EUROPEAN FX UPDATE: Riksbank ups the ante with a full point hike

Analysis details (10:40)

SEK

The Swedish Crown was flagging near recent lows against the Euro and Dollar before the Riksbank delivered a hawkish surprise by raising rates a bigger than expected 100 bp (vs +75 bp consensus) and guiding towards further tightening in the cycle to a peak around 2.5% from the current 1.75%. The Bank also fine tuned its QE remit to end purchases by year end and reaffirmed its commitment to getting inflation back down to target. Eur/Sek knee-jerked to just under 10.7600 from a circa 10.8225 peak and Usd/Sek to around 10.6810 from 10.8030 or so, but both pairs bounced firmly in the face of souring risk sentiment, and with the Fed due to kick off its latest 2-day policy meeting later today.

DXY

Aside from briefly paring gains against the Krona, the Buck slipped and turned more mixed vs other major and EM rivals T-1 to the FOMC. The index descended into a lower range either side of 109.500 having topped 110.000 on Monday, albeit retaining an underlying bid within 109.350-860 confines. Ahead of the Fed that is expected to keep hiking at a 75 bp pace in wake of another hot US CPI report, housing data is due (starts and building permits) and could provide some interim direction. 

NZD/AUD/JPY

The Kiwi remained under pressure and extended its decline against the Greenback to the low 0.5900 zone, while sliding through 1.1300 vs the Aussie even though Aud/Usd drifted down from just shy of 0.6750 to probe 0.6700 following RBA minutes underlining that the Board looked at 25 bp as an option before deciding to stick to 50 bp increments at the last policy meeting. Elsewhere, the Yen failed to glean much impetus from firmer than Japanese inflation metrics on the premise that the BoJ is unlikely to budge from its accommodative stance this week, with Usd/Jpy hovering near the apex of a 143.75-142.93 band.

CHF/CAD/NOK/EUR

Another spike in bond yields kept the Franc suppressed rather than a slightly narrower Swiss trade surplus or mixed Government projections for GDP and CPI (former downgraded and latter vice-versa), while the Loonie lost some recovery momentum awaiting Canadian inflation readings, the Norwegian Crown slipped ahead of the Norges Bank on Thursday and the Euro ran into resistance around 1.0050 amidst conflicting Eurozone macro releases (German PPI extremely hot, but EZ current account balances swinging into hefty deficits). Usd/Chf hovered over 0.9650, Usd/Cad beneath 1.3300, Eur/Nok around 10.2500 and Eur/Usd close to parity.

GBP

The G10 outlier and sole currency to keep pace with its US peer as Cable retained 1.1400+ status on return from Monday’s UK holiday to mark the occasion of Queen Elizabeth 2nd’s state funeral, and with attention turning to fiscal and monetary policy via the new PM, Chancellor and BoE through the course of the shortened week.

EM

Mild outperformance in the Huf after reports that Hungary will adhere to EU rules of law for fear of losing access to funding, but the Try weakened further after a senior Turkish Government said intervention to curb stock market declines is not in the offing and the Cny/Cnh retreated after the PBoC left LPRs unchanged.

20 Sep 2022 - 10:39- Fixed IncomeData- Source: Newsquawk