EUROPEAN FX UPDATE: Greenback caught between demand for safety and softer yields

Analysis details (10:21)

DXY

Fed Chair Powell’s eagerly anticipated address at the NY Economic Club prompted plenty of two-way price action, but ultimately little new in terms of guidance as he stuck to familiar lines around the central message that the extent of additional policy firming and how long to keep it restrictive will depend on the data, outlook and balance of risks. Consequently, the Dollar and index regrouped with the latter settling into a narrower 106.170-420 range inside the wider 105.970-106.670 w-t-d extremes marked out on Thursday awaiting more Fed commentary ahead of the pre-FOMC blackout period and while watching breaking Middle East headlines, US Treasury moves (outright and curve profile) along with broad risk sentiment in the interim.

CAD/EUR/CHF/JPY

All narrowly mixed vs the Buck, as the Loonie remained in proximity of 1.3700 pre-Canadian retail sales data and with some traction from firmer WTI crude prices, while the Euro consolidated between 1.0565-95 parameters amidst decent option expiry interest spanning 1.0545-50-1.0600 and beyond (see 7.06BST post on the Headline Feed for details and other major strikes), the Franc hovered just below 0.8900 and the Yen almost lost its battle to stay afloat of 150.00. Indeed, Usd/Jpy bulls seemed to get the green light following latest dovish remarks from BoJ Governor Kuroda who said the Japanese economy is recovering moderately, with exports and output moving sideways and the aim remains to stably and sustainably achieve the 2% inflation target by patiently maintaining current easy policy. However, the round number was respected and likely due to barrier defences on top of circa 1 bn expiries rather than actual intervention.

GBP/AUD/NZD/SEK/NOK

The G10 laggards on a mixture of bearish factors, including macro fundamentals, Central Bank vibes and general risk aversion heading into another weekend of geopolitical uncertainty. Sterling was undermined by all of the above given an unexpected deterioration in GfK consumer sentiment, ONS retail sales missing consensus and BoE Governor Bailey ‘predicting’ a marked cooling in inflation this month. Elsewhere, the Aussie continued to feel the adverse after effects of disappointing payrolls, the Kiwi was hampered a wider NZ trade deficit, albeit marginal, the Swedish Crown was undermined by a surprise rise in unemployment to the extent that a pick-up in Riksbank reserve hedging hardly helped and the Norwegian Krona failed to derive much impetus from a bounce in Brent oil. Cable was heavy on the 1.2100 handle again and the Eur/Gbp cross extended to 0.8740 after Thursday’s 200 DMA breach, Aud/Usd probed 0.6300 from 0.6332 at best, Nzd/Usd drifted down from 0.5853 towards 0.5800, while Eur/Sek and Eur/Nok were both elevated within 11.5874-11.6439 and 11.6229-11.6951 bounds.

EM       

An overriding weaker trend vs the Usd as sentiment continued to sour, and for some currencies it could have been worse without various forms of support, like another suppressed PBoC midpoint reference rate and a huge net liquidity injection after unchanged LPRs, more RBI intervention and likely Turkish state bank buffering in wake of the latest CBRT survey showing upward revisions to estimates for CPI by year end and 12 months ahead.

20 Oct 2023 - 10:21- Fixed IncomeData- Source: Newsquawk