EUROPEAN FX UPDATE: Pound perky ahead of Hunt statement

Analysis details (09:05)

USD, JPY

The DXY is once again on the backfoot, albeit marginally so, with the Greenback still unable to stage anything that resembles a meaningful recovery. After venturing to a high of 106.61 during APAC hours the USD lost ground in early European trade with a current base of 106.08. The pullback in the USD appeared to coincide with a pick-up in stocks, which itself had no clear driver, if the DXY breaches 106 to the downside, yesterday’s low of 105.85 will come into view with Tuesday’s weekly low of 105.30 thereafter. Once again, it’s a busy speaker slate with voters Bullard, Bowman, Mester due, as well as 2023 voter Kashkari and 2024 voter Bostic. As it stands, a 50bps Fed hike in December is priced at around 93% and therefore any commentary alluding to such a move is unlikely to have too much sway on the USD, instead, the focus for the market is on how much further the Fed is willing to push rates in 2023. The US data slate sees weekly initial jobless claims data, housing starts and building permits for October, the Philly Fed regional manufacturing survey for November (recall, the Empire Fed equivalent was a positive surprise this week). 

GBP

The pound is likely to be a key focus for today’s session with Chancellor Hunt’s Autumn Statement due at 11:30GMT, in which he will attempt to plug the UK’s circa GBP 50bln black hole in its finances. Hunt is set to deliver a combination of tax hikes and spending reductions with the former ensuring that “everyone” in the UK will be paying higher taxes. From a markets perspective, focus will be on what the measures will do the inflationary outlook and how tough they are on the growth landscape. On the latter, with the BoE already forecasting a recession, a too heavy-handed approach from Hunt could see the narrative shift from Hunt getting the UK’s finances in order to placing too much pressure on the UK economy. As it stands, the pound is perky and one of the better performers in the G10 space after cable reclaimed 1.19 and took out yesterday’s peak of 1.1942. If 1.20 gives way, Tuesday’s weekly peak of 1.2029 will come into view.

EUR

EUR/USD saw a brief foray above 1.04 in early European trade before slipping back below the level as upside was hampered by a move lower in EUR/GBP. Focus for the EUR part of the equation remains on how the ECB will approach the December meeting. On which, recent source reporting via Bloomberg suggests officials favour a 50bps rate hike in December rather than 75bps with initial discussions amongst policymakers not showing momentum for 75bps. Indeed, none of the hawks on the GC have publicly made the case for a 75bps move and as such, markets assign a 66% chance of a 50bps hike. ING posits “with a view to the December meeting we caution that the ECB’s hawks might ask for more progress on quantitative tightening in return for less aggressive action on rates. The tightening of monetary policy could thus just rely to a growing degree on the balance sheet.” From a technical perspective, technicians are mindful of EUR/USD’s inability to close above its 200DMA, currently at 1.0417 after advancing to a high of 1.0438 yesterday.

CNY, AUD

USD/CNY continued the reversal of its recent downtrend overnight with the 15th Nov low of 7.0237 vs. today’s peak of 7.1421 suggesting that the market doesn’t yet have the appetite for a test of 7.00 to the downside. Today’s price action coincided with a pullback in Chinese equities with focus on commentary from the People's Daily which suggested China is able to achieve COVID Zero as mainland cases rose at the fastest pace since April. AUD is softer vs. the USD with the pair unable to benefit from better-than-expected employment data with the release unlikely to have too much sway on the RBA who are set to deliver a 25bps hike in December. From a technical perspective, focus is on whether AUD/USD is able to hold above its 100DMA at 0.6695.

17 Nov 2022 - 09:04- Fixed IncomeData- Source: Newsquawk