EUROPEAN FX UPDATE: Greenback continues to gravitate after FOMC fade

Analysis details (10:41)

DXY

The Buck extended its retreat from post-Fed chair Powell presser peaks before month end and suffered a hangover into February that pushed the index down even further. Initially, the Dollar lost its rebalancing prop when US equities squeezed higher amidst hefty buy orders and then the downward pressure intensified through a raft of commentary from various FOMC officials including 2022 voters and others like Bostic who clarified remarks made about prospects for a 50 bp rate increase by stating that this would not be his preferred option. Looking at DXY moves in more detail, 96.500 is becoming more pivotal following the narrow failure to reach 97.500 and subsequently loss of 97.000 on the way to 96.307 from current 96.725 intraday high. Ahead, Markit’s final US manufacturing PMI, the ISM equivalent, JOLTS and a couple more regional Fed surveys after Monday’s blowout Chicago PMI.

CHF/NZD/AUD

A marked turnaround for the Franc that finds itself on top of the G10 table just a day after more evidence of official intervention via Swiss sight deposit balances at domestic banks and SNB President Jordan turned his attention towards inflation and warned about the need to monitor developments closely. Usd/Chf has recoiled over 100 pips from recent highs above 0.9300 and Eur/Chf has edged back below 1.0400 with little clear direction via a dip in retail sales, decline in consumer confidence or pick up in manufacturing PMI that fell just shy of consensus. Similarly, the Kiwi has unwound some of its underperformance against the Aussie after NZ trade data showing a narrower deficit based on an encouraging rise in exports and the RBA retained dovish guidance on rates following the widely anticipated end of QE. Nzd/Usd is hovering a fraction under 0.6600 and has been above, while Aud/Nzd has pulled back from 1.0750+ and Aud/Usd is capped below 0.7100, albeit well off overnight lows prompted by the RBA maintaining patience while assessing inflation to ensure it is sustainably back in the target zone. Next up for the Kiwi, HLFS jobs metrics and labour cost data for Q4.

GBP/JPY/EUR/CAD     

All up and benefiting from a combination of factors ranging from Greenback weakness, a decent retreat in bond yields, increasingly bullish risk sentiment and independent impulses, such as a certain amount of relief for Sterling that UK PM Johnson has survived more pressure to resign in wake of the critical Gray report. Moreover, the Pound has derived some impetus from an upward revision to the final manufacturing PMI, firmer than forecast BoE mortgage lending and approvals hot on the heels of frothy Nationwide house prices as Cable probes 1.3500 and Eur/Gbp pulls back from beyond 0.8350. Elsewhere, the Yen has bounced well from sub-115.00 following upbeat Japanese data in the form of unemployment and the manufacturing PMI rather than reports suggesting that the BoJ is not likely to respond the recent jump in JGB yields by changing its YCT level, while the Euro is establishing a more solid base having reclaimed 1.1200+ status amidst somewhat mixed Eurozone macro releases and flanked by hefty option expiry interest spanning 1.1215 through 1.1225-30 to 1.1300 (1.25 bn, 3 bn and 1.65 bn respectively). The Loonie is back on the 1.2600 handle regardless of a downturn in WTI and eyeing Canadian monthly GDP before Markit’s manufacturing PMI for further direction.

SCANDI/EM

The aforementioned improved market tone is underpinning the Nok and Sek more so than specifics, as Norway’s manufacturing PMI slipped and an uptick in Sweden is offset by latest dovish inflation assessments from the Riksbank via Governor Ingves. Meanwhile, the Rub is is higher on hope of something constructive from the chat between Russian Foreign Minister Lavrov and US Secretary of State Blinken, but the Try is treading cautiously post-Turkish manufacturing PMI that only just held above the key 50.0 threshold and pre-CPI that could get close to 50%.

01 Feb 2022 - 10:38- Fixed IncomeData- Source: newsquawk