EUROPEAN FX UPDATE: Norges Bank boosts Crown, but SNB lets Franc down

Analysis details (10:34)

NOK/CHF

The Norges Bank exceeded market expectations in more ways than one as the key policy rate was raised by 50 bp rather than 25 bp, to 3.75% and the Bank said further tightening is likely in August based on its current assessment of the outlook and balance of risks. Moreover, the repo path was revised considerably higher to a peak at 4.25% compared to the prior 3.6% alongside marked upgrades to CPI-ATE projections over the entire forecast horizon - see 9.00 BST post on the Headline Feed for details, analysis and the initial market response. In further hawkish reaction, Eur/Nok tested support into 11.5300 from a circa 11.7200 intraday peak, and in stark contrast to Eur/Chf that climbed from just shy of 0.9800 to 0.9837 in tandem with Usd/Chf rising to 0.8955 from 0.8908 after the SNB hiked 25 bp to 1.75%. In fairness, this was in line with the consensus per surveyed analysts, but short of the half point largely priced in and the Bank also maintained guidance that additional rate increases cannot be ruled out, albeit at a more gradual pace - more from the accompanying statement and updated inflation estimates available at 8.30 BST.

DXY/EUR

102.000 and 1.1000 were pivotal for the Dollar index and Eur/Usd as the major basket component, as the Buck attempted to arrest its midweek retreat in wake of dovish Fed commentary via Goolsbee and Bostic (former undecided about reverting to hike mode in July and latter contending that rates should remain at the current level for the rest of 2023). However, the Euro also faced hefty option expiry interest to go with psychological resistance given 1.2 bn rolling off between 1.0990-1.1005 at the NY cut. In terms of fundamental impulses or factors, US data loomed in the form of jobless claims and existing home sales amidst more scheduled Fed and ECB speakers.

NZD/CAD/GBP

All firmer against the Greenback, as the Kiwi pivoted 0.6200 irrespective of somewhat mixed NZ trade data, the Loonie straddled 1.3150 following BoC minutes highlighting why the Bank opted to resume tightening after pausing earlier in the year (namely, the GC felt that Q2 growth was likely to be stronger than forecast in April and agreed to assess the need for future rate hikes based on data), and the Pound meandered from 1.2740 to 1.2787 awaiting the BoE at midday for confirmation of either a 25 bp or 50 bp hike. Moreover, Sterling remained prone to the tone of the accompanying statement, MPC minutes and vote split to lesser extent in context of clues about the policy outlook and whether too much has already been factored in. Note, implied volatility indicated a wide 96 pip break-even in Cable over the highly uncertain BoE event.

JPY/AUD/SEK

The Yen continued to track Treasuries relative to JGBs following another BoJ official reading from the dovish script, with Usd/Jpy propped within a 141.62-142.05 range, the Aussie lagged again in the face of ongoing risk aversion, albeit still holding above 0.6750 after another reversal from 0.6800+, and the Swedish Crown underperformed due to Nok/Sek headwinds even though Nordea lifted its Riksbank rate view to a 4% terminal level from 3.75% previously and rolled back cuts.

EM

7.2000 provided more underlying support for the Cnh vs the Usd and the Try kept its head above record lows in advance of the CBRT that is expected to revert to tightening with a big bang, but the Mxn was more cautious pre-Banxico on the basis that no change in rates is anticipated.

22 Jun 2023 - 10:34- Fixed IncomeResearch Sheet- Source: Newsquawk