EUROPEAN FX UPDATE: intervention the only form of protection, for some

Analysis details (10:03)

DXY

There were signs of moderation in the language regarding restrictive policy and risks of overtightening from Fed VC Brainard yesterday, but not enough to prevent the Dollar from climbing further almost across the board and the index notching a new recent peak, at 113.500 before running out of impetus. In fact, the Buck could arguably have continued to rise without more physical intervention and the threat of action from the likes of Japan on return from a long holiday weekend to see the Yen approaching y-t-d lows and levels that prompted decisive Usd/Jpy selling by the MoF towards the end of September.

CAD/AUD

The tide turned sharply and abruptly for the Loonie in line with WTI retreating through Usd 90/brl compared to a Usd 93.50+ high on Monday, while the Aussie failed to derive much traction from mixed survey findings overnight as it fell in sympathy with the Yuan that was adversely impacted by tighter Covid controls in Shanghai. However, Usd/Cad waned just above 1.3850 and Aud/Usd found some underlying buying interest around 0.6250, as Usd/Cnh pared back from circa 7.2000 amidst reports of Chinese state bank selling.

GBP/CHF/NZD

In contrast to the above and normal convention, the Pound remains prone to acts of emergency from the BoE on the promise or perception that things must be really bad for the Bank to feel compelled to step in. Hence, Cable probed 1.1000 after a fleeting uptick when it was announced that index-linked Gilts will be bought as a back-stop along with long-dated bonds for a limited period only starting today and ending Friday, and irrespective of UK jobs and earnings data that beat consensus on balance. Elsewhere, the Franc pivoted parity against its US peer and straddled 0.9700 vs the Euro, while the Kiwi was underpinned either side of 0.5550 against the Greenback and regained 1.1300+ status relative to its Antipodean counterpart in wake of a pick-up in NZ electronic card retail sales and reminder from RBNZ Governor Orr in the Annual Report that more needs to be done in terms of tackling inflation and the most effective way is by raising the OCR.

EUR/JPY

The Euro clung to the 0.9700 handle, and this may well have been a function of the aforementioned intervention elsewhere rather than anything Eurozone specific, while the Yen held within a 145.86-50 range following more jawboning from Japanese Chief Cabinet Secretary Matsuno who repeated the familiar mantra about closely watching FX moves with a high sense of urgency, adding that the authorities will take appropriate steps to curb excessive price action.

SCANDI/EM

Brent’s recoil through potentially key technical support in the form of the 200 DMA scuppered the inflation-inspired Nok rebound, while the Huf and Czk were undermined by risk-off sentiment to the extent that stronger than expected Hungarian and Czech CPI metrics hardly provided respite, and the same applied to the Pln with regard to very hawkish remarks from NBP’s Tyrowicz who contended that there is plenty of room for additional rate hikes, the Bank needs to raise rates by several percentage points to 10%+ vs the current 6.75% and inflation will not return to target within two years.

11 Oct 2022 - 10:03- Fixed IncomeEconomic Commentary- Source: Newsquawk