EUROPEAN FX UPDATE: Greenback pauses for breath pre-Powell part two

Analysis details (10:30)

DXY

The Dollar extended gains in follow-through trade overnight as currency markets continued to reflect on and re-position for a more hawkish Fed in line with guidance from Chair Powell via his semi-annual testimony to the Senate Banking Committee. Using the index as a proxy, 105.880 represents a fresh 2023 peak and eclipsed the prior y-t-d best from January 6, at 105.630, leaving 106.000 as the next upside target for Buck bulls from a psychological perspective and 106.140-150 beyond that in terms of as technical level in the form of a Fib retracement. However, the DXY topped out awaiting his second appearance in front of the House Financial Services Committee and any potential tweaks in the Q&A, but also looking towards US data for pointers ahead of Friday’s payrolls report, including ADP and JOLTS.

AUD/NZD

No great surprise that the Aussie grasped the opportunity to claw back some with both hands given the magnitude of its fall on Tuesday when a less hawkish RBA hike was compounded by the aforementioned prepared to go faster and higher message from the FOMC head. Moreover, RBA Governor Lowe kept policy options open in commentary, as he pointed out that there will be several data releases before the next Board meeting and if they suggest a pause, we will do that, but if they suggest the need to keep going, then we will do that and will have a completely open mind. Aud/Usd bounced from around 0.6569 to probe 0.6600, while the Kiwi tagged along as Nzd/Usd reclaimed 0.6100+ status and the Aud/Nzd cross meandered within a 1.0810-1.0775 range.

JPY

Although the Greenback eased off best levels and the index slipped to 105.610 at one stage, the Yen remained pressured ahead of the BoJ on the grounds that no shift from the ultra-accommodative stance is anticipated before Governor Kuroda hands over the reins to Ueda in April, at the earliest. Hence, Usd/Jpy hovered near 137.50 between 137.91-09 parameters and mostly above the 200 DMA (137.44).

GBP/CAD/EUR/CHF

All rangy against their US rival, or taking the chance of some respite before Fed Chair Powel speaks again, with the Pound also finding some underlying bids/support into 1.1800 irrespective of dovish-leaning remarks from BoE’s Dhingra (overtightening poses a more material risk at this point, thus a prudent strategy would be to hold policy steady amidst growing signs that external price pressures are easing, and be prepared to respond to developments in price evolution). Meanwhile, the Loonie held a tight 1.3744-73 line pre-BoC and the Canadian-US trade data showdown, with the unconditional pause widely expected, but options still pricing in a 60 pip break-even via implied volatility for the event. Elsewhere, the Euro meandered from 1.0554 to 1.0525 following mixed German macro releases, an ECB insider piece suggesting that hiking by 25 bp could be a compromise (presumably after this month when a half point rise has been flagged consistently) and an outburst from Visco (does not appreciate colleagues statements on future and prolonged increases in interest rates), and the Franc nestled beneath 0.9400 after pretty standard rhetoric from SNB President Jordan (Swiss inflation is low when compared internationally, but above the Bank’s price stability target and Chf appreciation has protected Switzerland from imported inflation. Nevertheless, the SNB can use interest rates and also sell foreign currencies to get the right monetary conditions to achieve price stability, and is ready to do the latter).

SCANDI/EM

The Sek gleaned traction from a hawkish sounding Riksbank member Bremen (inflation is now far too high, still shows no clear signs of abating, so monetary policy needs to be substantially tightened for a significant period), but the Huf weakened as Hungarian CPI and core inflation came out bang in line with consensus, the budget deficit widened appreciably and NBH Governor Matolcys said the 2023 budget is inflationary, and the Zar suffered even though Eskom kept load-shedding at stage 4 instead of level 5 as previously announced.

08 Mar 2023 - 10:30- Fixed IncomeEconomic Commentary- Source: Newsquawk