EUROPEAN FX UPDATE: Pound drops and pops amidst pension palava

Analysis details (10:37)

GBP

Sterling remained extremely volatile in wake of BoE Governor Bailey’s blunt response to pleas from the UK’s pension fund community to maintain support longer than it currently intends, as media reports intimated that his warning about three more days to get their positions in order may not be a finite ultimatum. However, a spokesman for the Bank subsequently chimed with the words from the horse’s mouth and this pushed the Pound back down from its recovery peaks before separate speculation over the Government ‘ditching’ or ‘deferring’ more of the tax cut proposals that were the cause of the latest leg of the debt market rout. Cable duly rebounded towards the top of its 1.1082-1.0924 range, having bottomed at a Fib coincidentally, while Eur/Gbp reversed from circa 0.8867 to sub-0.8800.

DXY/JPY

The Dollar was almost sidelined and certainly overshadowed by all the whipsaw moves in Sterling, but the index did forge a minor new high for the recent run, at 113.590 before fading again and retesting bids/support into 113.000 ahead of US PPI data as a precursor for CPI tomorrow, more Fed speakers and the FOMC minutes. Nevertheless, the Buck extended its bull run against the Yen to a fresh 2022 and multi-year best beyond prior Japanese intervention levels and 146.00, to 146.43, with little resistance from officials other than the usual verbal interjections, this time from Finance Minister Suzuki.

NZD/CHF/CAD/EUR

All firmer against the Greenback, and thanks in part to the Pound’s partial revival, but the Kiwi also maintained an element of independent impetus and indirect thrust from Aud/Nzd cross tailwinds. Similarly, the Franc benefited from another downturn in Eur/Chf and softer UST yields, while the Loonie pared losses amidst relative stability in WTI and the Euro gleaned traction from a reversal in EGBs, stronger than forecast Eurozone IP and perhaps the proximity of decent option expiry interest between 0.9700-05 in 1.92 bn. Nzd/Usd hovered just under 0.5600, Usd/Chf straddled 0.9950, Usd/Cad pivoted 1.3800 and Eur/Usd continued to rotate around 0.9700.

AUD      

Latest comments from RBA Assistant Governor Ellis kept the Aussie capped and focused on the neutral rate that is a guide rail for policy not a destination, adding that the real neutral rate is uncertain, but should be positive even if low which implies a nominal level of at least 2.5% for Australia, while also noting that policy is no longer in an expansionary place. Aud/Usd meandered either side of 0.6250 and Aud/Nzd slipped a tad further beneath 1.1200 within a 1.1233-1.1186 range.

SCANDI/EM

The Sek clawed back declines from almost 11.0400 vs the Eur as 1 year Swedish money market expectations ticked up and the Cnh/Cny from around 7.1900 against the Usd when Chinese stocks rebounded quite sharply, but the Huf did not get any help via the NBH announcing another liquidity draining tender and the Try was largely oblivious to claims by the CBRT Deputy Governor that the current policy mix does not add to inflationary pressures, as Turkish IP came in considerably weaker than anticipated.

12 Oct 2022 - 10:37- Fixed IncomeData- Source: Newsquawk