EUROPEAN FX UPDATE: Pound underwhelmed post-CPI, Dollar underpinned pre-Powell

Analysis details (10:22)

DXY/GBP/JPY

A somewhat strange reaction to another hotter than forecast UK inflation report as Sterling only knee-jerked higher before shedding all and more of its gains in what seemed to be a realisation of the adverse economic implications from further and perhaps more aggressive BoE tightening. Cable popped just over 1.2800 and then reversed sharply towards 1.2700, while the Eur/Gbp cross rebounded from 0.8526 to within single pips of 0.8600 amidst a marked paring of rate expectations back in favour of a 25 bp hike on Thursday, albeit still not as certain as the probability ahead of the data. Conversely, the Buck regained upside momentum after fading from post-US housing data highs, with the index climbing from a firmer 102.500 base to 102.690 and rebounding strongly vs the Yen in particular as Treasuries retreated and BoJ Board member Adachi stuck to dovish guidance overnight. In short, while inflation has been stronger than expected, it is too early to tweak easy monetary policy and appropriate to continue under the YCC framework. Usd/Jpy jumped from around 141.29 to 142.19 awaiting Fed Chair Powell’s semi-annual testimony part one and several other speakers.

AUD/NZD

The Aussie remained top heavy in the aftermath of not so hawkish as anticipated RBA minutes, a decline in the composite leading index and more pronounced Yuan depreciation, as Aud/Usd peaked circa 0.6800 and retested support into 0.6750, while Aud/Nzd waned within a 1.1016-1.0970 range to keep Nzd/Usd afloat ahead of NZ trade data and the Kiwi above 0.6150 against its US counterpart.

CHF/EUR/CAD

0.9000 continued to offer the Franc psychological support vs Greenback on the eve of the SNB and the Euro maintained 1.0900+ status with tailwinds from Eur/Gbp and Eur/Jpy (latter almost matching Tuesday's new y-t-d peak) rather than remarks from ECB’s Kazimir who said it is uncertain whether the GC will raise rates in September. Elsewhere, the Loonie derived some impetus from relatively stable oil prices in the run up to Canadian new house prices, retail sales and BoC minutes that should be hawkish by definition given the decision to revert from conditional pause to hiking, as Usd/Cad sat tight between 1.3209-46 confines.

SCANDI/EM

The Sek only gleaned a degree of encouragement from an In line with consensus Swedish sa jobless rate as the nsa measure jumped from the prior month, while the Zar was hampered by mostly softer than expected SA inflation readings and the Cnh/Cny by ongoing Chinese economic jitters, as the former slipped below 7.2000 vs the Usd and the latter beneath 7.1975 before recouping some losses.

21 Jun 2023 - 10:22- Research Sheet- Source: Newsquawk