EUROPEAN FX UPDATE: risk-off trade helps Yen evade Greenback clutches

Analysis details (10:00)

DXY/JPY

The Dollar did not dwell too much longer on April’s US CPI data, as safe-haven demand overshadowed the ongoing debate about whether inflation has or has not peaked and finally propelled the index beyond its prior 2022 peak, to 104.440 at best amidst almost all round gains with the exception of the Yen that regained its risk premium and also benefited from further retracement in global bond yields. Usd/Jpy reversed from just above 130.000, through 129.00 and the 21 DMA (128.90 today) on the way to 128.40 irrespective of a dovish BoJ Summary of Opinions that actually reiterated the pros of a weaker Yen.

NZD/AUD

In contrast to the above, stronger 1 year NZ inflation expectations that underpin prospects for further RBNZ tightening could not save the Kiwi from falling sharply due to risk aversion and the Aussie suffered on the back of weakness in underlying commodities alongside Yuan depreciation to levels not seen since late 2020. Nzd/Usd hit new lows under 0.6250 and Aud/Usd sub-0.6900, as the Aud/Nzd cross slipped from around 1.1050 towards 1.1000.

EUR/GBP

Some synergy and sympathy between the Euro and Pound in adversity as both tried to hold round number levels against the Buck, but buckled at 1.0500 and 1.2200 respectively, with Sterling also succumbing to pressure from poor UK data, including a m/m economic contraction in March, wider than forecast trade deficit plus weaker than expected ip and manufacturing output. However, while Eur/Usd probed 1.0450, Cable bounced from circa 1.2180 and Eur/Gbp retreated from 0.8600+ highs, with BoE’s Ramsden outlining that the MPC has more to do in terms of tackling inflation via rate hikes.

CHF/CAD

The Franc held up better than others and continued to defend parity vs its US peer against the supportive yield backdrop, though also derived traction from Eur/Chf recoiling further from recent peaks to test 1.0400, while the Loonie managed to contain losses below 1.3000 vs its US rival in advance of a speech by BoC’s Gravelle.

SCANDI/EM

Deja vu for the Sek and Nok as the former defied broad risk aversion in wake of another acceleration in Swedish inflation that may get more than just a mention from Riksbank Governor Ingves during his address on the economy scheduled for 11.00BST. Elsewhere, losses vs the Usd abound in EM currencies, but eye-catching levels for the Cnh and Cny as noted above, around 6.8245 and 6.7890 respectively following pledges of economic support from the PBoC and Chinese Government overnight. Meanwhile, the Huf had less hawkish guidance to contend with as NBH Deputy Governor Virag said the Bank has gone beyond the phase of aggressive tightening. Ahead, the Mxn will be pinning hopes on the opposite from Banxico after it delivers the 50 bp hike all but two outliers are predicting tonight (no change to +75 bp the range).

12 May 2022 - 10:00- Fixed IncomeData- Source: Newsquawk