lookout for hints on when, how, and to what degree Ueda may steer the BoJ out of its ultra-loose policy. Analysts at Rabobank warn that "It is expected that the most important task of nominee Governor Ueda will be to guide the BoJ to an exit of its ultra-accommodative QQE policies. That, however, does not suggest that the BoJ will be in any rush to change direction, nor does it mean that BoJ policy will be able to move far from current settings" - the desk also highlights - "Given that other G10 central banks could be cutting interest rates in 2024, the window of opportunity for the BoJ to normalise is likely to be short. This supports the view that any changes in policy will be moderate".

EUR, GBP

Both are posting slightly shallower losses than their Eastern peers, and the EUR stays the most cushioned G10 currency amid hotter-than-forecast German PPI alongside hawkish commentary from ECB’s Schnabel, who warned that the broad disinflation process hasn’t event started, whilst a weaker transmission may require more forceful action, and QT could be sped up after June but nothing is decided yet. Nonetheless, the Dollar dominates and EUR/USD fell from a 1.0675 high to a current low of 1.0630 – with the next notable downside level under 1.0500). Sterling meanwhile was unreactive to stronger-than-expected UK retail sales, whilst UK PM Sunak is in Northern Ireland to hash out a deal on the Northern Ireland protocol, with the Northern Ireland alliance party leader sounding optimistic on progress. GBP/USD, at the time of writing, is sandwiched between its 100 and 200 DMAs at 1.1900 and 1.1938 respectively.

AUD, NZD

The antipodeans experience the deepest losses amid the broader risk tone and downside across commodities, whilst RBA Lowe’s reiteration for higher rates did little to stem the losses in the Aussie. AUD/USD fell from a 0.6881 peak towards levels closer to its 200 DMA at 0.6804, whilst NZD/USD declined from 0.6263 to a low of just under 0.6200 at 0.6197, ahead of its respective 200 DMA at 0.6186. AUD/NZD oscillates around the 1.10000 mark. 

17 Feb 2023 - 09:30- Fixed IncomeData- Source: Newsquawk