EUROPEAN FX UPDATE: Japan bares teeth to revive Yen after endless jawboning

Analysis details (10:41)

JPY/DXY

Frenetic price action in currency markets following the latest FOMC policy meeting that propelled the Dollar to fresh highs across the board and the index to 111.810 at one stage. To recap, the Fed matched consensus with another 75 bp hike to make it three in a row, but the hawkish surprises came via the dot plots showing a much more elevated path for rates and terminal level. Conversely, the BoJ stuck resolutely to its accommodative stance and Governor Kuroda was even more dovish in the post-meeting press conference, maintaining the need to patiently continue powerful easing, adding that the Bank will not hesitate to ease further if needed and he does not think it necessary to alter forward guidance for 2-3 years. Kuroda also stated that he does not anticipate or expect any government request to tackle Yen weakening less than an hour before Chief Cabinet Secretary Matsuno trotted out all too familiar lines used as a means of verbal intervention and under 2 hours before Vice Minister for Financial Affairs Kanda confirmed market speculation about physical action. Indeed, he said the BoJ and Government sold Usd/Jpy ‘decisively’, and the headline pair receded further from a peak of around 145.90 in response to sub-140.70 lows before bouncing back over 142.00, but leaving the DXY under 111.000 having recoiled to 110.460.

CHF/NOK

The Franc also pared losses, but remained at the bottom of the G10 pile after the SNB hiked 75 bp against market pricing for a full point. Usd/Chf touched 0.9800 from 0.9620 or so and Eur/Chf rebounded towards 0.9700 from 0.9468 even though the Bank said it envisages further tightening and will intervene to curb excess strength or weakness to ensure that inflation returns to target. Elsewhere, the Norges Bank matched expectations for a 50 bp rate rise, but signalled a slowdown in the pace of tightening ahead (25 bp in November likely according to Governor Bache) as it has already hiked 225 bp into restrictive territory. Eur/Nok hardly budged either side of 10.2000 within a wider 10.2500-10.1375 range.

GBP/EUR/AUD/NZD/CAD    

All off worst levels against the Greenback, and largely in slipstream of the Yen, as Cable hovers around 1.1300 between 1.1211-1.1355 extremes ahead of the BoE, Eur/Usd holds around 0.9865 having slumped to 0.9807 and peering back above 0.9900, Aud/Usd reclaims 0.6600+ status, Nzd/Usd bounces from almost 0.5800 to 0.5850+ and Usd/Cad reverses from 1.3544 to almost 1.3450. Note, expiry interest may keep the Euro trapped given a raft of very large, and some huge options rolling off from the 0.9800 strike to 1.0050, and stacked from 0.9900.

EM

The aforementioned Japanese and independent FX intervention helped several currencies claw back even heavier declines vs the Usd, including monetary tightening in the case of the Idr, Twd, Php and Hkd, while the Zar will be looking for support from the SARB later.

22 Sep 2022 - 10:41- Fixed IncomeEconomic Commentary- Source: Newsquawk