EUROPEAN FX UPDATE: Greenback extends bull run largely on safe haven grounds

Analysis details (10:23)

DXY

The Dollar and index gathered even more upside momentum irrespective of FOMC minutes broadly underpinning market expectations skewed towards a June pause and Fitch placing the US on CWN, or perhaps partly on the back of the latter as short term rates spike on the threat of default and ratings downgrade. The DXY breached 104.000 and probed a key Fib retracement level at 104.090 on the way to reaching 104.160 from a 103.840 low and the Buck was also boosted by further depreciation in currencies beyond the basket including the Kiwi and Yuan. 

NZD

Comments from RBNZ Governor Orr overnight underscored guidance after Wednesday’s final hike in the cycle, as he reiterated that rates are restrictive and well above neutral, while adding that economic growth and inflation are weaker than expected, although the Bank can change this assessment if needed as new data emerges. Hence, the Kiwi remained weak and Nzd/Usd slipped to 0.6077 at one stage.

EUR/AUD

The Euro was undermined by an unexpected Q1 German GDP contraction and faded from 1.0750+ vs the Greenback before finding some support around 1.0715, while the Aussie hovered below 0.6550 against its US rival in sympathy with the Yuan and only a gentle tailwind from the Aud/Nzd cross holding above 1.0700. However, Eur/Usd had decent option expiry interest at the 1.0765 strike (1 bn) to keep tabs on and Aud/Usd stayed within sight of a Fib at 0.6747 ahead of US data, more Fed speakers and daily talks aimed at resolving the debt ceiling deadlock.

JPY/CHF/GBP/CAD

Another day and another new 2023 low for the Yen even before BoJ Governor Ueda repeated that the Bank will patiently maintain accommodative monetary policy given that it is still some way from achieving the inflation target stably and sustainably. Usd/Jpy cleared a Fib at 139.58 and only stalled circa 139.70 approaching big 140.00 barriers and presumably heavy export supply to counter import demand evident on pull-backs. Elsewhere, the Franc straddles 0.9050, the Pound pivoted 1.2350 with some assistance from a firmer rebound in Gilt yields relative to core bond peers and downside in Eur/Gbp through the 10 DMA (0.8687), and the Loonie rotated either side of 1.3600.

SCANDI/EM

The Sek seemed to be more concerned by the Swedish Debt Office announcing a gradual increase on Government borrowing via bonds from August than content with a considerably narrower 2023 budget deficit forecast or lower than consensus jobless rates, sa measure especially, but the Nok gleaned some contraction from a lower Norwegian LFS unemployment rate. Meanwhile, the Zar was on the backfoot pre-SARB and weaker than the Try pre-CBRT as the latter took note of reports that Turkish banks were asked to buy Usd debt to support default swaps, while the Czk outperformed following a meeting between Czech PM Fiala and CNB Governor Michl that culminated in a agreement on the need to continue taking steps to combat inflation.

25 May 2023 - 10:23- Fixed IncomeData- Source: Newsquawk