EUROPEAN FX UPDATE: Greenback grinds back up again after Powell pullback

Analysis details (10:10)

DXY/CHF

The Buck found a base amidst further promising dialogue between US President Biden and House Speaker McCarthy ahead of the next official round of debt ceiling talks, while the index also met underlying bids close to the psychological 103.000 level having retreated further from best levels seen before comments from Fed Chair Powell underpinned expectations of a pause in rates next month and Kashkari said he is will to forego a hike in June as long as guidance does not imply that the tightening cycle is over. The DXY bounced from 101.960 to 103.290 as the Dollar probed resistance at 1.0800 vs the Euro and 138.00 against the Yen, but underperformed relative to the Franc on a mixture of softer Treasury yields and hedging in case no deal on the debt ceiling is forthcoming before the June 1st hard deadline. Indeed, Usd/Chf reversed from just shy of 0.9000 through 0.8975 and Eur/Chf dipped under 0.9700 from 0.9722 regardless of a marked slowdown in Swiss ip or declines in weekly bank sight deposits.

AUD/NZD   

At the other end of the G10 spectrum, the Aussie lagged amidst weakness in base metals either side of 0.6650 vs its US peer and towards the base of a 1.0565-1.0609 range against the Kiwi as Nzd/Usd remained comparatively elevated between 0.6292-63 parameters in the run up to the RBNZ on Wednesday. On that note, a 25 bp hike in the OCR is anticipated, albeit via a close consensus call in line with a narrowly split NZIER Shadow Board (five members seeing a rate increase and the remaining four no change).

JPY/EUR/CAD/GBP

The Yen contained losses beneath 138.00 and tested 137.50 against the Greenback irrespective of much worse than forecast Japanese machinery orders, the Euro likewise on the 1.0800 handle having stalled around 1.0829 against the backdrop of hefty option expiry interest (2 bn between 1.0825-30 and 1.3 bn from 1.0840-50), the Loonie straddled 1.3500 with a lag due to a downturn in crude prices and Sterling was hampered somewhat within 1.2472-15 bounds by an upturn in the Eur/Gbp cross to the brink of 0.8700 from circa 0.8680 at one stage.

SCANDI/EM

Brent’s fade from just below Usd 76.00/brl weighed on the Nok to a degree, the Cny and Cnh were hampered by more Chinese-US angst, this time over China’s Micron ban and the Try only received a partial reprieve via an improvement in Turkish consumer confidence. Conversely, the Czk and Pln were both propped up in wake of CNB and NBP rhetoric (former’s Frait stating that the labour market is overheated and has not cooled down and latter’s Wnorowski saying now is not the time to be talking about rate cuts; wait and see is justified as inflation remains high).

22 May 2023 - 10:10- Fixed IncomeResearch Sheet- Source: Newsquawk