EUROPEAN FX UPDATE: Pound boosted by UK inflation data ahead of the BoE

Analysis details (10:06)

GBP/DXY/EUR

Hot CPI and other price metrics gave Sterling sufficient incentive to retest recent peaks vs the Buck amidst a marked shift in expectations for Thursday’s BoE rate call to virtually 100% for a 25 bp hike and a marginal probability of 50 bp. However, 1.2300 remained elusive and the Pound met resistance against the Euro in the form of the 100 DMA and via relatively hawkish remarks from ECB President Lagarde (Bank is neither committed to hiking nor is it finished with hiking, can see a more prolonged cost-push coming from wage growth and there is no trade off between price and financial stability). This also nudged Eur/Usd up towards its nearest round number, at 1.0800 and applied pressure on the Dollar index within a relatively tight 103.260-102.970 range ahead of the FOMC. On that note, markets expect the Fed to go ahead with a 25 bp tightening move given less stress in the financial sector, but key will be forward guidance and any adjustment to the projected terminal rate plus the tone of Chair Powell’s post-meeting press conference.

AUD/NZD

The Aussie and Kiwi regrouped in advance of the FOMC amidst an ongoing improvement in risk sentiment and the former also encouraged by constructive talks with China on military issues. Aud/Usd probed 0.6700 and Nzd/Usd reclaimed 0.6200+ status as the Aud/Nzd cross faded from just above 1.0800.

CAD/CHF/JPY

Some spillover from Tuesday’s softer than forecast Canadian inflation data for the Loonie that straddled 1.3700 vs its US rival awaiting BoC minutes for independent direction and impetus, while the Franc flitted between 0.9207-47 parameters before the SNB tomorrow when a 50 bp hike is anticipated and the Yen lagged either side of 132.50 on return from Japan’s Vernal Equinox holiday, as the Government cuts its outlook for industrial production for the first time since December last year and slashed its view of corporate profits for the first time since April 2020.

SCANDI/EM

The Nok coped well with a rise in Norway’s LFS jobless rate and the Zar got some respite as Gold stabilised and SA CPI came in firmer than forecast in headline and core terms.

22 Mar 2023 - 10:06- Fixed IncomeData- Source: Newsquawk