EUROPEAN FX UPDATE: Pound deflated and Yen defeated, but Greenback defensive

Analysis details (10:14)

DXY/GBP/JPY

The Dollar was grinding higher alongside US Treasury yields following a very large clear out of longs attributed to a big bond fund, but also including 2, 5 and a particularly large 10 year note clip. However, the index regained a firmer footing above Tuesday's sub-105.000 session lows between 105.040-260 bounds on the back of a slump in Sterling and the Yen. Cable collapsed in response to much softer than expected UK CPI and other inflation metrics that prompted a marked dovish re-pricing of BoE tightening prospects for Thursday to essentially evens compared to circa 80% pre-data, while Usd/Jpy finally breached barriers plus psychological resistance and exporter offers that were protecting 148.00. The Pound found some underlying support around 1.2335 and ahead of May lows closer to 1.2300, and the Yen contained declines to 148.16 vs a series of troughs set last November spanning 148.38-45. All this, and the Fed still to come before BoE and BoJ tomorrow and Friday respectively.

AUD/EUR/NZD/CHF/CAD  

All maintaining momentum and varying degrees of upside vs the Buck, albeit within recent ranges, as the Aussie kept mostly afloat of 0.6450 amidst a pick-up in broad risk sentiment rather than a downturn in Westpac’s leading index, the Euro hovered below 1.0700 with eyes on almost equidistant and equal size option expiries either side of the round number (1.11 bn and 1.13 bn from 1.0670-80 and 1.0735-50 respectively to be precise), and the Kiwi probed 0.5950 following a marginally narrower than consensus NZ current account deficit. Elsewhere, the Franc meandered from 0.8984 to 0.8965 and hardly reacted to mixed SECO forecasts for 2023 and 2024, and the Loonie unwound post-Canadian inflation data gains between 1.3440-64 parameters as oil came off the boil. Nevertheless, BoC Deputy Governor Kozicki sounded hawkish in advance of minutes as she said recent volatility in headline inflation is not unusual, but the underlying trend shown by core measures is inconsistent with bringing inflation down to the 2% target and the Bank is prepared to hike if required.

SCANDI/EM

The Sek managed to cope with jumps in Swedish jobless rates amidst the improved market mood and took a pre-2024 budget snippet from the Finance Ministry largely in stride (new spending totals Sek 39 bn vs approx Sek 40 bn expected and will prioritise fighting inflation and supporting households/welfare), but the Nok was hampered by a downturn in Brent. Meanwhile, the Zar held steady after in line with consensus headline SA CPI and a slightly firmer core, the Pln overcame weaker than expected Polish PPI and IP as the PM announced and extension to credit holidays for mortgage holders through 2024, and the Brl looked forward to the BCB for independent impetus (50 bp cut in Selic rate unanimously anticipated).

20 Sep 2023 - 10:14- Fixed IncomeData- Source: Newsquawk