EUROPEAN FX UPDATE: Greenback grinds back up again after brief retreat

Analysis details (10:14)

DXY/EUR/JPY

The Dollar and index suffered a setback on Wednesday, but nowhere near the magnitude of last week’s post-FOMC relapse that saw the latter slide to 106.61 from a 107.11 peak in response to what was deemed to be a dovish press conference from Fed Chair Powell, on balance. Indeed, the DXY managed to settle just above 105.50 within a 105.87-44 range even though US Treasuries continued to bull-flatten and the 10 year yield probed the psychological 4.5% level irrespective of a so-so T-note auction that priced almost 2 bp higher. Moreover, the aforementioned close was positive from a technical perspective as the index held fractionally above a pivotal Fib retracement and kept its recovery on track. Consequently, the Buck stopped the rot against the Euro and maintained upward momentum vs the Yen with little deviation via comments from the ECB or BoJ. To recap, de Guindos said the Bank needs to be prudent and cautious due to risks over the inflation outlook over the next few months, while Governor Ueda repeated that the Bank will keep YCC and NIRP in place until necessary, to hit the 2% inflation target in a sustained manner amidst a raft of remarks - see 7.05GMT, 8.37GMT and 8.43GMT posts on the Headline Feed for further details. Eur/Usd was contained between 1.0715-1.0695 confines, Usd/Jpy mostly elevated within 150.78-151.09 bounds and both pairings conscious of more hefty option expiry interest given 2.1 bn rolling off at 1.0700 and 1.3 bn at 151.00 respectively. Meanwhile, the DXY meandered from 105.46 to 105.65 awaiting jobless claims and more Fed rhetoric, including Powell at the IMF.

GBP

Sterling seemed destined for another UK debt-related tumble before Gilts reversed course and the short end of the curve retraced more gains on the back of latest comments from BoE’s Pill. In short, he seemed to pull back from ‘guidance’ for a policy pivot around the middle of next year and stressed the importance of maintaining restrictive rates for an extended period instead (see 8.45GMT and 9.21GMT headlines for more). Cable popped back over 1.2300 from 1.2271 and the Eur/Gbp cross retreated from 0.8719 to just under 0.8700.

NZD/AUD/CAD/CHF

The Kiwi’s revival looked more corrective than fundamental following its downturn in line with NZ inflation expectations yesterday, but Aud/Nzd tailwinds were supportive as the Aussie lagged in sympathy with the Yuan in wake of softer than forecast Chinese inflation metrics. Hence, Nzd/Usd fastened its grasp on the 0.5900 handle as Aud/Nzd drifted down from 1.0842 to 1.0794 and Aud/Usd loosened its grip of 0.6400. Elsewhere, scant solace for the Loonie from a tame rebound in crude prices or impetus from hawkish content in the BoC minutes, like the line reading that some members of the GC felt the rate would more likely than not need to increase further, as Usd/Cad continued to straddle 1.3800. Last, but not least, the Franc pivoted 0.9000 in the face of retracement in bonds and reversion to curve steepening, but Usd/Chf was capped by 1.3 bn expiries spanning 0.9010-25 pre-SNB’s Schlegel and Moser.

SCANDI/EM

Not much reaction to the Riksbank’s FSR, though the Sek outperformed the Nok and Eur in advance of speeches from Governor Thedeen and Norges Bank’s Bache, while the Pln and Mxn both sat relatively tight ahead of the NBP presser and Banxico rate decision, and the Cny/Cnh were undermined by China’s CPI data missing consensus.

09 Nov 2023 - 10:13- Fixed IncomeData- Source: Newsquawk