EUROPEAN FX UPDATE: Pound downed by UK CPI miss, albeit marginal

Analysis details (10:13)

GBP/DXY/EUR

What a difference a day makes, or in this case a data point, as Sterling finds itself propping up the G10 table having topped the league on Tuesday. The catalyst, slightly softer than forecast inflation readings in stark contrast to yesterday’s all round labour metric beats, including a scorching rise in wages that stoked price fears and BoE rate hike expectations. Indeed, the probability of a 50 bp tightening move jumped to around 38% at one stage, but is now sub-20%, while Cable and Eur/Gbp are also factoring in the latest hawkish Fed and ECB vibes provided by chair Powell and GC member Rehn. In short, the former said the FOMC will not hesitate if they need to move past neutral and will continue raising rates until they see inflation coming down, and the latter concurred that a first hike will likely be delivered this Summer, adding that many colleagues back quick moves. Cable peaked at 1.2501 then lost 1.2400+ status, Eur/Gbp bounced from around 0.8432 towards 0.8490, the Dollar index rebounded from 103.180 to 103.770 and capped Eur/Usd circa 1.0564 before a brief retreat through 1.0500.

NZD/AUD

Cross tides have also turned down under in wake of Aussie wage data coming in a tad below consensus, but perhaps more importantly some distance away from the 1% level that ANZ believes would have been the trigger for the RBA to fire a 40 bp hike next month. Consequently, Aud/Nzd is closer to the lower end of a 1.1023-64 range, Aud/Usd is nearer 0.7000 than 0.7050 and Nzd/Usd is still holding relatively firm around 0.6350 ahead of NZ QI PPI that might provide the Kiwi with some independent impetus.

CAD/CHF   

A pullback in WTI and the generally firmer Greenback undermined the Loonie in advance of Canadian CPI, while the Franc may have lost momentum on technical grounds after narrowing failing to breach resistance at 0.9900 on Tuesday. Usd/Cad rebounded from sub-1.2800 to just over 1.2850 and Usd/Chf towards 0.9990 from 0.9923 or so.

JPY

Continuing the macro theme, less contractionary than feared Japanese Q1 GDP may be a factor behind Yen resilience within a 129.54-128.94 range, but less buoyant risk sentiment and less bear-steepening in US Treasuries are also supportive.

SCANDI/EM

Brent crude’s bigger retracement from fresh peaks hampered the Nok, naturally, while the Zar only got partial relief from marginally firmer elements of SA headline and core inflation prints awaiting retail sales and the SARB tomorrow, and the looks set to extend its bear run and test the resolve of the CBRT/Turkish Finance Ministry if it slides to 16.0000 vs the Usd.

18 May 2022 - 10:13- Fixed IncomeData- Source: Newsquawk